- -------------------------------------------------------------------------------
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 October 29, 1995
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 October 29, 1995: 11,219,016
Par Value: $.05
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INDEX TO FORM 10-Q
October 29, 1995
Part I - Financial Information. Page
- ------------------------------------------ -------
Item 1. Financial Statements:
Statements of Income--Three and Six Months Ended I-1
October 29, 1995 and October 30, 1994
Balance Sheets--October 29, 1995, October 30, 1994, I-2
and April 30, 1995
Statements of Cash Flows---Six Months I-3
ended October 29, 1995 and October 30, 1994
Statements of Shareholders' Equity I-4
Notes to Financial Statements I-5
Sales by Business Unit I-9
Export and Foreign Sales by Geographic Area I-10
Sales by Business Unit - Trend Analysis I-11
Item 2. Management's Discussion and Analysis of Financial I-12
Condition and Results of Operation
Part II - Other Information
- -------------------------------------
Item 1. Legal Proceedings II-1
Item 2. Changes in Securities II-1
Item 3. Default Upon Senior Securities II-1
Item 4. Submission of Matters to a Vote of Security Holders II-1
Item 5. Other Information II-2
Item 6. Exhibits and Reports on Form 8-K II-2-II-6
Signatures II-7
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED OCTOBER 29, 1995 AND OCTOBER 30, 1994
(Amounts in Thousands, Except for Per Share Data)
THREE MONTHS ENDED (UNAUDITED)
Amounts Percent of Sales
October 29, October 30, % Over
1995 1994 (Under) 1996 1995
Net sales 90,672 78,445 15.6 % 100.0 % 100.0 %
Cost of sales 74,565 64,272 16.0 % 82.2 % 81.9 %
Gross profit 16,107 14,173 13.6 % 17.8 % 18.1 %
Selling, general and
administrative expenses 9,675 8,363 15.7 % 10.7 % 10.7 %
Income from operations 6,432 5,810 10.7 % 7.1 % 7.4 %
Interest expense 1,388 1,144 21.3 % 1.5 % 1.5 %
Interest income 0 (24) (100.0)% 0.0 % (0.0)%
Other expense (income), net 219 190 15.3 % 0.2 % 0.2 %
Income before income taxes 4,825 4,500 7.2 % 5.3 % 5.7 %
Income taxes * 1,825 1,700 7.4 % 37.8 % 37.8 %
Net income 3,000 2,800 7.1 % 3.3 % 3.6 %
Average shares outstanding 11,211 11,205 0.1 %
Net income per share $0.27 $0.25 8.0 %
Dividends per share $0.0275 $0.025 10.0 %
SIX MONTHS ENDED (UNAUDITED)
Amounts Percent of Sales
October 29, October 30, % Over
1995 1994 (Under) 1996 1995
Net sales 163,029 144,794 12.6 % 100.0 % 100.0 %
Cost of sales 134,724 119,521 12.7 % 82.6 % 82.5 %
Gross profit 28,305 25,273 12.0 % 17.4 % 17.5 %
Selling, general and
administrative expenses 18,129 15,932 13.8 % 11.1 % 11.0 %
Income from operations 10,176 9,341 8.9 % 6.2 % 6.5 %
Interest expense 2,685 2,221 20.9 % 1.6 % 1.5 %
Interest income 0 (47) (100.0)% 0.0 % (0.0)%
Other expense (income), net 326 367 (11.2)% 0.2 % 0.3 %
Income before income taxes 7,165 6,800 5.4 % 4.4 % 4.7 %
Income taxes * 2,650 2,550 3.9 % 37.0 % 37.5 %
Net income 4,515 4,250 6.2 % 2.8 % 2.9 %
Average shares 11,209 11,202 0.1 %
Net income per share $0.40 $0.38 5.3 %
Dividends per share $0.055 $0.05 10.0 %
* Percent of sales column is calculated as a % of income before income taxes.
I-1
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED BALANCE SHEETS
OCTOBER 29, 1995, OCTOBER 30, 1994 AND APRIL 30, 1995
(Unaudited, Amounts in Thousands)
Amounts Increase
October 29, October 30, (Decrease) * April 30,
1995 1994 Dollars Percent 1995
Current assets
Cash and cash investments 930 257 673 261.9 % 1,393
Accounts receivable 46,930 42,727 4,203 9.8 % 44,252
Inventories 49,632 42,504 7,128 16.8 % 45,771
Other current assets 3,415 2,510 905 36.1 % 3,194
Total current assets 100,907 87,998 12,909 14.7 % 94,610
Restricted investments 0 1,624 (1,624) (100.0)% 795
Property, plant & equipment, net 73,876 68,848 5,028 7.3 % 75,805
Goodwill 23,189 18,725 4,464 23.8 % 22,600
Other assets 2,432 1,209 1,223 101.2 % 1,189
Total assets 200,404 178,404 22,000 12.3 % 194,999
Current Liabilities
Current maturities of long-term debt 11,555 6,008 5,547 92.3 % 11,555
Accounts payable 30,175 28,685 1,490 5.2 % 32,250
Accrued expenses 11,075 8,688 2,387 27.5 % 11,532
Income taxes payable 1,729 1,653 76 4.6 % 661
Total current liabilities 54,534 45,034 9,500 21.1 % 55,998
Long-term debt 65,137 63,462 1,675 2.6 % 62,187
Deferred income taxes 5,382 3,477 1,905 54.8 % 5,418
Total liabilities 125,053 111,973 13,080 11.7 % 123,603
Shareholders' equity 75,351 66,431 8,920 13.4 % 71,396
Total liabilities and
stockholders' equity 200,404 178,404 22,000 12.3 % 194,999
Shares outstanding 11,219 11,205 14 0.1 % 11,205
* Derived from audited financial statements.
I-2
CULP, INC. FINANCIAL INFORMATION RELEASE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 29, 1995 AND OCTOBER 30, 1994
(Unaudited, Amounts in Thousands)
SIX MONTHS ENDED
Amounts
October 29, October 30,
1995 1994
Cash flows from operating activities:
Net income 4,515 4,250
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 6,138 5,340
Amortization of intangible assets 358 298
Provision for deferred income taxes (36) (272)
Changes in assets and liabilities:
Accounts receivable (2,678) (5,984)
Inventories (3,861) (5,908)
Other current assets (221) (11)
Other assets (1,309) (470)
Accounts payable (2,075) (901)
Accrued expenses (457) 530
Income taxes payable 1,068 1,017
Net cash provided by (used in) operating activities 1,442 (2,111)
Cash flows from investing activities:
Capital expenditures (5,090) (10,184)
Purchases of restricted investments 0 (46)
Proceeds from sale of restricted investments 795 1,345
Business acquired 0 0
Net cash provided by (used in) investing activities (4,295) (8,885)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 6,000 8,000
Principal payments on long-term debt (3,050) (92)
Net increase (decrease) in bank overdrafts 0 1,120
Dividends paid (617) (560)
Proceeds from sale of common stock 57 92
Net cash provided by (used in) financing activities 2,390 8,560
Increase (decrease) in cash and cash investments (463) (2,436)
Cash and cash investments at beginning of period 1,393 2,693
Cash and cash investments at end of period 930 257
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'
Shares Amount of Par Value Earnings Equity
Balance, May 1, 1994 11,177,353 $ 558 $ 16,487 $ 45,604 $ 62,649
Cash dividends (1,120) (1,120)
($.10 per share)
Net income 9,775 9,775
Common stock issued in
connection with stock
option plan 27,413 2 90 92
Balance, April 30, 1995 11,204,766 $ 560 $ 16,577 $ 54,259 $ 71,396
Cash dividends (617) (617)
($.055 per share)
Net income 4,515 4,515
Common stock issued in
connection with stock
option plan 14,250 1 56 57
Balance, October 29, 1995 11,219,016 $ 561 $ 16,633 $ 58,157 $ 75,351
I-4
Culp, Inc.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The financial information included herein is unaudited; however,
such information reflects all adjustments which are, in the opinion of
management, necessary for a fair statement of results for the interim
periods.
Certain amounts for fiscal year 1995 have been
reclassified to conform with the fiscal year 1996 presentation. Such
reclassifications had no effect on net income as previously
reported. All such adjustments are of a normal recurring nature.
The results of operations for the six months ended October 29, 1995
are not necessarily indicative of the results to be expected for the
full year.
=======================================================
2. Accounts Receivable
The company factors a portion of its accounts receivable,
on a nonrecourse basis. The factoring arrangements are used solely for
credit purposes, and not for borrowing purposes.
A summary of accounts receivable follows (dollars in thousands):
- -- -----------------------------------------------------------------------------------------------------------
October 29, 1995 April 30, 1995
- -- -----------------------------------------------------------------------------------------------------------
Customers $ 46,767 $ 44,014
Factors 1,029 1,314
Allowance for doubtful accounts (513) (739)
Reserve for returns and allowances (353) (337)
- -- -----------------------------------------------------------------------------------------------------------
$ 46,930 $ 44,252
=========================================================
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):
- -- -----------------------------------------------------------------------------------------------------------
October 29, 1995 April 30, 1995
- -- -----------------------------------------------------------------------------------------------------------
Raw materials $ 30,714 $ 25,385
Work-in-process 3,680 3,465
Finished goods 18,706 19,834
- -- -----------------------------------------------------------------------------------------------------------
Total inventories valued at FIFO cost 53,100 48,684
Adjustments of certain inventories to the LIFO cost method (3,468) (2,913)
- -- -----------------------------------------------------------------------------------------------------------
$ 49,632 $ 45,771
========================================================
I-5
Culp, Inc.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
4. Accounts Payable:
A summary of accounts payable follows (dollars in thousands):
- -- -----------------------------------------------------------------------------------------------------------
October 29, 1995 April 30, 1995
- -- -----------------------------------------------------------------------------------------------------------
Bank overdraft $ -0- $ -0-
Accounts payable-trade 24,279 22,647
Accounts payable-capital expenditures 5,896 9,603
- -- -----------------------------------------------------------------------------------------------------------
$ 30,175 $ 32,250
=========================================================
5. Accrued Expenses
A summary of accrued expenses follows (dollars in thousands):
- -- -----------------------------------------------------------------------------------------------------------
October 29, 1995 April 30, 1995
- -- -----------------------------------------------------------------------------------------------------------
Compensation and benefits $4,763 $ 5,252
Acquisition costs 1,189 1,595
Other 5,123 4,685
- -- -----------------------------------------------------------------------------------------------------------
$ 11,075 $ 11,532
========================================================
6. Long-term Debt
A summary of long-term debt follows (dollars in thousands).
- -- -----------------------------------------------------------------------------------------------------------
October 29, 1995 April 30, 1995
- -- -----------------------------------------------------------------------------------------------------------
Industrial Revenue Bonds $ 15,737 $ 15,787
Revolving Credit Line 16,000 10,000
Term Loan 38,500 41,500
Subordinated note payable 1,000 1,000
Convertible note payable 5,455 5,455
- -- -----------------------------------------------------------------------------------------------------------
$ 76,692 $ 73,742
Less current maturities (11,555) (11,555)
- -- -----------------------------------------------------------------------------------------------------------
$ 65,137 $ 62,187
I-6
Culp, Inc.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
The company has a loan agreement with two banks, which provides for
a $44,000,000 seven-year term loan and a $33,500,000 revolving credit
line. The revolving credit line has a six-year term, or can be
terminated by either of the participating banks upon a thirteen-month
notice to the company.
In connection with the purchase of Rayonese Textile Inc., the
company issued a convertible note payable of $5,455,000 bearing
interest at 6.0%. The note is payable on March 6, 1998 or upon 45
days notice to the company by the holders starting on March 6, 1996
and is secured by the stock and assets of Rayonese. Due to the holders'
45-day notice provision, the convertible note is classified as a
current maturity in the accompanying consolidated financial statements.
At the option of the holder after March 6, 1996, the note is convertible
into the company's common stock at a conversion price of $12.50
per share. The note is not redeemable at the option of the company.
The company's loan agreements require, among other things, that
the company maintain certain financial ratios. At October 29, 1995, the
company was in compliance with these required covenants.
At October 29, 1995, the company had five interest rate swap
agreements with two banks in order to reduce its exposure to floating
interest rates on a portion of its variable rate borrowings.
The following table summarizes certain data regarding the interest
rate swaps:
notional amount interest rate expiration date
$ 3,300,000
6.4% July 1996
900,000
7.6% July 1996
15,000,000
7.3% April 2000
5,000,000 6.9% June 2002
5,000,000 6.6% July 2002
The estimated amount at which the company could have terminated
these agreements as of October 29, 1995 is approximately $685,000. Net
amounts paid under these agreements increased interest expense for
the six months ended Octoer 29, 1995 and October 30, 1994 by
approximately $79,000 and $85,000, respectively. Management believes
the risk of incurring losses resulting from the inability of the
bank to fulfill its obligation under the interest rate swap
agreements to be remote and that any losses incurred would be
immaterial.
========================================================
7. Acquisition
On March 6, 1995, the company acquired Rayonese Textile
Inc. (Rayonese), a manufacturer of home furnishings fabrics based near
Montreal, Canada. The transaction has a preliminary estimated value
of approximately $10.5 million and included the purchase of 100% of the
Rayonese common stock and the assumption of Rayonese's funded debt.
The acquisition was accounted for as a purchase, and accordingly,
the purchase price has been allocated to the assets acquired and the
liabilities assumed based on their estimated fair values at the
date of acquisition.
I-7
Culp, Inc.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
The preliminary estimated fair values of assets and retained
liabilities acquired are summarized below:
- -- -----------------------------------------------------------------------------------------------------------
March 6, 1995
- -- -----------------------------------------------------------------------------------------------------------
Accounts receivable, net $ 2,195
Inventories 1,878
Other current assets 39
Property, plant and equipment 3,965
Goodwill 5,034
Accounts payable and accrued expenses (2,656)
$ 10,455
========================================================
8. Cash Flow Information
Payments for interest and income taxes during the period were
(dollars in thousands)
- -- -----------------------------------------------------------------------------------------------------------
1996 1995
- -- -----------------------------------------------------------------------------------------------------------
Interest $ 2,870 $ 2,071
Income taxes 1,582 1,533
========================================================
9. Foreign Exchange Forward Contracts
The company generally enters into foreign exchange forward and
option contracts as a hedge against its exposure to currency
fluctuations on firm commitments to purchase certain machinery and
equipment and raw materials. The company does not engage in
foreign currency speculation. Machinery and equipment and raw material
purchases hedged by foreign exchange forward or option contracts are
valued by using the exchange rate of the applicable foreign exchange
forward or option contract. At October 29, 1995, the company had no
foreign exchange forward or option contracts outstanding.
I-8
CULP, INC. FINANCIAL INFORMATION RELEASE
SALES BY BUSINESS UNIT
FOR THREE MONTHS AND SIX MONTHS ENDED OCTOBER 29, 1995
AND OCTOBER 30, 1994
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
Amounts Percent of Total Sales
October 29, October 30, % Over
Business Units 1995 1994 (Under) 1996 1995
Upholstery Fabrics
Flat Wovens
Culp Textures 22,715 22,834 (0.5)% 25.1 % 29.1 %
Rossville/Chromatex 17,960 15,758 14.0 % 19.8 % 20.1 %
40,675 38,592 5.4 % 44.9 % 49.2 %
Velvets/Prints 32,081 26,439 21.3 % 35.4 % 33.7 %
72,756 65,031 11.9 % 80.2 % 82.9 %
Mattress Ticking 17,916 * 13,414 33.6 % 19.8 % 17.1 %
90,672 78,445 15.6 % 100.0 % 100.0 %
SIX MONTHS ENDED (UNAUDITED)
Amounts Percent of Total Sales
October 29, October 30, % Over
Business Units 1995 1994 (Under) 1996 1995
Upholstery Fabrics
Flat Wovens
Culp Textures 40,299 42,447 (5.1)% 24.7 % 29.3 %
Rossville/Chromatex 33,318 30,898 7.8 20.4 % 21.3
73,617 73,345 0.4 % 45.2 % 50.7 %
Velvets/Prints 55,604 47,083 18.1 % 34.1 % 32.5 %
129,221 120,428 7.3 % 79.3 % 83.2 %
Mattress Ticking 33,808 * 24,366 38.8 % 20.7 % 16.8 %
163,029 144,794 12.6 % 100.0 % 100.0 %
* Includes Rayonese shipments of $2,053 for the three months and $3,822 for
the six months. The percent increase in sales without Rayonese was 20.0% for
the three months and 17.4% for the six months. On a consolidated basis,
without Rayonese shipments, the percent sales increase for the three months
was 13.0% and for the six months was 10.0%.
I-9
CULP, INC. FINANCIAL INFORMATION RELEASE
EXPORT AND FOREIGN SALES BY GEOGRAPHIC AREA
FOR THREE MONTHS AND SIX MONTHS ENDED OCTOBER 29, 1995
AND OCTOBER 30, 1994
(Amounts in thousands)
THREE MONTHS ENDED (UNAUDITED)
Amounts Percent of Total Sales
October 29, October 30, % Over
Geographic Area 1995 1994 (Under) 1996 1995
North America (Excluding USA) 6,223 4,184 48.7 % 31.8 % 28.7 %
Europe 4,297 3,892 10.4 % 22.0 % 26.7 %
Middle East 3,437 1,905 80.4 % 17.6 % 13.1 %
Far East & Asia 3,079 2,086 47.6 % 15.7 % 14.3 %
South America 397 876 (54.7)% 2.0 % 6.0 %
All other areas 2,127 1,652 28.8 % 10.9 % 11.3 %
19,560 * 14,595 34.0 % 100.0 % 100.0 %
SIX MONTHS ENDED (UNAUDITED)
Amounts Percent of Total Sales
October 29, October 30, % Over
Geographic Area 1995 1994 (Under) 1996 1995
North America (Excluding USA) 10,790 7,793 38.5 % 31.7 % 30.3 %
Europe 7,482 6,890 8.6 % 22.0 % 26.8 %
Middle East 5,549 2,768 100.5 % 16.3 % 10.8 %
Far East & Asia 4,841 4,131 17.2 % 14.2 % 16.1 %
South America 843 1,184 (28.8)% 2.5 % 4.6 %
All other areas 4,499 2,938 53.1 % 13.2 % 11.4 %
34,004 * 25,704 32.3 % 100.0 % 100.0 %
* Includes Rayonese shipments of $2,053 for the three months and $3,822 for
the six months. The percent increase in sales without Rayonese was 20.0% for
the three months and 17.4% for the six months.
I-10
Culp, Inc.
SALES BY BUSINESS UNIT - TREND ANALYSIS
1994 vs 1995 vs 1996
(Amounts in thousands)
Fiscal 1994 Fiscal 1995 Fiscal 1996
Business Units Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL
Upholstery Fabrics
Flat Wovens
Culp Textures 17,444 20,073 19,673 21,127 78,317 19,613 22,834 20,940 21,738 85,125 17,584 22,715 40,299
Rossville/Chromatex 0 0 14,330 16,717 31,047 15,140 15,758 16,397 16,470 63,765 15,358 17,960 33,318
17,444 20,073 34,003 37,844 109,364 34,753 38,592 37,337 38,208 148,890 32,942 40,675 0 0 73,617
Velvets/Prints 20,888 24,518 23,714 27,916 97,036 20,644 26,439 28,307 31,413 106,803 23,523 32,081 55,604
38,332 44,591 57,717 65,760 206,400 55,397 65,031 65,644 69,621 255,693 56,465 72,756 0 0 129,221
Mattress Ticking 8,251 9,395 9,531 11,472 38,649 10,952 13,414 12,147 15,820 52,333 15,892 17,916 33,808
46,583 53,986 67,248 77,232 245,049 66,349 78,445 77,791 85,441 308,026 72,357 90,672 0 0 163,029
Percent increase(decrease) from prior year:
Business Units
Upholstery Fabrics
Flat Wovens
Culp Textures (6.5) (5.2) 3.8 0.3 (1.9) 12.4 13.8 6.4 2.9 8.7 (10.3) (0.5) (5.1)
Rossville/Chromatex N/A N/A N/A N/A N/A 100.0 100.0 14.4 (1.5) 105.4 1.4 14.0 7.8
(6.5) (5.2) 79.4 79.7 37.0 99.2 92.3 9.8 1.0 36.1 (5.2) 5.4 0.4
Velvets/Prints 7.4 16.5 10.0 8.3 10.5 (1.2) 7.8 19.4 12.5 10.1 13.9 21.3 18.1
0.6 5.7 42.5 40.4 23.1 44.5 45.8 13.7 5.9 23.9 1.9 11.9 7.3
Mattress Ticking 7.5 10.4 27.6 21.2 16.7 32.7 42.8 27.4 37.9 35.4 45.1 33.6 38.8
1.7 6.4 40.2 37.2 22.0 42.4 45.3 15.7 10.6 25.7 9.1 15.6 12.6
I-11
1
- ------------------------------------------------------------------------------
The following analysis of the financial condition and results of operations
should be read in conjunction with the Financial Statements and Notes thereto
included elsewhere in this report.
Overview
For the three months ended October 29, 1995, net sales were $90.7 million, up
16% from $78.4 million in the year-earlier period. Net income for the quarter
was $3.0 million, or $0.27 per share, compared with $2.8 million, or $0.25 per
share, for the second quarter of fiscal 1995. Of the increase of $12.3 million
in sales, $2.1 million was attributable to the contribution from Rayonese
Textile, which was acquired during the fourth quarter of fiscal 1995 (see text
below). The increase in sales, excluding that contribution, primarily reflected
higher shipments of upholstery fabrics and mattress ticking to U.S.-based
manufacturers and increased exports of upholstery fabrics. These same trends
contributed to a gain in sales for the six months ended October 29, 1995 to
$163.0 million, up 13% from $144.8 million in the first half of fiscal 1995. The
company experienced a general slowing in demand from U.S.- based customers
earlier in the year, but the pattern during the second quarter was more
favorable. Although there remains some concern about the trend in consumer
purchases of home furnishings over the next several quarters, the prevailing
level of home mortgage rates appears to support a positive outlook for the
industry. The current momentum in the company's incoming orders remains
generally positive.
Rayonese Textile Inc. Acquisition
On March 6, 1995, the company completed the acquisition of Rayonese Textile Inc.
The transaction has a preliminary estimated value of approximately $10.5 million
and includes the purchase of 100% of the Rayonese common stock and the
assumption of Rayonese's funded debt. The acquisition is described in more
detail elsewhere in this report and in the company's filing with the Securities
and Exchange Commission on Form 8-K filed December 23, 1994. Also see footnote 7
to the Consolidated Financial Statements.
I-12
2
- -----------------------------------------------------------------------------
Analysis of Operations
The table below sets forth certain items in the Statements of Income as a
percentage of net sales. Income taxes are expressed as a percentage of income
before income taxes.
Three Months Ended Six Months Ended
October 29 October 30 October 29 October 30
1995 1994 1995 1994
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 82.2 81.9 82.6 82.5
------------------------------------------------
Gross profit 17.8 18.1 17.4 17.5
Selling, general and
administrative expenses 10.7 10.7 11.1 11.0
------------------------------------------------
Income from operations 7.1 7.4 6.2 6.5
Interest expense 1.5 1.5 1.6 1.5
Interest income 0.0 0.0 0.0 0.0
Other expense (income), net 0.2 0.2 0.2 0.3
------------------------------------------------
Income before
income taxes 5.3 5.7 4.4 4.7
Income taxes (*) 37.8 37.8 37.0 37.5
-----------------------------------------------
Net Income 3.3% 3.6% 2.8% 2.9%
===============================================
(*) Calculated as a percent of income before income taxes
Three And Six Months Ended October 29, 1995 Compared With Three Months And Six
Months Ended October 30, 1994
Sales by major business unit and export and foreign sales by geographic area for
the three and six months are set forth in separate schedules on pages I-9 and
I-10.
I-13
3
- -----------------------------------------------------------------------------
Sales of upholstery fabrics for the second quarter were up $7.7 million (12%)
from a year ago. Although sales of flat wovens increased somewhat for the second
quarter, sales of these fabrics were essentially unchanged for the first half
from a year ago. Sales of velvets/prints were up 21% for the second quarter,
continuing the positive trend from earlier in the year. The gain in sales of
mattress ticking for the second quarter primarily reflected higher shipments to
existing accounts and to a lesser degree, a contribution of $2.1 million from
Rayonese Textile, which was acquired on March 6, 1995. However, the U. S.
bedding and home textiles markets have softened significantly since early
August. This retail weakness is resulting in a sharply slower rate of growth in
our mattress ticking business unit, which includes Rayonese. The company
believes this softness is temporary and that business conditions will turn more
positive in early 1996. Exports and international sales, consisting primarily of
upholstery fabrics, increased to $19.6 million, up 34% from $14.6 million in the
year-earlier period and a gain of 36% from the $14.4 million in the first
quarter of fiscal 1996. Sales of Rayonese Textile are foreign sales and added to
the increase on a year-to-year basis for the second quarter and first half. The
base of the company's international customers is continuing to broaden, and,
with the exception of South America, sales to each major geographic area were up
through the first six months.
Gross profit decreased as a percentage of net sales for the second quarter and
first half due principally to higher prices for raw materials, a trend which
began during the second half of fiscal 1995. The company has been able to offset
some of the higher costs through increased operating efficiency as well as by
raising prices. During the second quarter, a 2% price increase became effective
for most of the company's fabrics and mattress ticking.
Selling, general and administrative expenses rose slightly as a percentage of
net sales for the first six months. Although the company is continuing to
emphasize cost-containment programs, planned increases in expenses related to
the design of new fabrics and to the company's marketing resources accounted for
the higher ratio of expenses.
Net interest expense for the second quarter increased to $1.4 million compared
with $1.1 million in the year-earlier period. The increase for the second
quarter as well as the first half principally reflects the additional borrowings
related to the acquisition of Rayonese Textile and, to a lesser degree, higher
interest rates over the past year.
I-14
4
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Other expense (income), net decreased for the first six months of fiscal 1996
due to a $100,000 credit from the favorable settlement of an environmental
matter with the former owner of one of the company's facilities.
The effective tax rate for the first six months declined to 37.0% compared to
37.5% last year. The lower tax rate for the first half was primarily due to a
higher percentage of income being derived from international operations, which
are taxed at a lower rate.
Liquidity and Capital Resources
The company continues to maintain a sound financial position. Funded long- and
short-term debt increased to $76.7 million at the close of the second quarter,
up from $72.9 million at the close of fiscal 1995. As a percentage of total
capital (funded debt plus total shareholders' equity), the company's funded debt
amounted to 50.4% as of October 29, 1995, down slightly from the end of fiscal
1995. The company's current ratio as of October 29, 1995 was 1.9 compared with
1.7 as of April 30, 1995. Shareholders' equity increased to $75.4 million as of
October 29, 1995, compared with $71.4 million at the end of fiscal 1995.
The company typically generates the majority of its cash from operating
activities during the second fiscal half. During the first six months of fiscal
1996, the cash flow from operations totaled $1.4 million. Borrowings of $6.0
million under a revolving credit agreement were used to fund operations during
the first six months.
The company's borrowings are through financing arrangements with two banks which
provide for a term loan of $44.0 million and a revolving credit line of $33.5
million. As of October 29, 1995, the company had $17.5 million in borrowings
available under the revolving credit agreement.
During the second quarter, the company's Board of Directors approved an increase
in the capital expenditure budget for fiscal 1996 from $11.0 million to $15.5
million. The increase was due to the decision to accelerate two expansion
projects originally planned for fiscal 1997. Capital spending during the first
six months totaled $5.1 million. The company believes that cash flows from
operations and funds available under existing credit facilities
I-15
5
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will be sufficient to fund capital expenditures as well as financing needs
related to operations during the remainder of fiscal 1996.
Inflation
The company has experienced increases in raw material costs and the expense of
other operating items. Although a price increase was implemented during the
second quarter, competitive conditions have not allowed the company to fully
offset these higher costs, a condition which has led to a slight decline in
operating profit margins. The company believes inflationary pressure will impact
profitability to a lesser degree during the remainder of fiscal 1996.
I-16
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
The annual meeting of shareholders of the company was held in High Point,
North Carolina on September 19, 1995. Of the 11,209,641 shares of common
stock outstanding on the record date, 9,969,954 shares were present in
person or by proxy.
At the annual meeting, shareholders voted on:
a) ratifying the appointment of KPMG Peat Marwick LLP as the
independent auditors of the company for the current fiscal year;
and
b) the election of three directors: Howard L. Dunn, Jr., Earl N.
Phillips, Jr., and Bland W. Worley.
A. PROPOSAL TO RATIFY THE ELECTION OF KPMG PEAT MARWICK LLP AS
INDEPENDENT AUDITORS OF THE COMPANY FOR FISCAL YEAR 1995.
For: 9,940,234
Against: 22,238
Abstain: 7,481
Broker Non-Votes: 0
B. PROPOSAL FOR ELECTION OF DIRECTORS:
Howard L. Dunn, Jr. Bland W. Worley
For: 9,758,798 For: 9,916,323
Authority Withheld: 211,156 Authority Withheld: 53,631
Broker Non Votes: 0 Broker Non Votes: 0
Earl N. Phillips, Jr.
For: 9,702,916
Authority Withheld: 267,038
Broker Non Votes: 0
II-1
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 herein.
3(i) Articles of Incorporation of the company, as amended,
were filed as Exhibit 3(i) to the company's Form 10-Q for
the quarter ended January 29, 1995, filed March 15, 1995,
and are incorporated herein by reference.
3(ii) Restated and Amended Bylaws of the company, as amended,
were filed as Exhibit 3(b) to the company's Form 10-K for
the year ended April 28, 1991, filed July 25, 1991, and
are incorporated herein by reference.
10(a) Loan Agreement dated December 1, 1988 with Chesterfield
County, South Carolina relating to Series 1988 Industrial
Revenue Bonds in the principal amount of $3,377,000 and
related Letter of Credit and Reimbursement Agreement
dated December 1, 1988 with First Union National Bank
of North Carolina were filed as Exhibit 10(n) to the
company's Form 10-K for the year ended April 29, 1989,
and are incorporated herein by reference.
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 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
II-2
$4,500,000, and related Letter of Credit and
Reimbursement Agreement dated January 5, 1990 with First
Union National Bank of North Carolina was filed as
Exhibit 10(d) to the company's Form 10-K for the year
ended April 19, 1990, filed on July 15, 1990, and is
incorporated herein by reference.
10(d) Loan Agreement dated as of December 1, 1993 between
Anderson County, South Carolina and the company
relating to $6,580,000 Anderson County, South Carolina
Industrial Revenue Bonds (Culp, Inc. Project) Series 1993,
and related Letter of Credit and Reimbursement Agreement
dated as of December 1, 1993 by and between the
company and First Union National Bank of North Carolina
were filed as Exhibit 10(o) to the Company's Form 10-Q
for the quarter ended January 30, 1994, filed March 16,
1994, and is incorporated herein by reference.
10(e) Severance Protection Agreement, dated September 21,
1989, was filed as Exhibit 10(f) to the company's Form
10-K for the year ended April 29, 1990, filed on July 25
1990, and is incorporated herein by reference.
10(f) Lease Agreement, dated January 19, 1990, with Phillips
Interests, Inc. was filed as Exhibit 10(g) to the company's
Form 10-K for the year ended April 29, 1990, filed on July
25, 1990, and is incorporated herein by reference.
10(g) Lease Agreement, dated September 6, 1988, with
Partnership 74 was filed as Exhibit 10(h) to the company's
Form 10-K for the year ended April 28, 1991, filed on July
25, 1990, and is incorporated herein by reference.
10(h) Amendment and Restatement of the Employees's
Retirement Builder Plan of the company dated May 1,
1981 with amendments dated January 1, 1990 and
January 8, 1990 were filed as Exhibit 10(p) to the
company's Form 10-K for the year ended May 3, 1992,
filed on August 4, 1992, and is incorporated herein by
reference.
10(i) First Amendment of Lease Agreement dated July 27, 1992
with Partnership 74 Associates was filed as Exhibit 10(n)
to the company's Form 10-K for the year ended May 2,
1993, filed on July 29, 1993, and is incorporated herein by
reference.
II-3
10(j) 1993 Stock Option Plan was filed as Exhibit 10(o) to the
company's Form 10-K for the year ended May 2, 1993,
filed on July 29, 1993, and is incorporated herein by
reference.
10(k) First Amendment to Loan Agreement dated as of December
1, 1993 by and between The Guilford County Industrial
Facilities and Pollution Control Financing Authority and
the company, and related Reimbursement and Security
Agreement dated as of December 1, 1993 between the
company and Wachovia Bank of North Carolina, National
Association was filed as Exhibit 10(p) to the company's
Form 10-Q, filed on March 15, 1994, and is incorporated
herein by reference.
10(l) First Amendment to Loan Agreement dated as of December
16, 1993 by and between The Alamance County Industrial
Facilities and Pollution Control Financing Authority and
the company, and related First Amendment to Letter of
Credit and Reimbursement Agreement dated as of
December 16, 1993 between First Union National Bank of
North Carolina and the company was filed as Exhibit 10(q)
to the company's Form 10-Q filed, filed on March 15,
1994, and is incorporated herein by reference.
10(m) First Amendment to Loan Agreement dated as of December
16, 1993 by and between Chesterfield County, South
Carolina and the company, and related First Amendment
to Letter of Credit and Reimbursement Agreement dated as
of December 16, 1993 by and between First Union
National Bank of North Carolina and the company was
filed as Exhibit 10(r) to the company's Form 10-Q, filed on
March 15, 1994, and is incorporated herein by reference.
10(n) Interest Rate Swap Agreements between company and
NationsBank of Georgia (formerly The Citizens and
Southern National Bank) dated July 14, 1989 were filed as
Exhibit 10(t) to the company's Form 10-K, filed on July
27, 1994, and are incorporated herein by reference.
10(o) Amendment to Lease dated as of November 4, 1994, by
and between the company and RDC, Inc. was filed as
Exhibit 10(w) to the company's Form 10-Q, for the quarter
ended January 29, 1995, filed on March 15, 1995, and is
incorporated herein by reference.
II-4
10(p) Amendment to Lease Agreement dated as of December 14,
1994, by and between the company and Rossville
Investments, Inc. (formerly known as A & E Leasing, Inc.).
was filed as Exhibit 10(y) to the company's Form 10-Q, for
the quarter ended January 29, 1995, filed on March 15,
1995, and is incorporated herein by reference.
10(q) Interest Rate Swap Agreement between company and First
Union National Bank of North Carolina dated April 17,
1995, was filed as Exhibit 10(aa) to the company's Form
10-K for the year ended April 30, 1995, filed on July 26,
1995, and is incorporated herein by reference.
10(r) Performance-Based Stock Option Plan, dated June 21,
1994, was filed as Exhibit 10(bb) to the company's Form
10-K for the year ended April 30, 1995, filed on July 26,
1995, and is incorporated herein by reference.
10(s) Interest Rate Swap Agreement between company and First
Union National Bank of North Carolina, dated May 31,
1995 was filed as exhibit 10(w) to the company's Form
10-Q for the quarter ended July 30, 1995, filed on
September 12, 1995, and is incorporated herein by
reference.
10(t) Interest Rate Swap Agreement between company and First
Union National Bank of North Carolina, dated July 7, 1995
was filed as exhibit 10(x) to the company's Form 10-Q for
the quarter ended July 30, 1995, filed on September 12,
1995, and is incorporated herein by reference.
10(u) 1995 Amended and Restated Credit Agreement by and
among Culp, Inc., First Union National Bank of North
Carolina and Wachovia Bank of North Carolina, N.A.,
dated July 1, 1995 was filed as exhibit 10(y) to the
company's Form 10-Q for the quarter ended July 30, 1995,
filed on September 12, 1995, and is incorporated herein by
reference.
10(v) Copy of Second Amendment of Lease Agreement dated June
15, 1994 with Partnership 74 Associates.
10(w) Copy of Lease Agreement dated November 1, 1993 by and
between the company and Chromatex, Inc.
10(x) Copy of Lease Agreement dated November 1, 1993 by and
between the company and Chromatex Properties, Inc.
II-5
10(y) Copy of Amendment to Lease Agreement dated May 1,
1994 by and between the company and Chromatex
Properties, Inc.
10(z) Copy of Canada-Quebec Subsidiary Agreement on Industrial
Development (1991), dated January 4, 1995.
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 11, 1995, included under Item 5, Other Events,
disclosure of the company's press release for quarterly earnings and
the company's Financial Information Release relating to the
financial information for the first quarter ended July 30, 1995.
II-6
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: December 12, 1995 By: s/s Franklin N. Saxon
--------------------- -------------------------------
Franklin N. Saxon
Vice President and
Chief Financial Officer
(Authorized to sign on behalf
of the registrant and also
signing as principal
accounting officer)
Date: December 12, 1995 By: s/s Stephen T. Hancock
---------------------- -------------------------------
Stephen T. Hancock
General Accounting Manager
(Chief Accounting Officer)
II-7
EXHIBIT INDEX
Exhibit No. Exhibit Article
10(v) Second Amendment of Lease Agreement dated June 15, 1994
with Partnership 74 Associates
10(w) Lease Agreement dated November 1, 1993 by and between the
company and Chromatex, Inc.
10(x) Lease Agreement dated November 1, 1993 by and between the
company and Chromatex Properties, Inc.
10(y) Amendment to Lease Agreement dated May 1,
1994 by and between the company and
Chromatex Properties, Inc.
10(z) Canada-Quebec Subsidiary Agreement on Industrial
Development (1991), dated January 4, 1995.