CULP
1996
ANNUAL
REPORT
(Photo depicting the world with various Culp products appears here.)
Culp
(Photo of fabrics samples, a chair and pillows appears here)
CULP'S TEAM OF 3,000 ASSOCIATES COMPRISES A FULLY INTEGRATED MARKETER OF FABRICS
FOR THE FURNITURE, BEDDING AND INSTITUTIONAL FURNISHINGS INDUSTRIES ON A
WORLDWIDE BASIS. CULP OPERATES 10 MANUFACTURING PLANTS WITH A COMBINED TOTAL OF
2.2 MILLION SQUARE FEET IN NORTH AND SOUTH CAROLINA, GEORGIA, PENNSYLVANIA AND
CANADA. CULP PROVIDES REGIONAL DISTRIBUTION FACILITIES IN AREAS WHERE
CONSIDERABLE FURNITURE MANUFACTURING IS CONCENTRATED INCLUDING HIGH POINT, NORTH
CAROLINA; TUPELO, MISSISSIPPI; AND LOS ANGELES, CALIFORNIA. CULP'S COMMON SHARES
ARE TRADED ON THE NASDAQ STOCK MARKET (NATIONAL MARKET) UNDER THE SYMBOL CULP.
Culp's International Markets
Culp's fabrics are used worldwide by an ever-broadening variety of
customers. Residential furniture and bedding remain the company's largest
end-use markets, but institutional furnishings ("contract"), juvenile furniture,
outdoor furniture and bed furnishings are among the newer markets which are
accounting for an increasing proportion of total sales.
Culp now ranks as the largest supplier of upholstery fabrics to a global
array of furniture manufacturers and overseas fabric distributors. The company
provides the broadest product line of upholstery fabrics, including flat wovens
(jacquard and dobby), velvets (woven, tufted and flock) and prints (overprinted
jacquards). Culp's hallmark is providing innovative fabric designs at good
values with a consistently high level of customer service.
In mattress ticking, Culp ranks as one of the top three suppliers to the
highly concentrated bedding industry. The company markets worldwide a broad
range of heat-transfer, pigment-printed and damask tickings. Through creative
designs utilizing various fabrics and colors, Culp has helped promote the use of
covers with a more "fashion-conscious" look to differentiate mattress lines at
retail.
(Photo of fabrics samples appears here)
2
Highlights
Net sales for fiscal 1996 reached a new high of $351.7 million. Net income also
set a new annual record of $11.0 million, or $0.98 per share, up 13% from $0.87
per share in fiscal 1995. Fiscal 1996 represented the seventh consecutive year
of higher net income.
Net sales of $102.2 in the fourth quarter of fiscal 1996 marked the first time
Culp has surpassed $100 million in any quarter. Net income of $4.1 million in
the fourth quarter represented the fourteenth consecutive quarter of higher
earnings in comparison to the comparable period in the prior year.
The acquisition of Rayonese Textile Inc. in March 1995 expanded Culp's customer
base and enhanced the company's capacity for manufacturing wide and narrow
jacquard fabrics used for mattress ticking, comforters and upholstery fabrics.
International sales accounted for $77 million, or 22% of net sales, up from 19%
in fiscal 1995. Shipments were made to customers in more than 50 countries
during fiscal 1996.
In June 1996 the Board increased the regular quarterly cash dividend for the
seventh consecutive year. The current indicated annual rate of $0.13 per share
represents an 18% increase over the previous annualized payout.
Capital expenditures for fiscal 1996 totaled $14 million. Major initiatives
included expanding capacity for jacquard and wet print product lines as well as
completing the expansion project at Rayonese related to the installation of
high-speed, air-jet jacquard weaving machines.
The company's financial position remained sound at the close of fiscal 1996 with
a funded debt-to-capital ratio of 49%. Book value increased to a new high of
$7.21 per share.
The price of Culp's shares rose 33% during 1996, representing a 28.6% compound
return to shareholders over the past five years.
FIVE-YEAR
(AMOUNTS IN THOUSANDS, FISCAL FISCAL PERCENT GROWTH
EXCEPT PER SHARE DATA) 1996 1995 CHANGE RATE
STATEMENTS OF INCOME
Net sales $ 351,667 308,026 14.2% 15.1%
Gross profit 62,538 54,681 14.4 18.2
Income from operations 23,470 21,249 10.5 35.9
Net income 10,980 9,775 12.3 30.5
Average shares outstanding 11,234 11,203 0.3 0.8
PER SHARE
Net income $ 0.98 0.87 12.6% 29.4%
Cash dividends 0.11 0.10 10.0 19.6
Book value 7.21 6.37 13.2 10.1
Year-end stock price 13.00 9.7 33.3 28.6
BALANCE SHEET
Working capital $ 56,953 38,612 47.5% 11.9%
Total assets 211,644 194,999 8.5 19.0
Funded debt 76,791 72,947 5.3 33.0
Shareholders' equity 81,446 71,396 14.1 11.2
RATIOS
Gross profit margin 17.8% 17.8%
Operating income margin 6.7 6.9
Net profit margin 3.1 3.2
Return on average equity 14.4 14.6
Funded debt to equity 94.3 102.2
Current ratio 2.2% 1.7%
NET
INCOME
PER
SHARE
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92 93 94 95 96
$0.27 $0.41 $0.69 $0.87 $0.98
COMPARISON
OF TOTAL
RETURN TO
SHAREHOLDERS
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91 92 93 94 95 96
Culp 100 143 200 325 276 368
Media General Textile Mfg. 100 148 160 147 142 144
NASDAQ 100 121 139 155 180 257
3
Letter to Shareholders
Fiscal 1996 was a year of rewarding progress. Sales rose to a new high
of $352 million, and net income increased 13% to $0.98 per share, also a record.
Sales and net income were up in each quarter versus the comparable year-earlier
periods; and in the fourth quarter, we achieved the milestone of surpassing $100
million in net sales for the first time ever for a three-month period. Our stock
price at the end of the year was up 33% from the close at the end of fiscal
1995. That gain contrasted with essentially no change in the market value of a
peer group of other companies in the home furnishings industry. Now, we
recognize that looking at stock prices, especially at two points in time just 12
months apart, does not always provide a valid measure of one's underlying
corporate performance. We are pleased, however, that the market has recognized
the progress we have made.
Yes, these financial highlights present a gratifying backdrop. But
remember that fiscal 1996 was not a turnaround year for Culp. It actually marked
the seventh year in which we have attained higher net income in an industry
which historically has shown a more cyclical than consistent pattern of growth.
In fact, many of our competitors experienced a difficult year. Consumer spending
on furniture and other home furnishings is still subject to a host of variables
including interest rates, employment levels and the buoyancy of the overall
economy. None of these we can control. What we can influence are issues such as
fabric design, customer service, product quality and manufacturing efficiency.
By executing our strategy to make continued progress in each of these vital
areas, we have gained market share, increased the company's profitability and
experienced a broadening recognition of Culp's prospects by Wall Street. What
lies ahead? That is always the tough question to answer, but we have challenged
ourselves to sustain the outstanding record Culp has attained.
This annual report provides a timely opportunity to review with you not
only the past year but also the steps we are taking to follow our vision for
Culp as one of the preeminent marketers of upholstery fabrics and mattress
ticking worldwide. Our message here is not intended to repeat the discussion
starting on page 23 about the significant operational and financial developments
during fiscal 1996. We did benefit from the inclusion for a full year of
Rayonese Textile which was acquired during the fourth quarter of fiscal 1995.
The major portion of the increase in sales for the year, however, reflected
growth in existing lines of upholstery fabrics and mattress ticking. Shipments
to customers based in the United States rose 10% while international sales
increased 34% and provided a key impetus to our corporate progress.
(Photo of a chair and pillow appear here)
The insertion of the word "worldwide" in our corporate description for
Culp is intentional. Residential and commercial furnishings are global
industries, and we have literally redefined the company's mission statement to
encompass this perspective. The financial results of broadening our corporate
profile is clear. For fiscal 1996, international sales accounted for $77
million, or 22%, of net sales, up from 19% in fiscal 1995. Culp's
4
international shipments, principally upholstery fabrics, have risen more than
tenfold since fiscal 1990. Without those incremental sales, we would still have
compiled a well above-average record and would rank as one of the top marketers
of upholstery fabrics and mattress ticking in the United States. But the
contribution from higher sales to customers outside the United States has
markedly accelerated our progress and enabled us to achieve a stronger
competitive posture.
NET SALES
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92 93 94 95 96
$191,311 $200,783 $245,049 $308,026 $351,667
NET INCOME
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92 93 94 95 96
$2,973 $4,501 $7,665 $9,775 $10,980
What is driving our growth in sales? A critical underpinning is our
ability to provide value to customers. Value is a deceptively simple word that
may be one of the more complex terms any corporation has to comprehend.
Customers provide the true definition of value, not us. Whatever blend of
quality, service and price an account demands, we must strive to provide value
by delivering the required blend, regardless of the geographical location of the
customers we are servicing. Our success in building Culp's global presence
relates directly to our continuous quality improvement process that remains a
cornerstone of our corporate culture. We were far from the first company to
adopt this approach, but the tangible returns realized thus far have reinforced
teamwork throughout the Culp organization. The meaningful gains we have
accomplished in product quality not only indicate that we are headed in the
right direction, but also highlight that the drive to deliver value is an
ongoing journey.
One element of value that is important for every customer we serve today
involves the physical delivery of our fabrics and mattress ticking. The
logistics of completing international deliveries within our objective of OTET
("on-time, every time") demands a sophisticated information system. Our
proprietary Culp Link software allows customers and sales agents as distant as
Australia, Belgium and Poland to check the status of orders and deliveries on a
real-time basis. Culp Link also provides the ability to review the accounting
status of any account, as well as check the exact status of any shipment with
individual identification of each roll and color specification. Shipments to
international accounts involve longer distances, but the same framework which
has allowed us to form working partnerships with many of the leading
manufacturers of furniture and bedding in the United States is proving to be
very effective in serving international customers.
Apart from the absolute growth in international shipments, the
geographical expansion of our customer base stands as firm evidence of our
success on a worldwide basis. Our initial shipments several years ago outside
the United States were logically into the nearby North American markets of
Canada and Mexico. During fiscal 1996, however, those two nations combined
represented less than one-third of the company's shipments outside of the United
States. Europe is now our largest market for exports outside of North America,
and we have established a growing presence in the Middle East, Asia and the
Pacific Rim. We fully intend to broaden the geographical diversity of our
customer base. We are continuing to add new customers, are considering
establishing sales offices in selected overseas locations, and plan to introduce
new products as part of an aggressive plan to capitalize on the potential we
have identified.
To some, Culp's proven ability to prosper in international markets must
appear an anomaly within the overall textile industry. Two vital points
distinguish us from other companies caught in stiff competition with offshore
manufacturers. First,
(Photo of Rob Culp and Howard Dunn appears here.)
Rob Culp
Howard Dunn
5
weaving and printing upholstery fabrics and mattress ticking is more capital
intensive than other textile niches, particularly those that involve sewing and
garment-finishing steps. Second, customers value the creative designs and
finishes on our decorative fabrics as essential components of their product
planning and marketing programs.
Our efforts to deliver innovative, appealing designs involve much more
than just investing more dollars in additional equipment. Culp has the latest
CAD (computer-aided design) workstations which facilitate the process of
creating desirable patterns. High-resolution images of prototype designs present
concepts to customers much fasterNand much less expensivelyNthan the
conventional practice of producing a proposed design on a sample swatch of
fabric. Designers are encouraged to experiment and to invite customers into the
process at a much earlier stage than practically possible in the past. This
involvement can help establish strong, long-lasting customer relationships; but
the step demands a recognition that the development of new designs has to be
linked integrally with practical manufacturing considerations. We have worked
hard to establish this internal coordination, and the progress to date
encouraged us to more than double the company's design staff during the last
several years.
The same technological advances which support our design of new fabrics
have led us to move aggressively in pursuing new marketing opportunities. Having
the flexibility to generate new designs quickly is aided by our ability to
control resources in most every major discipline in fabric and yarn
manufacturing. In addition to being well established in jacquard and dobby woven
fabrics, we have expertise in woven and tufted velvets, as well as wet and
heat-transfer printing. This versatility plays directly to customer demands for
new fabrics, as customer preferences can change dramatically, even over a few
seasons. Being able to identify these shifts in the market has been helped
considerably by our formation of four distinct business units over two years
ago. By targeting our efforts based on major types of fabrics instead of by
customer categories, we have built an organization far more responsive to swings
in demand. We know that a Culp team focused on creative applications of their
assigned product lines has frequently served a key role in motivating customers
to try new placements for furniture and bedding. Because design is such an
integral aspect of our business, change truly is one constant we have to be able
to accept and use to our advantage. Having these four operational units has
proven to be an effective way of realizing overall corporate growth within such
a dynamic environment.
Culp's strong balance sheet ensures our ability to continue making the
capital investments necessary to extend our competitive leadership. Capital
spending in fiscal 1996 totaled $14.4 million, and represented only 55% of
operating cash flow (net income plus depreciation, amortization and deferred
income taxes) for the year. Plans for fiscal 1997 include capital spending of
$16.5 million. The focus of this spending has increasingly shifted over the past
couple of years toward expanding capacity rather than modernizing existing
equipment. An example of that emphasis is the $6 million invested
RETURN
ON AVERAGE
EQUITY
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92 93 94 95 96
6.0% 8.6% 13.1% 14.6% 14.4%
CLOSING
STOCK
PRICE
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92 93 94 95 96
$5.23 $7.20 $11.63 $9.75 $13.00
6
at Rayonese Textile during fiscal 1995 and 1996 to install highly efficient,
air-jet jacquard looms, planned specifically for fabrics used for mattress
ticking, comforters, and overprinted jacquard fabrics.
We are pleased that the company's performance for fiscal 1996 led the
Board to approve an 18% increase in the quarterly cash dividend in June 1996.
This marked the seventh consecutive year in which the quarterly cash dividend
has been raised. Our goal is to manage Culp's resources in a manner which allows
this record to be extended. The initial indications for fiscal 1997 are colored
in part by the strong finish we experienced in our business in fiscal 1996. The
pace of incoming orders has remained positive well into the first quarter.
Although we must acknowledge that there are conflicting projections about the
economy and interest rates, the sentiment among manufacturers and retailers of
home furnishings seems generally optimistic at this time.
Our task, as always, is not to get entangled in the near term but to
focus on the longer term growth of Culp. The team of 3,000 associates under the
Culp banner has accomplished much over the past several years and certainly
seems eager for the challenges that we know lie ahead. We appreciate the earnest
efforts of each individual and join them in expressing thanks to our customers
for the opportunity to serve them. An increasing worldwide presence, a renewed
emphasis on developing innovative new fabrics and designs and a sound
organization all encourage us about our ability to meet the market's needs ever
more competently in the future.
Sincerely,
(Signature of Robert G. Culp, III) (Signature of Howard L. Dunn, Jr.)
Robert G. (Rob) Culp, III Howard L. Dunn, Jr.
Chairman and Chief Executive Officer President and Chief Operating Officer
7
Financial Statements
8
To the Shareholders of Culp, Inc.:
We have changed our process for distributing information about Culp's
quarterly progress during the year. We want to keep you informed about the
Company's performance but believe that the most timely and cost-effective
approach is to mail an update only to those requesting the information.
We have made this decision for two reasons. One is the rising cost of
producing and mailing quarterly reports. The other is the recognition that many
investors now have access to the news wires and computerized data bases that
report Culp's results on the same day that we release them to the media.
If you wish to be mailed a copy of Culp's three quarterly news releases
during 1997, simply complete and return the attached postcard.
Please send me a copy of Culp's 1997 quarterly news releases.
Name_______________________________________________________
Address_____________________________________________________
____________________________________________________________
City_______________________________State__________Zip_________
Place
Stamp
Here
Culp, Inc.
101 South Main Street
High Point, NC 27261
10 CONSOLIDATED BALANCE SHEETS
11 CONSOLIDATED STATEMENTS OF INCOME
12 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
13 CONSOLIDATED STATEMENTS OF CASH FLOWS
14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21 REPORT OF INDEPENDENT AUDITORS
22 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
23 MANAGEMENT'S DISCUSSION AND ANALYSIS
26 SELECTED QUARTERLY DATA
27 SELECTED ANNUAL DATA
28 CORPORATE AND SHAREHOLDER INFORMATION
9
Consolidated
Balance Sheets
APRIL 28, 1996 AND APRIL 30, 1995 (DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA) 1996 1995
ASSETS
current assets:
cash and cash investments $ 498 1,393
accounts receivable 52,038 44,252
inventories 47,395 45,771
other current assets 4,191 3,194
total current assets 104,122 94,610
restricted investments 5,250 795
property, plant and equipment, net 76,961 75,805
goodwill 22,871 22,600
other assets 2,440 1,189
total assets $211,644 194,999
LIABILITIES AND SHAREHOLDERS' EQUITY
current liabilities:
current maturities of long-term debt $ 7,100 11,555
accounts payable 27,308 32,250
accrued expenses 12,564 11,532
income taxes payable 197 661
total current liabilities 47,169 55,998
long-term debt 74,941 62,187
deferred income taxes 8,088 5,418
total liabilities 130,198 123,603
commitments and contingencies (note 11)
shareholders' equity:
preferred stock, $.05 par value, authorized 10,000,000 shares 0 0
common stock, $.05 par value, authorized 40,000,000 shares,
issued and outstanding 11,290,300 at April 28, 1996 and
11,204,766 at April 30, 1995 565 560
capital contributed in excess of par value 16,878 16,577
retained earnings 64,003 54,259
total shareholders' equity 81,446 71,396
total liabilities and shareholders' equity $211,644 194,999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
10
Consolidated
Statements of Income
FOR THE YEARS ENDED APRIL 28, 1996, APRIL 30, 1995, AND MAY 1, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994
net sales $ 351,667 308,026 245,049
cost of sales 289,129 253,345 202,426
gross profit 62,538 54,681 42,623
selling, general and administrative expenses 39,068 33,432 27,858
income from operations 23,470 21,249 14,765
interest expense 5,316 4,715 2,515
interest income (92) (64) (79)
other expense 956 1,082 350
income before income taxes 17,290 15,516 11,979
income taxes 6,310 5,741 4,314
net income $ 10,980 9,775 7,665
net income per share $ 0.98 0.87 0.69
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
11
Consolidated
Statements of Shareholders' Equity
CAPITAL
FOR THE YEARS ENDED APRIL 28, 1996, COMMON COMMON CONTRIBUTED TOTAL
APRIL 30, 1995, AND MAY 1, 1994 STOCK STOCK IN EXCESS OF RETAINED SHAREHOLDERS'
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) SHARES AMOUNT PAR VALUE EARNINGS EQUITY
balance, May 2, 1993 7,259,161 $ 362 15,333 38,826 54,521
cash dividends ($0.08 per share) (887) (887)
net income 7,665 7,665
common stock issued in connection
with stock option plan, including
$484 of tax benefit 212,140 11 1,339 1,350
three-for-two stock split 3,706,052 185 (185) --
balance, May 1, 1994 11,177,353 558 16,487 45,604 62,649
cash dividends ($0.10 per share) (1,120) (1,120)
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 ($0.11 per share) (1,236) (1,236)
net income 10,980 10,980
common stock issued in connection
with stock option plan 85,534 5 301 306
balance, April 28, 1996 11,290,300 $ 565 16,878 64,003 81,446
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
12
Consolidated
Statements of Cash Flows
FOR THE YEARS ENDED APRIL 28, 1996, APRIL 30, 1995, AND MAY 1, 1994
(DOLLARS IN THOUSANDS) 1996 1995 1994
cash flows from operating activities:
net income $ 10,980 9,775 7,665
adjustments to reconcile net income to net cash
provided by operating activities:
depreciation 12,348 11,257 8,497
amortization of intangible assets 748 628 344
provision for deferred income taxes 2,210 1,373 1,118
changes in assets and liabilities, net of effects
of businesses acquired:
accounts receivable (7,786) (5,515) (1,839)
inventories (1,624) (7,281) (4,330)
other current assets (537) (310) (304)
other assets (103) (518) (389)
accounts payable (1,077) 159 (420)
accrued expenses 1,032 2,180 539
income taxes payable (464) 25 (401)
net cash provided by operating activities 15,727 11,773 10,480
cash flows from investing activities:
capital expenditures (14,385) (18,058) (16,764)
purchase of restricted investments (6,019) (57) (3,593)
purchase of investments to fund deferred compensation liability (1,286) -- --
sale of restricted investments 1,564 2,185 670
businesses acquired -- (10,455) (38,205)
net cash used in investing activities (20,126) (26,385) (57,892)
cash flows from financing activities:
proceeds from issuance of long-term debt 19,854 23,455 49,203
principal payments on long-term debt (11,555) (11,275) (14,223)
dividends paid (1,236) (1,120) (887)
proceeds from common stock issued 306 92 1,350
change in accounts payable - capital expenditures (3,865) 2,160 7,443
net cash provided by financing activities 3,504 13,312 42,886
decrease in cash and cash investments (895) (1,300) (4,526)
cash and cash investments, beginning of year 1,393 2,693 7,219
cash and cash investments, end of year $ 498 1,393 2,693
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
13
Notes
To Consolidated Financial Statements
1 General and Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the
accounts of the company and its subsidiary, which is wholly-owned. All
significant intercompany balances and transactions are eliminated in
consolidation.
DESCRIPTION OF BUSINESS--The company manufactures and markets upholstery fabrics
and mattress ticking internationally for the furniture, bedding, and related
industries, with the majority of its business conducted in the United States.
FISCAL YEAR --The company's fiscal year is the 52 or 53 week period ending on
the Sunday closest to April 30. Fiscal years 1996, 1995 and 1994 included 52
weeks.
STATEMENTS OF CASH FLOWS--For purposes of reporting cash flows, the company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash investments.
ACCOUNTS RECEIVABLE --Substantially all of the company's accounts receivable are
due from manufacturers and distributors in the markets noted above. The company
grants credit to customers, a substantial number of which are located in the
United States. Management performs credit evaluations of the company's customers
and generally does not require collateral.
INVENTORIES --Principally all inventories are valued at the lower of last-in,
first-out (LIFO) cost or market. Information related to the first-in, first-out
(FIFO) method may be useful in comparing operating results to those of companies
not on LIFO. The LIFO valuation method decreased net income $66,000 ($.01 per
share) in 1996, had no effect on net income in 1995, and decreased net income
$73,000 ($.01 per share) in 1994 compared with the FIFO method.
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.
PROPERTY, PLANT AND EQUIPMENT --Property, plant and equipment is recorded at
cost. Depreciation is generally computed using the straight-line method over the
estimated useful lives of the respective assets. Major renewals and betterments
are capitalized. Maintenance, repairs and minor renewals are expensed as
incurred. When properties are retired or otherwise disposed of, the related cost
and accumulated depreciation are removed from the accounts. Amounts received on
disposal less the book value of assets sold are charged or credited to income.
FOREIGN CURRENCY TRANSLATION--The United States dollar is the functional
currency for the company's Canadian subsidiary. Translation gains or losses for
this subsidiary are reflected in net income.
GOODWILL AND OTHER INTANGIBLE ASSETS--Goodwill, which represents the unamortized
excess of the purchase price over the fair values of the net assets acquired, is
being amortized using the straight-line method over 40 years. The company
assesses the recoverability of goodwill by determining whe ther the amortization
of the balance over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired businesses. The assessment of the
recoverability of goodwill will be impacted if estimated cash flows are not
achieved.
Other intangible assets are included in other assets and consist principally
of debt issue costs. Amortization is computed using the straight-line method
over the respective terms of the debt agreements.
INCOME TAXES --Deferred taxes are recognized for the temporary differences
between the financial statement carrying amounts and the tax bases of the
company's assets and liabilities and operating loss and tax credit carryforwards
at income tax rates expected to be in effect when such amounts are realized or
settled. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
No provision is made for income taxes which may be payable if undistributed
income of the company's Canadian subsidiary were to be paid as dividends to the
company, since the company intends that such earnings will continue to be
invested. At April 28, 1996 the amount of such undistributed income was $1.5
million. Foreign tax credits may be available as a reduction of United States
income taxes in the event of such distributions.
REVENUE RECOGNITION --Revenue is recognized when products are shipped to
customers. Provision is made currently for estimated product returns, claims and
allowances.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amount of cash and cash
investments, accounts receivable, other current assets, accounts payable and
accrued expenses approximates fair value because of the short maturity of these
financial instruments.
The fair value of the company's long-term debt is estimated by discounting the
future cash flows at rates currently offered to the company for similar debt
instruments of comparable maturities. The fair value of the company's long-term
debt approximates the carrying value of the debt due to the variable interest
rates on the majority of long-term debt at April 28, 1996.
14
INTEREST RATE SWAP AGREEMENTS --Interest rate swap agreements generally involve
the exchange of fixed and floating rate interest payment obligations without the
exchange of the underlying principal amounts. These agreements are used to
effectively fix the interest rates on certain variable rate borrowings. Net
amounts paid or received are reflected as adjustments to interest expense.
FORWARD CONTRACTS--Gains and losses related to qualifying hedges of firm
commitments are deferred and included in the measurement of the related foreign
currency transaction when the hedged transaction occurs.
PER SHARE DATA --Primary income per share is computed by dividing net income by
the weighted average number of common shares outstanding during each year, as
restated for stock splits (11,234,363 in 1996, 11,203,160 in 1995, and
11,075,988 in 1994). The effect of stock options on the calculation is not
materially dilutive.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATION--Certain items in the 1995 consolidated financial statements
have been reclassified to conform with the presentation adopted in the current
year. The reclassifications did not impact net income as previously reported.
2 Acquisitions
On March 6, 1995, the company acquired Rayonese Textile Inc. (Rayonese), a
manufacturer of home furnishings fabrics based near Montreal, Canada. The
transaction was valued at approximately $10.5 million and included the purchase
of 100% of the Rayonese common stock and the assumption of Rayonese's funded
debt. Goodwill on the transaction was approximately $5 million, which is being
amortized on the straight-line method over 40 years. The acquisition was
accounted for as a purchase, and accordingly, the net assets and operations of
Rayonese have been included in the company's consolidated financial statements
since March 6, 1995.
On November 2, 1993, the company purchased the operations and assets
relating to an upholstery fabric business operating as Rossville Mills,
Chromatex and Rossville Velours (Rossville/Chromatex). The transaction was
valued at approximately $39.3 million and involved the purchase of assets for
cash, the repayment of Rossville/ Chromatex debt and the assumption of certain
liabilities. Goodwill on the transaction was approximately $18.9 million, which
is being amortized on the straight-line method over 40 years. The acquisition
was accounted for as a purchase, and accordingly, the net assets and operations
of Rossville/Chromatex have been included in the company's consolidated
financial statements since November 1, 1993.
3 Accounts Receivable
A summary of accounts receivable follows:
(DOLLARS IN THOUSANDS) 1996 1995
customers $ 53,321 44,014
factors 71 1,314
allowance for doubtful accounts (1,016) (739)
reserve for returns and allowances (338) (337)
$ 52,038 44,252
15
4 Inventories
A summary of inventories follows:
(DOLLARS IN THOUSANDS) 1996 1995
inventories on the FIFO cost method
raw materials $ 29,150 25,385
work-in-process 5,067 3,465
finished goods 16,708 19,834
total inventories on the FIFO cost method 50,925 48,684
adjustments of certain inventories to the LIFO cost method (3,530) (2,913)
$ 47,395 45,771
5 Property, Plant and Equipment
A summary of property, plant and equipment follows:
(DOLLARS IN THOUSANDS) depreciable lives (in years) 1996 1995
land and improvements 10 $ 1,765 958
buildings and improvements 7-40 13,529 12,793
leasehold improvements 7-10 1,320 1,242
machinery and equipment 3-12 109,906 101,427
office furniture and equipment 3-10 12,152 12,020
capital projects in progress 8,517 6,047
147,189 134,487
accumulated depreciation (70,228) (58,682)
$ 76,961 75,805
6 Goodwill
A summary of goodwill follows:
(DOLLARS IN THOUSANDS) 1996 1995
goodwill $ 24,218 23,337
accumulated amortization (1,347) (737)
$ 22,871 22,600
7 Accounts Payable
A summary of accounts payable follows:
(DOLLARS IN THOUSANDS) 1996 1995
accounts payable--trade $21,570 22,647
accounts payable--capital expenditures 5,738 9,603
$27,308 32,250
16
8 Accrued Expenses
A summary of accrued expenses follows:
(DOLLARS IN THOUSANDS) 1996 1995
compensation and benefits $ 8,153 6,497
other 4,411 5,035
$12,564 11,532
9 Income Taxes
A summary of income taxes follows:
(DOLLARS IN THOUSANDS) 1996 1995 1994
current
federal $3,345 3,473 2,420
state 700 699 383
Canadian 0 0 0
4,045 4,172 2,803
deferred
federal 1,422 1,374 1,279
state 145 195 232
Canadian 698 0 0
2,265 1,569 1,511
$6,310 5,741 4,314
Income before income taxes related to the Company's Canadian operation for the
year ended April 28, 1996 was $2,100,000. In the prior year, income before
income taxes from this operation was not significant.
The following schedule summarizes the principal differences between income
taxes at the federal income tax rate and the effective income tax rate reflected
in the consolidated financial statements:
1996 1995 1994
federal income tax rate 34.2% 34.1% 34.0%
state income taxes, net of
federal income tax benefit 3.4 3.8 3.8
exempt income of foreign sales
corporation (1.7) (1.5) (1.4)
other .6 0.6 (0.4)
36.5% 37.0% 36.0%
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities consist of the following:
(DOLLARS IN THOUSANDS) 1996 1995
deferred tax liabilities:
property, plant and equipment, net $(7,328) (5,625)
goodwill (720) (432)
employee benefits (295) (249)
other (142) (139)
total deferred tax liabilities (8,485) (6,445)
deferred tax assets:
accounts receivable 474 357
inventories 148 81
compensation 960 475
liabilities and reserves 782 922
alternative minimum tax 0 699
gross deferred tax assets 2,364 2,534
valuation allowance 0 0
total deferred tax assets 2,364 2,534
$(6,121) (3,911)
Deferred taxes are classified in the accompanying consolidated Balance Sheet
captions as follows:
(DOLLARS IN THOUSANDS) 1996 1995
other current assets $ 1,967 1,507
deferred income taxes (8,088 (5,418)
$ (6,121) (3,911)
The company believes that it is more likely than not that the results of future
operations will generate sufficient taxable income to realize the remaining
deferred tax assets.
Income taxes paid, net of income tax refunds, were $4,623,000 in 1996;
$4,071,000 in 1995; and $3,113,000 in 1994.
17
10 Long-term Debt
A summary of long-term debt follows:
(DOLLARS IN THOUSANDS) 1996 1995
industrial revenue bonds and
other obligations $ 22,241 15,787
revolving credit line 23,300 10,000
term loan 35,500 41,500
subordinated note payable 1,000 1,000
convertible note payable 0 5,455
82,041 73,742
current maturities (7,100) (11,555)
$ 74,941 62,187
The company has an unsecured loan agreement with two banks, which provides for a
$36,000,000 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.
Additionally, the term loan and the credit line require payment of interest
on any outstanding borrowings at an interest rate based on a spread over the
one month LIBOR (this LIBOR rate at April 28, 1996 was 5.4%).
The industrial revenue bonds (IRB) are collateralized by restricted
investments of $5,250,000 and letters of credit for $22,436,000 at April 28,
1996. Substantially all of the bonds are due in one-time payments at various
dates from 2008 to 2013, with interest at variable rates at approximately 60% of
the prime rate (prime at April 28, 1996 was 8.25%).
In connection with the Rossville/Chromatex acquisition (note 2), the company
has a subordinated note payable to the former owners with interest based on a
spread over the one month LIBOR. The note is payable on November 1, 1996.
In connection with the purchase of Rayonese Textile Inc. (note 2), the
company issued a convertible note payable of $5,455,000. The note was payable on
March 6, 1998 or upon 45 days notice to the company by the holders starting on
March 6, 1996. The holders gave 45 days notice, and the company repaid the note
payable in March 1996.
The company's loan agreements require, among other things, that the company
maintain certain financial ratios. At April 28, 1996, the company was in
compliance with these required financial covenants.
At April 28, 1996, the company had five interest rate swap agreements with
two banks in order to reduce its exposure to floating interest rates on a
portion of its variable rate borrowings.
The following table summarizes certain data regarding the interest rate
swaps:
NOTIONAL AMOUNT INTEREST RATE EXPIRATION DATE
$ 2,300,000 6.4% July 1996
$ 150,000 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 terminate these agreements as of
April 28,1996 is approximately $220,000. Net amounts paid under these agreements
increased interest expense by approximately $290,000 in 1996; $138,000 in 1995;
and $227,000 in 1994. 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: 1997--$7,100,000; 1998--$6,100,000; 1999--$6,275,000;
2000--$6,200,000; and 2001--$5,154,000, excluding payments, if any, on the
revolving credit line for its five year term. The term loan and revolving credit
facilities expire on March 1, 2001, at which time a final payment of $6,500,000
is due for the term loan and any outstanding borrowings on the revolver are due.
These final payments at the expiration date are not included in the scheduled
payments above.
Interest paid during 1996, 1995 and 1994 totalled $5,365,000, $4,668,000,
and $2,254,000, respectively.
18
11 Commitments and Contingencies
The company leases certain office, manufacturing and warehouse facilities and
transportation and other equipment under noncancellable operating leases. Lease
terms related to real estate range from five to ten years with renewal options
for additional periods ranging from five to fifteen years. The leases generally
require the company to pay real estate taxes, maintenance, insurance and other
expenses. Rental expense for operating leases, net of sublease income, was
$3,502,000 in 1996; $2,486,000 in 1995; and $2,021,000 in 1994. Future minimum
rental commitments for noncancellable operating leases are $2,874,000 in 1997;
$2,466,000 in 1998; $1,458,000 in 1999; $1,221,000 in 2000; $727,000 in 2001;
and $5,242,000 in later years.
The company is involved in several legal proceedings and claims which have
arisen in the ordinary course of its business. These actions, when ultimately
concluded and settled, will not, in the opinion of management, have a material
adverse effect upon the financial position, results of operations or liquidity
of the company.
The company has outstanding capital expenditure commitments of $1,521,000 as
of April 28, 1996.
12 Stock Option Plans
The company has a stock option plan under which options to purchase common stock
may be granted to officers, directors and key employees. At April 28, 1996,
984,187 shares of common stock were authorized for issuance under the plan.
Options are granted under the plan at an option price not less than fair market
value at the date of grant. Options are generally exercisable one year after the
date of grant and generally expire beginning ten years after the date of grant.
At April 28, 1996, 371,437 shares were exercisable and 540,750 shares were
available for future grants. At April 30, 1995, 369,721 shares were exercisable
and 614,000 shares were available for future grants.
Stock option activity under this plan is summarized as follows:
NUMBER OF SHARES
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES OUTSTANDING OPTION PRICE
GRANTED CANCELLED/EXPIRED EXERCISED AT YEAR-END PER SHARE
1994 98,269 0 (288,855) 385,884 $2.82-$14.03
1995 97,250 0 (27,413) 455,721 $2.82-$14.03
1996 83,250 (10,000) (85,534) 443,437 $2.82-$14.03
During fiscal 1995, the company adopted a performance-based stock option plan
which provided for the one-time grant to officers and certain senior managers of
options to purchase 121,000 shares of the company's common stock at $.05 (par
value) per share. Coincident with the adoption of this plan, the company's 1993
stock option plan was amended to reduce the number of shares issuable under that
plan by 121,000 shares. Options under the plan are exercisable the earlier of
January 1, 2003 or approximately 45 days after the end of fiscal 1997 if the
company achieves an annual compound rate of growth in its primary earnings per
share of 17% during the three-year period ending April 28, 1997. At April 28,
1996, 114,000 options were outstanding.
13 Defined Contribution Plan
The company has a defined contribution plan which covers substantially all
employees and provides for participant contributions on a pre-tax basis and
discretionary matching contributions by the company which are determined
annually. Company contributions to the plan were $791,000 in 1996; $771,000 in
1995; and $574,000 in 1994.
19
14 International Sales
International sales, of which 90% were denominated in U.S. dollars, accounted
for 22% of net sales in 1996, 19% in 1995, and 18% in 1994, and are summarized
by geographic area as follows:
(DOLLARS IN THOUSANDS) 1996 1995 1994
Europe $18,927 19,177 17,334
North America
(excluding USA) 23,528 16,707 12,128
Asia and Pacific Rim 12,124 8,969 5,529
South America 2,753 3,749 1,248
Middle East 15,609 6,081 1,740
All other areas 4,456 3,288 6,059
$77,397 57,971 44,038
15 Related Party Transactions
A director of the company is also an officer and director of a major customer of
the company. The amount of sales to this customer was approximately $27,739,000
in 1996; $20,484,000 in 1995; and $15,464,000 in 1994. The amount due from this
customer at April 28, 1996 was approximately $2,608,000 and at April 30, 1995
was approximately $2,443,000.
A director of the company is also a director of the company's lead bank, an
officer and director of one of the company's factors, and an officer and
director of the lessor of the company's office facilities in High Point. The
amount of factor commissions paid to this factor was approximately $28,000 in
1996; $55,000 in 1995; and $158,000 in 1994, and the amount due from the factor
at April 28, 1996 and April 30, 1995 was $67,000 and $808,000, respectively. The
amount of interest and other fees paid to the bank was approximately $2,580,000
in 1996; $2,039,000 in 1995; and $1,555,000 in 1994, and the loans payable to
the bank and amounts guaranteed through letters of credit by the bank at April
28, 1996 and April 30, 1995 aggregated $48,402,000 and $42,862,000,
respectively. Rent expense for the company's office facilities in High Point was
approximately $421,000 in 1996; $435,000 in 1995; and $427,000 in 1994.
Rents paid to entities owned by certain shareholders and officers of the
company and their immediate families were $680,000 in 1996; $670,000 in 1995;
and $630,000 in 1994.
16 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.
The company had approximately $1,924,000 and $6,056,000 of outstanding foreign
exchange forward contracts as of April 28, 1996 and April 30, 1995, respectively
(primarily denominated in German marks and Australian shillings). The contracts
outstanding at April 28, 1996 mature at various dates in fiscal 1997. The fair
values of these contracts were $1,850,000 and $6,553,000 at April 28, 1996 and
April 30, 1995, respectively. Fair values were estimated by obtaining quotes
from banks assuming all contracts were purchased on April 28, 1996 and April 30,
1995, respectively.
20
Report of Independent Auditors
To the Board of Directors and Shareholders of Culp, Inc.:
We have audited the accompanying consolidated balance sheets of Culp, Inc.
and subsidiary as of April 28, 1996 and April 30, 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended April 28, 1996. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Culp, Inc.
and subsidiary as of April 28, 1996 and April 30, 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 28, 1996, in conformity with generally accepted accounting
principles.
(signature of KPMG Peat Marwick LLP appears here)
Greensboro, North Carolina
May 29, 1996
21
Management's Responsibility
For Financial Statements
The management of Culp, Inc. is responsible for the accuracy and consistency
of all the information contained in this Annual Report, including the financial
statements. These statements have been prepared to conform with generally
accepted accounting principles. The preparation of financial statements and
related data involves estimates and the use of judgment.
Culp, Inc. maintains internal accounting controls designed to provide
reasonable assurance that the financial records are accurate, that the assets of
the company are safeguarded, and that the financial statements present fairly
the financial position and results of operations of the company.
KPMG Peat Marwick LLP, the company's independent auditors, conducts an audit
in accordance with generally accepted auditing standards and provides an opinion
on the financial statements prepared by management. Their report for 1996
appears on the preceding page.
The Audit Committee of the Board of Directors reviews the scope of the audit
and the findings of the independent auditors. The internal auditor and the
independent auditors meet with the Audit Committee to discuss audit and
financial reporting issues. The Committee also reviews the company's principal
accounting policies, significant internal accounting controls, the Annual Report
and annual SEC filings (Form 10-K and Proxy Statement).
(signature of Robert G. Culp, III appears here)
Robert G. Culp, III
Chairman and Chief Executive Officer
(signature of Franklin N. Saxon appears here)
Franklin N. Saxon
Senior Vice President and Chief Financial Officer
May 29, 1996
RETURN ON AVERAGE TOTAL CAPITAL
(bar chart appears here, plot points are below)
92 93 94 95 96
6.0% 7.4% 9.2% 9.6% 9.5%
CAPITAL EXPENDITURES
(bar chart appears here, plot points are below)
92 93 94 95 96
$12,396 $11,938 $16,764 $18,058 $14,385
CAPITAL EXPENDITURES AS A PERCENT OF CASH FLOWS
(bar chart appears here, plot points are below)
92 93 94 95 96
126.7% 101.8% 95.1% 78.4% 54.7%
INTERNATIONAL SALES
(bar chart appears here, plot points are below)
92 93 94 95 96
$37,913 $41,471 $44,038 $57,971 $77,397
22
Management's Discussion & Analysis
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.
GENERAL--The company's business, which is linked to the demand for upholstery
fabrics and mattress ticking, is cyclical in nature and can be significantly
affected by changes in overall economic conditions. The company believes the key
economic indicators influencing demand for its products are housing starts,
sales of existing homes, the level of consumer confidence, population
demographics, trends in disposable income and prevailing interest rates for home
mortgages. Industry-wide demand for upholstery fabrics and mattress ticking is
directly determined by consumer purchases of upholstered furniture and bedding
(mattresses and box springs). Although the majority of the company's sales
continues to be derived from sales to U.S.-based manufacturers, international
sales are increasing as a percentage of total shipments. The company believes
that most of its upholstery fabrics and mattress ticking sold internationally is
used in the manufacture of furniture and bedding which is marketed outside the
United States.
OVERVIEW--For the fiscal year ended April 28, 1996, net sales were $351.7
million, up 14% from $308.0 million in fiscal 1995. For the year, sales of
upholstery fabrics increased 11% and accounted for 81% of the company's net
sales. Sales of mattress ticking, including sales for Rayonese, contributed the
balance of net sales and rose 29% from the prior year. The gain in sales
reflected higher shipments of upholstery fabrics and mattress ticking to
U.S.-based manufacturers as well as increased international shipments.
principally of upholstery fabrics. Net income for fiscal 1996 increased to $11.0
million, or $0.98 per share, up from $9.8 million, or $0.87 per share, for
fiscal 1995. The company's business ended fiscal 1996 on a generally strong note
with a 19.6% increase in sales in the fourth quarter. Although the pace of
incoming orders remains positive, there are conflicting projections about the
economy and interest rates over the remainder of the company's fiscal 1997 year.
The company's managerial focus continues to be extending the longer term gains
realized in market share and corporate profitability.
RECENT ACQUISITIONS--On March 6, 1995, the company completed the acquisition of
Rayonese Textile Inc. ("Rayonese"). The transaction was valued at approximately
$10.5 million and included the purchase of 100% of the common stock of Rayonese
and the assumption of that company'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. See also
footnote 2 to the Consolidated Financial Statements.
As of November 1, 1993, the company completed the purchase of the upholstery
fabric business operating as Rossville Mills, Chromatex, and Rossville Velours.
The transaction was valued at $39.3 million and involved the purchase of assets
for cash and the assumption of certain liabilities related to the business. The
assets acquired are principally located in Rossville, Georgia and West Hazelton,
Pennsylvania. The acquisition is described in more detail elsewhere in this
report and in the company's filings with the Securities and Exchange Commission
on form 8-K filed November 16, 1993, and amendments to that filing on Form 8-K/A
filed January 15, 1994, and July 15, 1994. See also footnote 2 to the
consolidated financial statements.
ANALYSIS OF OPERATIONS--The table below sets forth certain items in the
Consolidated Statements of Income as a percentage of net sales. Income taxes are
expressed as a percentage of income before income taxes.
1996 1995 1994
Net sales 100.0% 100.0% 100.0%
Cost of sales 82.2 82.2 82.6
Gross profit 17.8 17.8 17.4
Selling, general and administrative
expenses 11.1 10.9 11.4
Income from operations 6.7 6.9 6.0
Interest expense 1.5 1.5 1.0
Interest income 0.0 0.0 0.0
Other expense 0.3 0.4 0.1
Income before income taxes 4.9 5.0 4.9
Income taxes (*) 36.5 37.0 36.0
Net income 3.1% 3.2% 3.1%
(*) Calculated as a percent of income before income taxes
FISCAL 1996 COMPARED WITH FISCAL 1995--The following table sets forth the
company's sales divided into various categories, including in each case the
percentage change in the category's sales from fiscal 1995 to fiscal 1996. The
first major division is between the company's major product categories,
Upholstery Fabrics and Mattress Ticking. Additionally, sales are broken down by
the company's four business units: Culp Textures, Rossville/Chromatex and
Velvets/Prints, which produce upholstery fabrics, and Culp Home Fashions, which
produces primarily mattress ticking.
(DOLLARS IN THOUSANDS) AMOUNTS PERCENT
PRODUCT CATEGORY/BUSINESS UNIT 1996 1995 CHANGE
Upholstery Fabrics
Culp Textures $ 84,384 85 125 (0.9)%
Rossville/Chromatex 74,203 63,765 16.4 %
158,587 148,890 6.5 %
Velvets/Prints 125,70 106,803 17.7 %
284,28 255,693 11.2 %
Mattress Ticking
Culp Home Fashions 67,379 52,333 28.8 %
$351,667 308,026 14.2 %
23
The company's sales of upholstery fabrics increased $28.6 million, or 11.2%.
Sales from the Rossville/Chromatex and Velvets/Prints business units were up
significantly from last year while sales of the Culp Textures business unit were
down slightly. The gain of $15.0 million in sales of mattress ticking reflected
higher shipments to existing accounts and the additional sales from Rayonese.
Sales of mattress ticking for fiscal 1996 included $7.7 million from Rayonese
which was acquired on March 6, 1995. Rayonese contributed $1.4 million to sales
for the portion of fiscal 1995 in which it was included in the company's
results. International sales, consisting primarily of upholstery fabrics,
increased to $77.4 million, up 34% from fiscal 1995. International shipments
accounted for 22% of the company's sales for fiscal 1996, up from 19% in fiscal
1995. The base of the company's international customers continued to broaden,
with sales to over 50 countries during fiscal 1996.
Gross profit for fiscal 1996 increased by $7.9 million and remained constant
as a percentage of net sales at 17.8%. The cost of most raw materials generally
rose throughout fiscal 1996, and the company was unable to offset very much of
the impact of these increases through higher prices. During the latter part of
the year, the company began experiencing some easing in the rate of increase in
the cost of raw materials. A continuation of this trend could help the company's
profitability in future periods.
Selling, general and administrative expenses increased as a percentage of
net sales for fiscal 1996. Although the company is continuing to emphasize
cost-containment programs, planned increases in expenses related to the design
of new fabrics and higher selling commissions related to international sales led
to the higher ratio of expenses to net sales.
Interest expense for fiscal 1996 rose 12.7% to $5.3 million. The increase
principally reflected additional borrowings related to funding the acquisition
of Rayonese, capital expenditures and an increased level of working capital
needed to support increased sales. The company experienced generally lower
prevailing interest rates during fiscal 1996. The effective tax rate for fiscal
1996 decreased slightly to 36.5% compared with 37.0% in fiscal 1995.
FISCAL 1995 COMPARED WITH FISCAL 1994--The following table sets forth the
company's sales divided into various categories, including in each case the
percentage change in the category's sales from fiscal 1994 to fiscal 1995. The
first major division is between the company's major product categories,
Upholstery Fabrics and Mattress Ticking. Additionally, sales are broken down by
the company's four business units: Culp Textures, Rossville/Chromatex and
Velvets/Prints, which produce upholstery fabrics, and Culp Home Fashions, which
produces primarily mattress ticking.
(DOLLARS IN THOUSANDS) AMOUNTS PERCENT
PRODUCT CATEGORY/BUSINESS UNIT 1995 1994 CHANGE
Upholstery Fabrics
Culp Textures $ 85,125 78,317 8.7 %
Rossville/Chromatex 63,76 531,047 N/A
148,890 109,364 36.1 %
Velvets/Prints 106,80 97,036 10.1 %
255,69 206,400 23.9%
Mattress Ticking
Culp Home Fashions 52,333 38,649 35.4 %
$308,026 245,049 25.7 %
The increase of $49.3 million in upholstery fabrics was attributable
primarily to the incremental sales of $32.8 million contributed by
Rossville/Chromatex acquired on November 1, 1993. Excluding that contribution,
the company's sales of upholstery fabrics increased $16.5 million, or 8.0%.
Shipments of each business unit within upholstery fabrics were up for the year.
The sales gain in mattress ticking primarily reflected higher shipments to
existing accounts and, to a lesser degree, to the success of programs to broaden
the customer base. Sales of mattress ticking for fiscal 1995 included $1.4
million from Rayonese, which was acquired on March 6, 1995. International sales,
consisting primarily of upholstery fabrics, increased to $58.0 million, up 32%
from fiscal 1994. This category of sales represented 19% of total sales in
fiscal 1995 and 18% of total sales in fiscal 1994.
Gross profit for fiscal 1995 increased both in absolute dollars and as a
percentage of net sales. The Rossville/Chromatex and Culp Home Fashions business
units contributed significantly to those gains. Culp Textures and Velvets/Prints
were up, although not as significantly. The company experienced increased raw
material prices during fiscal 1995 which were not passed along to customers
through price increases. Selling, general and administrative expenses declined
as a percentage of net sales for fiscal 1995.
Interest expense for fiscal 1995 increased 88% to $4.7 million. The increase
principally reflected the full-year inclusion of the bank borrowings and
financing provided by the seller related to the acquisition of
Rossville/Chromatex and increased capital expenditures. Significantly higher
prevailing interest rates also contributed to the increase in interest expense
for the year.
Other expense for fiscal 1995 increased to $1.1 million compared with
$350,000 in fiscal 1994. The principal factors contributing to the increased
expense were amortization of goodwill related to the Rossville/Chromatex
acquisition and to higher debt issue costs.
The effective tax rate for fiscal 1995 increased to 37.0% compared with
36.0% in fiscal 1994. The increase was primarily due to the significantly higher
level of pretax income for fiscal 1995.
24
LIQUIDITY AND CAPITAL RESOURCES--The company maintained a sound financial
position during fiscal 1996. Funded debt (which includes long-and short-term
debt less restricted investments) increased 5.3% to $76.8 million at the close
of fiscal 1996, up from $72.9 million a year earlier. As a percentage of total
capital (funded debt plus shareholders' equity), the company's debt declined to
48.5% as of April 28, 1996 compared with 50.5% as of April 30, 1995. The
company's current ratio at the close of fiscal 1996 increased to 2.2 compared
with 1.7 a year earlier. Shareholders' equity increased 14.1% to $81.4 million
as of April 28, 1996 compared with $71.4 million as of April 30, 1995.
Cash flows from operating activities totaled $15.7 million for fiscal 1996.
The primary factor contributing to operating cash flows was cash from earnings
(net income plus depreciation, amortization, and deferred income taxes) of $26.3
million. An increase of $7.8 million in accounts receivable and $1.6 million in
inventories offset a portion of these sources of operating cash flows. The funds
from operations and financing activities were used to fund capital expenditures
for fiscal 1996 of $14.4 million compared with $18.1 million for fiscal 1995.
The company's borrowings are through financing arrangements with two banks
that provide for a $36.0 million term loan and a $33.5 million revolving credit
facility and letters of credit on its IRB's. As of April 28, 1996, the company
had $10.2 million in borrowings available under the revolving credit facility.
In April 1996, the company amended its loan agreements to provide for certain
less stringent financial covenants including the provision for all borrowings
under the agreement to be unsecured.
The company's Board of Directors has approved a capital expenditure budget
of $16.5 million for fiscal 1997. The company believes that cash flows from
operations and funds available under existing credit facilities and new IRB's,
where available, will be sufficient to fund capital expenditures and working
capital requirements during fiscal 1997.
At April 28, 1996, the company had five interest rate swap agreements with
two banks to reduce its exposure to floating interest rates on a portion of its
variable rate borrowings. The effect of these contracts is to "fix" the interest
rate payable on approximately 43% 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. See footnotes 10 and 16
to the company's consolidated financial statements.
NEW ACCOUNTING PRONOUNCEMENTS--The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," which permits a change from the intrinsic value
based method of accounting for stock options (Accounting Principles Board
Opinion No. 25) to a fair value based method for employee stock option and
similar equity investments.
As an alternative, the Statement allows the continued use of the intrinsic
value based method accompanied with pro forma disclosures of the fair value
based method. The company plans to adopt this alternative.
Other than the disclosure required by SFAS No. 123, the implementation of
new accounting standards will not have a material impact on the company's
financial statements in 1997.
INFLATION--The company has experienced higher costs of raw materials over the
past two fiscal years. Other operating expenses such as for manufacturing
supplies and spare parts also rose over this period, putting pressure on the
company's profitability. Competitive conditions did not allow the company to
offset very much of these increases through higher prices for its products. Some
easing in the cost of raw materials has begun to occur.
FORWARD-LOOKING INFORMATION--This annual report to shareholders and the
company's annual report on Form 10-K contain 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 existing home sales, consumer confidence, and trends in disposable
income. Decreases in these economic indicators could have a negative effect on
the company's business and its prospects. Likewise, increases in interest rates,
particularly home mortgage rates, and increases in consumer debt or the general
rate of inflation, could affect the company adversely.
EBITDA
MARGIN
(Bar chart appears here, plot points are below)
92 93 94 95 96
6.6% 7.4% 9.5% 10.4% 10.1%
CASH DIVIDENDS PER SHARE
(Bar chart appears here, plot points are below)
92 93 94 95 96
$0.049 $0.064 $0.080 $0.100 $0.110
25
Selected
Quarterly Data
FISCAL FISCAL FISCAL FISCAL FISCAL FISCAL
1996 1996 1996 1996 1995 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS) 4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER 4TH QUARTER 3RD QUARTER
INCOME STATEMENT DATA (4) (5)
net sales $ 102,162 86,476 90,672 72,357 85,441 77,791
cost of sales 82,957 71,447 74,565 60,159 69,039 64,785
gross profit 19,205 15,029 16,107 12,198 16,402 13,006
SG & A expenses 11,300 9,639 9,675 8,454 9,205 8,295
income from operations 7,905 5,390 6,432 3,744 7,197 4,711
interest expense 1,352 1,279 1,388 1,297 1,374 1,120
interest income (92) 0 0 0 (3) (14)
other expense 365 266 219 107 470 245
income before income taxes 6,280 3,845 4,825 2,340 5,356 3,360
income taxes 2,230 1,430 1,825 825 1,931 1,260
net income 4,050 2,415 3,000 1,515 3,425 2,100
EBITDA (6) $ 10,814 8,450 9,494 6,852 9,917 7,523
depreciation 3,070 3,140 3,071 3,067 3,020 2,897
cash dividends 310 309 309 308 280 280
weighted average shares outstanding 11,284 11,211 11,211 11,207 11,205 11,205
PER SHARE DATA (3) (4) (5)
net income $ 0.36 0.22 0.27 0.14 0.31 0.19
cash dividends 0.0275 0.0275 0.0275 0.0275 0.025 0.025
book value 7.21 6.89 6.72 6.48 6.37 6.09
BALANCE SHEET DATA (4) (5)
working capital $ 56,953 52,266 46,373 45,069 38,612 46,399
property, plant and equipment 76,961 73,356 73,876 75,744 75,805 69,373
total assets 211,644 197,704 200,404 192,725 194,999 179,138
capital expenditures 6,675 2,620 2,084 3,006 4,452 3,422
long-term debt 74,941 68,112 65,137 67,662 62,187 65,711
funded debt (1) 76,791 79,667 76,692 79,217 72,947 70,209
shareholders' equity 81,446 77,623 75,351 72,624 71,396 68,251
capital employed (7) 158,237 157,290 152,043 151,841 144,343 138,460
RATIOS & OTHER DATA (4) (5)
gross profit margin 18.8% 17.4% 17.8% 16.9% 19.2% 16.7%
operating income margin 7.7 6.2 7.1 5.2 8.4 6.1
net profit margin 4.0 2.8 3.3 2.1 4.0 2.7
EBITDA margin 10.6 9.8 10.5 9.5 11.6 9.7
effective income tax rate 35.5 37.2 37.8 35.3 36.1 37.5
funded debt-to-total capital ratio (1) 48.5 50.6 50.4 52.2 50.5 50.7
working capital turnover 5.3 5.3 5.4 5.4 5.6 5.5
days sales in receivables 46 43 47 45 47 44
inventory turnover 6.8 5.7 6.0 5.1 6.1 6.0
STOCK DATA (3)
stock price
high $ 13.25 11.50 11.00 10.00 9.75 10.50
low 10.00 9.50 9.00 7.75 8.50 8.75
close 13.00 10.00 9.75 7.75 9.75 9.50
P/E ratio (2)
high 13.5 12.2 12.1 11.2 11.2 12.3
low 10.2 10.1 9.9 8.7 9.7 10.3
trading volume (shares) 1,325 1,142 1,011 1,454 1,617 1,886
FISCAL FISCAL
1995 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS) 2ND QUARTER 1ST QUARTER
INCOME STATEMENT DATA (4) (5)
net sales 78,445 66,349
cost of sales 64,272 55,249
gross profit 14,173 11,100
SG & A expenses 8,363 7,569
income from operations 5,810 3,531
interest expense 1,144 1,077
interest income (24) (23)
other expense 190 177
income before income taxes 4,500 2,300
income taxes 1,700 850
net income 2,800 1,450
EBITDA (6) 8,500 6,112
depreciation 2,718 2,622
cash dividends 280 280
weighted average shares outstanding 11,205 11,198
PER SHARE DATA (3) (4) (5)
net income 0.25 0.13
cash dividends 0.025 0.025
book value 5.93 5.70
BALANCE SHEET DATA (4) (5)
working capital 42,964 43,164
property, plant and equipment 68,848 66,535
total assets 178,404 164,585
capital expenditures 5,031 5,153
long-term debt 63,462 64,187
funded debt (1) 67,846 66,493
shareholders' equity 66,431 63,912
capital employed (7) 134,277 130,405
RATIOS & OTHER DATA (4) (5)
gross profit margin 18.1% 16.7%
operating income margin 7.4 5.3
net profit margin 3.6 2.2
EBITDA margin 10.8 9.2
effective income tax rate 37.8 37.0
funded debt-to-total capital ratio (1) 50.5 51.0
working capital turnover 5.8 5.7
days sales in receivables 50 42
inventory turnover 6.2 5.8
STOCK DATA (3)
stock price
high 9.25 12.50
low 7.50 7.25
close 8.75 8.75
P/E ratio (2)
high 11.2 17.0
low 9.1 9.8
trading volume (shares) 3,702 2,956
(1) FUNDED DEBT INCLUDES LONG- AND SHORT-TERM DEBT, LESS RESTRICTED INVESTMENTS.
(2) P/E RATIOS BASED ON TRAILING 12-MONTH INCOME PER SHARE.
(3) SHARE AND PER SHARE DATA ADJUSTED FOR STOCK SPLITS, EXCEPT FOR TRADING
VOLUME.
(4) ROSSVILLE/CHROMATEX INCLUDED IN CONSOLIDATED RESULTS FROM ITS NOVEMBER 1,
1993 ACQUISITION BY CULP.
(5) RAYONESE INCLUDED IN CONSOLIDATED RESULTS FROM ITS MARCH 6, 1995 ACQUISITION
BY CULP.
(6) EBITDA REPRESENTS EARNINGS BEFORE INTEREST, INCOME TAXES, DEPRECIATION AND
AMORTIZATION.
(7) CAPITAL EMPLOYED INCLUDES FUNDED DEBT AND SHAREHOLDERS' EQUITY.
26
Selected
Annual Data
PERCENT FIVE-YEAR
FISCAL FISCAL FISCAL FISCAL FISCAL CHANGE GROWTH
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS) 1996 1995 1994 1993 1992 1996/1995 RATE
INCOME STATEMENT DATA (4) (5)
net sales $ 351,667 308,026 245,049 200,783 191,311 14.2% 15.1%
cost of sales 289,129 253,345 202,426 168,599 161,204 14.1 14.5
gross profit 62,538 54,681 42,623 32,184 30,107 14.4 18.2
S G & A expenses 39,068 33,432 27,858 24,203 24,597 16.9 12.2
income from operations 23,470 21,249 14,765 7,981 5,51 10.5 35.9
interest expense 5,316 4,715 2,515 1,409 1,421 12.7 27.9
interest income (92) (64) (79) (29) (136) 43.8 --
other expense 956 1,082 350 1 288 (11.6) 26.8
income before income taxes 17,290 15,516 11,979 6,600 3,937 11.4 35.8
income taxes 6,310 5,741 4,314 2,099 964 9.9 49.4
net income 10,980 9,775 7,665 4,501 2,973 12.3 30.5
EBITDA(6) $ 35,610 32,052 23,256 14,933 12,562 11.1 26.0
depreciation 12,348 11,257 8,497 6,724 7,085 9.7 14.8
cash dividends 1,236 1,120 887 696 533 10.4 20.5
weighted average shares outstanding 11,234 11,203 11,076 10,875 10,827 0.3 0.8
PER SHARE DATA (3) (4) (5)
net income $ 0.98 0.87 0.69 0.41 0.27 12.6% 29.4%
cash dividends 0.11 0.10 0.08 0.064 0.049 10.0 19.6
book value 7.21 6.37 5.60 5.01 4.66 13.2 10.1
BALANCE SHEET DATA (4) (5)
working capital $ 56,953 38,612 37,949 34,942 26,665 47.5% 11.9%
property, plant and equipment 76,961 75,805 64,004 44,529 39,315 1.5 17.5
total assets 211,644 194,999 164,948 106,548 93,195 8.5 19.0
capital expenditures 14,385 18,058 16,764 11,938 12,396 (20.3) 5.2
businesses acquired 0 10,455 38,205 0 0 0 --
long-term debt 74,941 62,187 58,512 23,147 14,082 20.5 34.8
funded debt (1) 76,791 72,947 58,639 26,582 16,817 5.3 33.0
shareholders' equity 81,446 71,396 62,649 54,521 50,651 14.1 11.2
capital employed (7) 158,237 144,343 121,288 81,103 67,468 9.6 19.0
RATIOS & OTHER DATA (4) (5)
gross profit margin 17.8% 17.8% 17.4% 16.0% 15.7%
operating income margin 6.7 6.9 6.0 4.0 2.9
net profit margin 3.1 3.2 3.1 2.2 1.6
EBITDA margin 10.1 10.4 9.5 7.4 6.6
effective income tax rate 36.5 37.0 36.0 31.8 24.5
funded debt-to-total capital
ratio (1) 48.5 50.5 48.3 32.8 24.9
return on average total capital 9.5 9.6 9.2 7.4 6.0
return on average equity 14.4 14.6 13.1 8.6 6.0
working capital turnover 5.3 5.6 5.7 5.4 5.7
days sales in receivables 46 47 43 43 43
inventory turnover 6.0 6.0 6.3 6.4 7.0
STOCK DATA (3)
stock price
high $ 13.25 12.50 17.33 7.33 5.59
low 7.75 7.25 5.67 3.60 3.28
close 13.00 9.75 11.63 7.20 5.23
P/E ratio (2)
high 13.5 14.3 25.1 17.7 20.4
low 7.9 8.3 8.2 8.7 11.9
trading volume (shares) 4,932 10,161 11,178 2,646 1,497
(1) - (7) SEE SELECTED QUARTERLY DATA TABLE FOOTNOTE.
27
Corporate
Directory
Robert G. Culp, III
Chairman of the Board and Chief Executive Officer;
Director (E,N)
Howard L. Dunn, Jr.
President and Chief Operating Officer; Director (E)
Andrew W. Adams
Senior Vice President of Corporate Development; Director (E)
Franklin N. Saxon
Senior Vice President and Chief Financial Officer, Treasurer, Secretary;
Director (E)
Kenneth M. Ludwig
Senior Vice President-Human Resources; Assistant Secretary
Baxter P. Freeze, Sr.
Director (A,C); Retired President, Chairman of the Board,
Commonwealth Hosiery Mills, Inc., Randleman, NC
Earl M. Honeycutt
Director (A,C); Retired President, Amoco Fabrics and Fibers Company,
Atlanta, GA
Bland W. Worley
Director (A,C,N); Retired Chairman of the Board and Chief Executive
Officer, BarclaysAmericanCorporation,
Charlotte, NC
Patrick H. Norton
Director (N); Senior Vice President, Sales and Marketing;
La-Z-Boy Chair Company, Monroe, MI
Judith C. Walker
Director
Charlotte, NC
Earl N. Phillips, Jr.
Director; Co-Founder and President, First Factors Corporation, High
Point, NC
BOARD COMMITTEES:
A-AUDIT
C-COMPENSATION
E-EXECUTIVE
N-NOMINATING
Shareholder
Information
TRANSFER AGENT
Wachovia Bank of North Carolina, N.A.
Corporate Trust Department
P. O. Box 3001
Winston-Salem, North Carolina 27102
(800) 633-4236
GENERAL COUNSEL
Robinson, Bradshaw & Hinson, PA
Charlotte, NC 28246
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Greensboro, NC 27401
MARKET MAKERS
Herzog, Heine, Geduld, Inc.
Interstate/Johnson Lane
Mayer & Schweitzer, Inc.
Nash Weiss/Div. of Shatkin Inv.
Neuberger & Berman
Raymond, James & Associates
Robinson-Humphrey Co., Inc.
Sherwood Securities Corp.
Troster Singer Corp.
Wheat First Securities, Inc.
STOCK LISTING
Culp, Inc. common stock is traded on the Nasdaq Stock Market (National Market)
under the symbol CULP. As of April 28, 1996, the company had approximately 2,800
shareholders based on the number of holders of record and an estimate of the
number of individual participants represented by security position listings.
CORPORATE HEADQUARTERS
Culp, Inc.
101 South Main Street
Post Office Box 2686
High Point, NC 27261
(910) 889-5161
FORM 10K, OTHER INVESTOR INFORMATION
If you would like a copy of the Form 10K (Annual Report filed with the
Securities and Exchange Commission) or other information about Culp, please
contact Frank Saxon at the address listed above or at telephone number (910)
888-6266.
ANNUAL MEETING
Shareholders are cordially invited to attend the
company's annual meeting to be held
Tuesday, September 17, 1996 at 9:00 AM in
the Radisson Hotel,
135 South Main Street,
High Point,
North Carolina.
28
(Full page photo of fabric appears here)
CULP, INC.
101 SOUTH MAIN STREET
POST OFFICE BOX 2686
HIGH POINT
NORTH CAROLINA 27261
(910) 889-5161
PHOTOGRAPHY: STEVE KNIGHT; OFFICE CHAIR PHOTO COURTESY OF MILLER DESK INC.