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 August 3, 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 August 3, 1997: 12,649,128
Par Value: $.05
INDEX TO FORM 10-Q
August 3, 1997
Part I - Financial Information.
Page
- -------------------------------------------------
Item 1. Consolidated Financial Statements:
Statements of Income--Three Months Ended I-1
August 3, 1997 and July 28, 1996
Balance Sheets--August 3, 1997, July 28, 1996 and April 27, 1997 I-2
Statements of Cash Flows---Three Months I-3
ended August 3, 1997 and July 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 6. Exhibits and Reports on Form 8-K II-1-II-6
Signatures 11-7
CULP, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 3, 1997 AND JULY 28, 1996
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
Amounts Percent of Sales
August 3, July 28, % Over
1997 1996 (Under) 1997 1996
---- ---- ------- ---- ----
Net sales $ 99,498 90,529 9.9 % 100.0 % 100.0 %
Cost of sales 82,765 74,609 10.9 % 83.2 % 82.4 %
Gross profit .............. 16,733 15,920 5.1 % 16.8 % 17.6 %
Selling, general and
administrative expenses 10,916 10,864 0.5 % 11.0 % 12.0 %
Income from operations 5,817 5,056 15.1 % 5.8 % 5.6 %
Interest expense 1,280 1,182 8.3 % 1.3 % 1.3 %
Interest income (90) (57) ** % (0.1)% (0.1)%
Other expense (income), net 242 395 (38.7)% 0.2 % 0.4 %
Income before income taxes 4,385 3,536 24.0 % 4.4 % 3.9 %
Income taxes * 1,535 1,326 15.8 % 35.0 % 37.5 %
----- ----- ------ ------ ------
Net income $ 2,850 2,210 29.0 % 2.9 % 2.4 %
====== ===== ====== ====== ======
Average shares outstanding 12,631 11,297 11.8 %
Net income per share $0.23 $0.20 15.0 %
Dividends per share $0.0350 $0.0325 7.7 %
* Percent of sales column is calculated as a % of income before income taxes.
** Measurement is not meaningful.
CULP, INC.
CONSOLIDATED BALANCE SHEETS
AUGUST 3, 1997, JULY 28, 1996 AND APRIL 27, 1997
Unaudited
(Amounts in Thousands)
Amounts Increase
August 3, July 28, (Decrease) April 28, * April 27,"
1997 1996 Dollars Percent 1996 1997
Current assets
Cash and cash investments $ 1,843 1,709 134 7.8 % 498 830
Accounts receivable 54,086 42,262 11,824 28.0 % 52,038 56,691
Inventories 60,715 51,676 9,039 17.5 % 47,395 53,463
Other current assets 6,126 3,911 2,215 56.6 % 4,167 5,450
Total current assets 122,770 99,558 23,212 23.3 % 104,098 116,434
Restricted investments 8,186 5,244 2,942 56.1 % 5,274 11,018
Property, plant & equipment, net 97,128 78,292 18,836 24.1 % 76,961 91,231
Goodwill 22,111 22,720 (609) (2.7)% 22,871 22,262
Other assets 3,124 2,469 655 26.5 % 2,440 3,007
----- ----- --- ------ ----- -----
Total assets $ 253,319 208,283 45,036 21.6 % 211,644 243,952
========== ======= ====== ==== ======= =======
Current Liabilities
Current maturities of long-term debt $ 100 7,100 (7,000) (98.6)% 7,100 100
Accounts payable 20,154 24,233 (4,079) (16.8)% 27,308 29,903
Accrued expenses 11,972 13,295 (1,323) (10.0)% 12,564 15,074
Income taxes payable 1,575 1,295 280 21.6 % 197 1,580
----- ----- --- ------ --- -----
Total current liabilities 33,801 45,923 (12,122) (26.4)% 47,169 46,657
Long-term debt 96,016 70,916 25,100 35.4 % 74,941 76,541
Deferred income taxes 9,965 8,088 1,877 23.2 % 8,088 9,965
----- ----- ----- ------ ----- -----
Total liabilities 139,782 124,927 14,855 11.9 % 130,198 133,163
------- ------- ------ ------ ------- -------
Shareholders' equity 113,537 83,356 30,181 36.2 % 81,446 110,789
- -------------------- ------- ------ ------ ------ ------ -------
Total liabilities and
shareholders' equity $ 253,319 208,283 45,036 21.6 % 211,644 243,952
========== ======= ====== ==== ======= =======
Shares outstanding 12,650 11,303 1,347 11.9 % 11,290 12,609
====== ====== ===== ==== ====== ======
Derived from audited financial statements.
* Derived from audited financial statements.
CULP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 3, 1997 AND JULY 28, 1996
(Amounts in Thousands)
THREE MONTHS ENDED
------------------
Amounts
-------
August 3, July 28,
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 2,850 2,210
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 3,256 3,144
Amortization of intangible assets 181 198
Provision for deferred income taxes 0 0
Changes in assets and liabilities:
Accounts receivable 2,605 9,776
Inventories (7,252) (4,281)
Other current assets (676) 280
Other assets (147) (76)
Accounts payable (5,852) 131
Accrued expenses (2,923) 731
Income taxes payable (5) 1,098
--- -----
Net cash provided by (used in) operating activities (7,963) 13,211
------- ------
Cash flows from investing activities:
Capital expenditures (9,153) (4,475)
Purchases of restricted investments (8,590) (53)
Purchase of investments to fund deferred compensation liability 0 0
Sale of restricted investments 11,422 59
------ -------
Net cash used in investing activities (6,321) (4,469)
Cash flows from financing activities: ------ ------
Proceeds from issuance of long-term debt 19,500 0
Principal payments on long-term debt (25) (4,025)
Change in accounts payable-capital expenditures (3,897) (3,206)
Cash dividends paid (443) (368)
Proceeds from common stock issued 162 68
------ ------
Net cash provided by (used in) financing activities 15,297 (7,531)
------ ------
Increase (decrease) in cash and cash investments 1,013 1,211
Cash and cash investments at beginning of period 830 498
----- ------
Cash and cash investments at end of period $ 1,843 1,709
====== ======
Culp, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands, except per share data)
Capital
Contributed Total
Common Stock in Excess Retained Shareholders'
Shares Amount of Par Value Earnings Equity
- ---------------------------------------------------------------------------------------------------------------------
Balance, April 28, 1996 11,290,300 $ 565 $ 16,878 $ 64,003 $ 81,446
Proceeds from public offering
of 1,200,000 shares 1,200,000 60 16,235 16,295
Cash dividends (1,513) (1,513)
($0.13 per share)
Net income 13,770 13,770
Common stock issued in
connection with stock
- ---------------------------------------------------------------------------------------------------------------------
option plan 118,459 5 786 791
Balance, April 27, 1997 12,608,759 $ 630 $ 33,899 $ 76,260 $ 110,789
Cash dividends
($0.035 per share) (443) (443)
Net income 2,850 2,850
Common stock issued in
connection with stock
option plans 40,969 2 339 341
- ---------------------------------------------------------------------------------------------------------------------
Balance, August 3, 1997 12,649,728 $ 632 $ 34,238 $ 78,667 $ 113,537
=====================================================================================================================
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 1997 have been reclassified to
conform with the fiscal year 1998 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 three months ended August 3, 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):
- ------------------------------------------------------------------------
August 3, 1997 April 27, 1997
- ------------------------------------------------------------------------
Customers $ 56,108 $58,568
Allowance for doubtful accounts (1,344) (1,500)
Reserve for returns and allowances ( 678) (377)
- ------------------------------------------------------------------------
$ 54,086 $56,691
========================================================================
3. Inventories
Inventories are carried at the lower of cost or market. Cost is
determined for substantially all inventories using the LIFO (last-in,
first-out) method.
A summary of inventories follows (dollars in thousands):
- ------------------------------------------------------------------------
August 3, 1997 April 27, 1997
- ------------------------------------------------------------------------
Raw materials $ 37,941 $ 32,025
Work-in-process 4,255 4,627
Finished goods 22,113 20,212
- ------------------------------------------------------------------------
Total inventories valued at FIFO cost 64,309 56,864
Adjustments of certain inventories to the
LIFO cost method (3,594) (3,401)
- ------------------------------------------------------------------------
$ 60,715 $ 53,463
========================================================================
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):
- ------------------------------------------------------------------------
August 3, 1997 April 27, 1997
- ------------------------------------------------------------------------
Accounts payable-trade $ 18,304 $ 24,156
Accounts payable-capital expenditures 1,850 5,747
- ------------------------------------------------------------------------
$ 20,154 $ 29,903
========================================================================
6. Accrued Expenses
A summary of accrued expenses follows (dollars in thousands):
- ------------------------------------------------------------------------
August 3, 1997 April 27, 1997
- ------------------------------------------------------------------------
Compensation and benefits $ 7,807 $ 10,217
Other 4,165 4,857
- ------------------------------------------------------------------------
$ 11,972 $ 15,074
========================================================================
7. Long-term Debt
A summary of long-term debt follows (dollars in thousands):
- ------------------------------------------------------------------------
August 3, 1997 April 27, 1997
- ------------------------------------------------------------------------
Industrial revenue bonds and other obligations $ 40,116 $ 31,641
Revolving credit facility 52,000 41,000
Revolving line of credit 4,000 4,000
- ------------------------------------------------------------------------
96,116 76,641
Less current maturities (100) (100)
- ------------------------------------------------------------------------
$ 96,016 76,541
========================================================================
On April 23, 1997, the company entered into a revolving credit
agreement (the "Credit Agreement") providing for a five-year unsecured
multi-currency revolving credit facility with a syndicate of banks in
the United States and Europe. The Credit Agreement provides for a
revolving loan commitment of $125,000,000 which declines $5,000,000 at
each of four annual dates beginning in April 1998. The agreement
requires payment of a quarterly facility fee in advance.
The company has a $4,000,000 revolving line of credit which expires
on August 31, 1998 and will automatically be extended for an additional
three-month period on each November 30, February 28, May 31, and August
31 unless the bank notifies the company that the line of credit will
not be extended.
On July 17, 1997, the company obtained $8,500,000 of new industrial
revenue bond (IRB) financing related to the expansion of its plant and
equipment at its Lumberton, North Carolina facility. The final
maturity of this IRB is the year 2014. The remaining IRBs are
substantially due in one-time payments at various dates from 2008 to
2013 and are collateralized by restricted investments of $8,186,000 and
letters of credit for $41,341,000 at August 3, 1997.
The company's loan agreements require, among other things, that the
company maintain compliance with certain positive and negative
financial covenants. At August 3, 1997, the company was in compliance
with these required financial covenants.
At August 3, 1997, the company had three interest rate swap
agreements with a bank in order to reduce its exposure to floating
interest rates on a portion of its variable rate borrowings. The
following table summarizes certain data regarding the interest rate
swaps.
notational amounts interest rate expiration date
$15,000,000 7.3% April 2000
$ 5,000,000 6.9% June 2002
$ 5,000,000 6.6% July 2002
The company believes it could terminate these agreements as of
August 3, 1997 for approximately $338,000. Net amounts paid under
these agreements increased interest expense by approximately $60,000 in
1998 and $92,000 in 1997. Management believes the risk of incurring
losses resulting from the inability of the bank to fulfill its
obligation under the interest rate swap agreements to be remote and
that any losses incurred would be immaterial.
The principal payment requirements of long-term debt during the
next five years are: 1998 - $75,000; 1999 - $4,075,000; 2000 -
$200,000; 2001 - $200,000; and 2002 - $52,154,000.
8. Cash Flow Information
Payments for interest and income taxes during the period were
(dollars in thousands)
- ------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------
.
Interest $ 1,231 $ 1,006
Income taxes 445 228
========================================================================
9. Foreign Exchange Forward Contracts
The company generally enters into foreign exchange forward and
option contracts as a hedge against its exposure to currency
fluctuations on firm commitments to purchase certain machinery and
equipment and raw materials. Machinery and equipment and raw material
purchases hedged by foreign exchange forward contracts are valued by
using the exchange rate of the applicable foreign exchange forward
contract. The company had approximately $1,214,000 of outstanding
foreign exchange option contracts as of August 3, 1997 (denominated in
Belgian francs). The contracts outstanding at August 3, 1997 mature
at various dates in fiscal 1998.
10. Subsequent Event
On August 5, 1997, the Company completed the acquisition of the
business and certain assets relating to the upholstery fabric
businesses operating as Phillips Weaving Mills, Phillips Velvet Mills,
Phillips Printing and Phillips Mills. These operating units were
purchased from Phillips Industries, Inc., a privately owned corporation
based in High Point, North Carolina. Based on the terms of the
definitive asset purchase agreement, the transaction is valued for
accounting and reporting purposes at approximately $36 million
(including cash, retirement of debt and a non-compete agreement) under
generally accepted accounting principles. Terms of the purchase also
include additional compensation contingent upon attaining specified
future growth objectives and an option for 100,000 shares of the
Company's common stock.
CULP, INC.
SALES BY PRODUCT CATEGORY/BUSINESS UNIT
FOR THREE MONTHS ENDED AUGUST 3, 1997 AND JULY 28, 1996
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
Amounts Percent of Total Sales
------- ----------------------
August 3, July 28, % Over
Product Category/Business Unit 1997 1996 (Under) 1997 1996
- ------------------------------ ---- ---- ------- ---- ----
Upholstery Fabrics
Culp Textures $ 21,693 20,801 4.3 % 21.8 % 23.0 %
Rossville/Chromatex 18,121 18,165 (0.2)% 18.2 % 20.1 %
------ ------ ------ ------ ------
39,814 38,966 2.2 % 40.0 % 43.0 %
Velvets/Prints 38,397 34,867 10.1 % 38.6 % 38.5 %
------ ------ ------ ------ ------
78,211 73,833 5.9 % 78.6 % 81.6 %
Mattress Ticking
Culp Home Fashions 21,287 16,696 27.5 % 21.4 % 18.4 %
------ ------ ------ ------ ------
* $ 99,498 90,529 9.9 % 100.0 % 100.0 %
======= ====== === ===== =====
*U.S. sales were $74,407 and $70,556 for the three months of fiscal 1998 and
fiscal 1997, respectively;
The percentage increase in U.S. sales was 5.5 % for the three months.
"*US. Domestic sales were $79,304 and $71,112 for the three months of fiscal
1997 and fiscal 1996, respectively;
and $149,860 and $129,025 for the six months of fiscal 1997 and fiscal 1996,
respectively. The percentage increases in U.S. Domestic sales was 11.5% for the
three months and 16.1% for the six months.
CULP, INC.
INTERNATIONAL SALES BY GEOGRAPHIC AREA
FOR THREE MONTHS ENDED AUGUST 3, 1997 AND JULY 28, 1996
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
------------------------------
Amounts Percent of Total Sales
------- ----------------------
August 3, July 28, % Over
Geographic Area 1997 1996 (Under) 1997 1996
- --------------- ---- ---- ------- ---- ----
North America (Excluding USA) $ 7,044 6,056 16.3 % 28.1 % 30.3 %
Europe 6,919 6,120 13.1 % 27.6 % 30.6 %
Middle East 6,564 4,196 56.4 % 26.2 % 21.0 %
Far East & Asia 3,524 2,627 34.1 % 14.0 % 13.2 %
South America 246 431 (42.9) % 1.0 % 2.2 %
All other areas 794 543 46.2 % 3.2 % 2.7 %
- --------------- --- --- ---- - ----- -----
$ 25,091 19,973 25.6 % 100.0 % 100.0 %
====== ====== ==== ===== =====
"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%); " "fiscal 1996-$ 77,397 (22%); and fiscal 1997-$ 101,571 (25%).
Year-to-date international sales represented 25% and 22% of total " sales for
1998 and 1997 respectively.
Certain amounts for fiscal year 1997 have been reclassified to conform with the
fiscal year 1998 presentation.
I-15
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THREE MONTHS ENDED AUGUST 3, 1997
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 August 3, 1997, net sales rose 9.9% to $99.5 million
compared with $90.5 million in the year-earlier period. Net income for the
quarter totaled $2.9 million, or $0.23 per share, compared with $2.2 million, or
$0.20 per share, for the first quarter of fiscal 1997. The increase in sales
reflected significantly higher shipments of mattress ticking and, to a lesser
degree, a gain in overall sales of upholstery fabrics to both U.S.-based and
international manufacturers. The trend in incoming orders during the period
remained positive, but the general pace of business was not as strong as a year
ago. The growth in demand in some product categories and to U.S. manufacturers
of residential furniture as a group began slowing during the second half of
fiscal 1997. That pattern continued into fiscal 1998. Business conditions in the
U.S. residential furniture industry have been negatively affected by the recent
bankruptcies of two of the largest retailers of residential furniture. For the
first quarter, sales to the U.S. residential furniture industry were down
slightly compared to a year ago, but overall sales to U.S. customers (including
bedding and other markets) increased 6% from a year ago. Sales to customers
outside the United States rose 26% 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 Months Ended August 3, 1997 Compared With Three Months Ended July
28, 1996
Net Sales. Net sales for the first quarter increased by $9.0
million, or 9.9%, compared with the year-earlier period. The Company's
sales of upholstery fabrics increased $4.4 million, or 5.9% in the
first quarter compared with the prior year. Sales from the
Velvets/Prints business unit were up 10.1.% from the prior year. This
unit has continued to benefit from increased international sales, but
the strength in the U.S. dollar weakened relative to other
international currencies has affected demand somewhat. Sales from the
Culp Textures business unit were up for the quarter, but shipments by
the Rossville/Chromatex unit were lower. Sales from the Culp Home
Fashions unit, which principally consists of mattress ticking and
bedding products, rose 27.5% from a year ago. The overall pace of
business within the United States was not as strong as a year ago,
reflecting a trend that initially developed during the second half of
fiscal 1997. Sales to U.S.-based accounts rose 6% from a year ago, and
international sales, consisting primarily of upholstery fabrics,
increased to $25.1 million, up 25.6% from a year ago. International
shipments accounted for 25.2% of the Company's sales for the first
quarter, up from 22.1% a year ago.
Gross Profit and Cost of Sales. Gross profit for the first
quarter increased by $813,000 and amounted to 16.8% of net sales
compared with 17.6% a year ago. Factors which affected the company's
profitability during the quarter included the slower growth in demand
for certain fabric categories and from U.S. manufacturers of
residential furniture as a group and start-up costs related to
expansion projects. These factors were offset in part by 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.
Management expects that gross profit will continue to be affected by
start-up costs throughout the second fiscal quarter.
Selling, general and administrative expenses. Selling, general
and administrative expenses decreased as a percentage of net sales to
11.0% compared with 12.0% a year ago. The company is continuing to
incur higher expenses related to expanded resources for designing new
fabrics and increased selling commissions associated with international
sales. These factors were offset by steps to contain operating
expenses and by lower accruals as a percentage of net sales for
incentive-based compensation plans.
Interest Expense. Net interest expense for the first quarter
$1.3 million was essentially unchanged from a year ago. Net interest
expense is expected to increase in subsequent periods due principally
to borrowings related to the acquisition of Phillips Mills that was
completed on August 5, 1997.
Other Expense. Other expense decreased $153,000 for the first
quarter compared with a year ago, principally due to the non-recurring
write-off a year ago of certain fixed assets totaling $150,000.
Earnings Per Share. Earnings per share for the first quarter of
fiscal 1998 totaled $0.23 compared with $0.20 a year ago. The weighted
average number of outstanding shares increased 11.8% from a year ago,
principally due to the Company's secondary offering completed in
February 1997.
Liquidity and Capital Resources
Liquidity. Cash and cash investments were $1.8 million as of
August 3, 1997, compared with $830,000 at the end of fiscal 1997.
Funded debt (long-term debt, including current maturities, less
restricted investments) increased to $87.9 million at the close of the
first quarter, up from $72.8 million as of July 28, 1996 and $65.6
million at the end of fiscal 1997. As a percentage of total capital
(funded debt plus total shareholders' equity), the company's borrowings
amounted to 43.6% as of August 3, 1997, compared with 46.6% as of July
28, 1996 and 37.2% at the end of fiscal 1997. The company's working
capital as of August 3, 1997 was $89.0 million compared with $69.8
million at the close of fiscal 1997.
Because of seasonal factors, the Company typically generates the
majority of its cash from operating activities during the second fiscal
half. Cash of $8.0 million was used during the first quarter to fund
operating activities, principally increases in inventories and accounts
payable. Capital expenditures during the first quarter totaled $9.2
million. Financing activities, principally long-term borrowings,
provided $15.3 million in cash to fund operating activities and capital
investments.
Financing Arrangements. As of August 3, 1997, the Company had
outstanding balances of $52 million under its $125 million syndicated
five-year, unsecured, multi-currency revolving credit facility. The
Company also has a total of $40 million in outstanding industrial
revenue bonds ("IRBs") which have been used to finance capital
expenditures. The IRBs are collateralized by restricted investments of
$8.2 million as of August 3, 1997 and letters of credit for the
outstanding balance of the IRBs and certain interest payments due
thereunder. Because of federal tax laws, additional IRB financing will
not be available to the Company until the amount of its outstanding
IRBs is substantially reduced.
The Company's loan agreements require, among other things, that the
Company maintain certain financial ratios. As of August 3, 1997, the
Company was in compliance with the required financial covenants.
As of August 3, 1997, the Company had three interest rate swap
agreements on a $25 million notional amount to reduce its exposure to
floating interest rates. The effect of these contracts is to "fix" the
interest rate payable on $25 million of the Company's bank borrowings
at a weighted average rate of 7.1%. The Company also enters into
foreign exchange forward contracts to hedge against currency
fluctuations with respect to firm commitments to purchase machinery,
equipment and certain raw materials when those commitments are
denominated in foreign currencies.
Capital Expenditures. The Company maintains a significant
program of capital expenditures designed to increase capacity as
needed, enhance manufacturing efficiencies through modernization and
increase the company's vertical integration. The company anticipates
spending approximately $27 million for capital expenditures in 1998.
The company believes that cash flows from operations and funds
available under existing credit facilities will be sufficient to fund
capital expenditures and working capital requirements for the
foreseeable future.
Phillips Mills Acquisition
On August 5, 1997, the Company completed the acquisition of the
business and certain assets relating to the upholstery fabric
businesses operating as Phillips Weaving Mills, Phillips Velvet Mills,
Phillips Printing and Phillips Mills. These operating units were
purchased from Phillips Industries, Inc., a privately owned corporation
based in High Point, North Carolina. Based on the terms of the
definitive asset purchase agreement, the transaction is valued for
accounting and reporting purposes at approximately $36 million
(including cash, retirement of debt and a non-compete agreement) under
generally accepted accounting principles. Terms of the purchase also
include additional compensation contingent upon attaining specified
future growth objectives and an option for 100,000 shares of the
Company's common stock.
Funds for the cash portion of the transaction were provided from the
Company's revolving credit facility.
Inflation
Although the Company's costs of raw materials have been relatively
stable thus far in fiscal 1998, these expenses are generally higher
than a year ago. Other operating expenses, such as labor, utilities
and manufacturing supplies, have also increased. Competitive
conditions have not allowed the company to offset the impact of these
increases fully through higher prices, thereby putting pressure on
profit margins. The net impact on margins will continued to be
influenced by raw material prices, other operating costs and
competitive conditions.
Seasonality
The company's business is slightly seasonal, with increased sales
during the company's 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.
Forward-Looking Information
The company's report on Form 10-Q may contain statements that could be
deemed forward-looking statements within the Private Securities
Litigation Reform Act of 1995, which are inherently subject to risks
and uncertainties. For this purpose, any statements that are not
statements of historical fact may be deemed to be forward-looking
statements. 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. Because of the increasing percentage of the Company's
sales that is derived from shipments to customers outside the United
States, the relative value of the U.S. dollar relative to other
currencies can affect the competitiveness of the company's products in
international markets.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report or
incorporated by reference. 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, were filed as Exhibit 3(b) to the
Company's Form 10-K for the year ended April 28,
1991, filed July 25, 1991, and are incorporated
herein by reference.
10(a) Loan Agreement dated December 1, 1988 with
Chesterfield County, South Carolina relating to
Series 1988 Industrial Revenue Bonds in the
principal amount of $3,377,000 was filed as
Exhibit 10(n) to the Company's Form 10-K for the
year ended April 29, 1989, and is incorporated
herein by reference.
10(b) Loan Agreement dated November 1, 1988 with the
Alamance County Industrial Facilities and
Pollution Control Financing Authority relating to
Series A and B Industrial Revenue Refunding Bonds
in the principal amount of $7,900,000, was filed
as exhibit 10(o) to the Company's Form 10-K for
the year ended April 29, 1990, and is
incorporated herein by reference.
10(c) Loan Agreement dated January, 1990 with the
Guilford County Industrial Facilities and
Pollution Control Financing Authority, North
Carolina, relating to Series 1989 Industrial
Revenue Bonds in the principal amount of
$4,500,000, was filed as Exhibit 10(d) to the
Company's Form 10-K for the year ended April 19,
1990, filed on July 15, 1990, and is incorporated
herein by reference.
10(d) Loan Agreement dated as of December 1, 1993
between Anderson County, South Carolina and the
Company relating to $6,580,000 Anderson County,
South Carolina Industrial Revenue Bonds (Culp,
Inc. Project) Series 1993, was filed as Exhibit
10(o) to the Company's Form 10-Q for the quarter
ended January 30, 1994, filed March 16, 1994, and
is incorporated herein by reference.
10(e) 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, 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 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
28, 1996, 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 28,
1996, filed on July 26, 1995, and is incorporated
herein by reference. (*)
10(t) Interest Rate Swap Agreement between Company and
First Union National Bank of North Carolina,
dated May 31, 1995 was filed as exhibit 10(w) to
the Company's Form 10-Q for the quarter ended
July 30, 1995, filed on September 12, 1995, and
is incorporated herein by reference.
10(u) Interest Rate Swap Agreement between Company and
First Union National Bank of North Carolina,
dated July 7, 1995 was filed as exhibit 10(x) to
the Company's Form 10-Q for the quarter ended
July 30, 1995, filed on September 12, 1995, and
is incorporated herein by reference.
10(v) Second Amendment of Lease Agreement dated June
15, 1994 with Partnership 74 Associates was filed
as Exhibit 10(v) to the Company's Form 10-Q for
the quarter ended October 29, 1995, filed on
December 12, 1995, and is incorporated herein by
reference.
10(w) Lease Agreement dated November 1, 1993 by and
between the Company and Chromatex, Inc. was filed
as Exhibit 10(w) to the Company's Form 10-Q for
the quarter ended October 29, 1995, filed on
December 12, 1995, and is incorporated herein by
reference.
10(x) Lease Agreement dated November 1, 1993 by and
between the Company and Chromatex Properties,
Inc. was filed as Exhibit 10(x) to the Company's
Form 10-Q for the quarter ended October 29, 1995,
filed on December 12, 1995, and is incorporated
herein by reference.
10(y) Amendment to Lease Agreement dated May 1, 1994
by and between the Company and Chromatex
Properties, Inc. was filed as Exhibit 10(y) to
the Company's Form 10-Q for the quarter ended
October 29, 1995, filed on December 12, 1995, and
is incorporated herein by reference.
10(z) Canada-Quebec Subsidiary Agreement on
Industrial Development (1991), dated January 4,
1995, was filed as Exhibit 10(z) to the Company's
Form 10-Q for the quarter ended October 29, 1995,
filed on December 12, 1995, and is incorporated
herein by reference.
10(aa) Loan Agreement between Chesterfield County, South
Carolina and the Company dated as of April 1,
1996 relating to Tax Exempt Adjustable Mode
Industrial Development Bonds (Culp, Inc.
Project) Series 1996 in the aggregate principal
amount of $6,000,000 was filed as Exhibit 10(aa)
to the Company's Form 10-K for the year ended
April 28, 1996, and is incorporated herein by
reference.
10(bb) Loan Agreement between the Alamance County
Industrial Facilities and Pollution Control
Financing Authority, North Carolina and the
Company, dated December 1, 1996, relating to Tax
Exempt Adjustable Mode Industrial Development
Revenue Bonds, (Culp, Inc. Project Series 1996)
in the aggregate amount of $6,000,000 was filed
as Exhibit 10(cc) to the Company's Form 10-Q for
the quarter ended January 26, 1997, and is
incorporated herein by reference.
10(cc) Loan Agreement between Luzerne County,
Pennsylvania and the Company, dated as of
December 1, 1996, relating to Tax-Exempt
Adjustable Mode Industrial Development Revenue
Bonds (Culp, Inc. Project) Series 1996 in the
aggregate principal amount of $3,500,000 was
filed as Exhibit 10(dd) to the Company's Form
10-Q for the quarter ended January 26, 1997, and
is incorporated herein by reference.
10(dd) Second Amendment to Lease Agreement between
Chromatex Properties, Inc. and the Company, dated
April 17, 1997 was filed as Exhibit 10(dd) to
the Company's Form 10-K for the year ended April
27, 1997, and is incorporated herein by reference.
10(ee) Lease Agreement between Joseph E. Proctor (doing
business as JEPCO) and the Company, dated April
21, 1997.
10(ff) $125,000,000 Revolving Loan Facility dated April
23, 1997 by and among the Company and Wachovia
Bank of Georgia, N.A., as agent, and First Union
National Bank of North Carolina, as documentation
agent.
10(gg) Revolving Line of Credit for $4,000,000 dated
April 23, 1997 by and between the Company and
Wachovia Bank of North Carolina, N.A.
10(hh) Reimbursement and Security Agreement between Culp,
Inc. and Wachovia Bank of North Carolina, N.A.,
dated as of April 1, 1997, relating to $3,337,000
Principal Amount, Chesterfield County, South
Carolina Industrial Revenue Bonds (Culp, Inc.
Project) Series 1988.
Additionally, there are Reimbursement and Security
Agreements between Culp, Inc. and Wachovia Bank of
North Carolina, N.A., dated as of April 1, 1997 in
the following amounts and with the following
facilities:
$7,900,000 Principal Amount, Alamance County
Industrial Facilities and Pollution Control
Financing Authority Industrial Revenue Refunding
Bonds (Culp, Inc. Project) Series A and B.
$4,500,000 Principal Amount, Guilford County
Industrial Facilities and Pollution Control
Financing Authority Industrial Development
Revenue Bonds (Culp, Inc. Project) Series 1989.
$6,580,000 Principal Amount, Anderson County South
Carolina Industrial Revenue Bonds (Culp, Inc.
Project) Series 1993.
$6,000,000 Principal Amount, Chesterfield County,
South Carolina Tax-Exempt Adjustable Mode
Industrial Development Revenue Bonds (Culp, Inc.
Project) Series 1996.
$6,000,000 Principal Amount, The Alamance County
Industrial Facilities and Pollution Control
Financing Authority Tax-exempt Adjustable Mode
Industrial Development Revenue Bonds (Culp, Inc.
Project) Series 1996.
$3,500,000 Principal Amount, Luzerne County
Industrial Development Authority Tax-Exempt
Adjustable Mode Industrial Development Revenue
Bonds (Culp, Inc. Project) Series 1996.
10(ii) Loan Agreement and Reimbursement and Security
Agreement dated
July 1, 1997 with the Robeson County Industrial
Facilities and Pollution Control Financing
Authority relating to the issuance of Tax-Exempt
Adjustable Mode Industrial Development Revenue
Bonds (Culp, Inc. Project), Series 1997 in the
aggregate principal amount of $8,500,000.
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 August 12, 1997, 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 infor-
mation for the first quarter ended August 3, 1997.
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: September 16, 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: September 16, 1997 By s/s Stephen T. Hancock
Stephen T. Hancock
General Accounting Manager