1997
CULP
ANNUAL REPORT
(A graphic appears here of number 25)
CELEBRATING 25 YEARS
ABOUT CULP
(Three photos appear here)
Culp's team of 3,100 associates markets more than 2,000 patterns of upholstery
fabrics for furniture and over 600 styles of mattress ticking to an
international array of customers. The company is a fully integrated marketer to
the furniture, bedding and institutional furnishings industries with
manufacturing plants in North and South Carolina, Georgia, Pennsylvania and
Canada.
ABOUT THE COVER
The listing of Culp's shares on the New York Stock Exchange in December 1996
highlighted a year in which we celebrated our 25th corporate anniversary. Culp's
growth over that period has been headlined by success in becoming the world's
largest marketer of upholstery fabrics for furniture and a leading supplier of
mattress ticking.
(CFI Listed NYSE logo appears here)
(Five photos appear here)
HIGHLIGHTS
CULP'S COMMON SHARES WERE LISTED on the New York Stock Exchange (December 1996)
with the new trading symbol, CFI.
NET SALES FOR 1997 REACHED A NEW HIGH of $398.9 million, up 13% from 1996, and
increased for the seventh consecutive year. Net income also set a new
annual record and increased for the eighth consecutive year to $13.8
million, or $1.18 per share, up 20% from 1996.
NET INCOME OF $4.8 MILLION IN THE FOURTH QUARTER represented the eighteenth
consecutive quarter of record earnings versus the comparable year-earlier
period.
INTERNATIONAL SALES ROSE 31% in 1997 and accounted for $101.6 million, or 25%,
of net sales.
THE BOARD INCREASED the regular quarterly cash dividend in June 1997 for the
eighth consecutive year, representing a 17% growth rate over the last five
years. The current indicated annual rate of $0.14 per share represents an
8% increase over the previous annualized payout.
CAPITAL EXPENDITURES for 1997 totaled a record $27.0 million, increasing the
amount invested over the past six years to $100.5 million.
A SECONDARY OFFERING of common stock completed in February 1997 provided $16.3
million in additional equity capital.
CULP'S FINANCIAL POSITION at the close of 1997 included a funded
debt-to-capital ratio of 37% and a new $125 million line of credit with
an international syndicate of financial institutions.
THE AVERAGE PRICE of Culp's shares during 1997 represented a 29% compound
appreciation to shareholders over the past five years.
(THREE GRAPHS APPEAR BELOW WITH THE FOLLOWING PLOT POINTS.)
NET SALES ($ MILLIONS)
93 94 95 96 97
$200.8 $245.0 $308.0 $351.7 $398.9
NET INCOME ($ MILLIONS)
93 94 95 96 97
$4.5 $7.7 $9.8 $11.0 $13.8
INCOME PER SHARE
93 94 95 96 97
$0.41 $0.69 $0.87 $0.98 $1.18
(CUSTOMER: PLEASE FILL IN THE PLOT POINTS ABOVE.)
FIVE-YEAR
(AMOUNTS IN THOUSANDS, FISCAL FISCAL PERCENT GROWTH
EXCEPT PER SHARE DATA) 1997 1996 CHANGE RATE
- -------------------------------------------------------------------------
STATEMENTS OF INCOME
Net sales $ 398,879 351,667 13.4% 15.8%
Gross profit 72,485 62,538 15.9 19.2
Income from operations 27,427 23,470 16.9 37.9
Net income 13,770 10,980 25.4 35.9
Average shares outstanding 11,624 11,234 3.5 1.4
PER SHARE
Net income $ 1.18 0.98 20.4% 34.3%
Cash dividends 0.13 0.11 18.2 21.6
Book value 8.79 7.21 21.9 13.5
Year-end stock price 16.63 13.00 27.9 26.0
BALANCE SHEET
Working capital $ 69,777 56,953 22.5% 21.2%
Total assets 243,952 211,644 15.3 21.2
Funded debt 65,623 76,791 (14.5) 31.3
Shareholders' equity 110,789 81,446 36.0 17.0
RATIOS
Gross profit margin 18.2% 17.8%
Operating income margin 6.9 6.7
Net income margin 3.5 3.1
Return on average equity 15.2 14.4
Funded debt to capital 37.2 48.5
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THROUGHOUT THIS ANNUAL REPORT, 1997, 1996, 1995, 1994 AND 1993 ARE USED TO
REFER, RESPECTIVELY, TO THE COMPANY'S FISCAL YEARS THAT ENDED IN THOSE SAME
CALENDAR PERIODS.
GROWTH OF A $10,000 INVESTMENT IN CULP
The graph below illustrates the 251% appreciation through 1997 in the value of a
$10,000 investment in Culp's shares five years ago. The values plotted exclude
dividends and are based on the average of the high and low for the stock each
year, adjusted for the three stock splits distributed over this period.
1992 1993 1994 1995 1996 1997
$10,000 $12,300 $25,900 $22,300 $23,600 $35,100
(PHOTOS OF ROBERT G. CULP, III AND HOWARD L. DUNN, JR. APPEAR HERE)
To Our Fellow Shareholders
That's what I was aiming at," is the quip Lee Trevino once offered after
holing a remarkable shot from the fairway. It would be nice to say that when we
founded Culp 25 years ago, our aim was to become the world's largest marketer of
upholstery fabrics for furniture. We are indeed recognized today as the global
leader in that portion of our business, but we cannot honestly claim that as an
objective set in 1972. The principles and values laid as Culp's foundation,
however, remain as vital to our success today as when we started as a small, but
very ambitious, distributor of upholstery fabrics. We knew then that our
fortunes depended on one goal: delivering value to customers. As a fully
integrated manufacturer with a global array of customers, we still hold that
purpose before us every day.
We thought it was appropriate to use the cover to highlight Culp's 25th
anniversary. The celebration was capped in 1997 with the listing of our shares
on the New York Stock Exchange. We are proud of that milestone which has
afforded us increased visibility among individual and institutional investors.
Any corporation has a number of stakeholders dependent upon its progress, but we
keenly recognize the importance of delivering a positive return to those who
have provided the capital for us to pursue our goals. We are therefore
especially pleased with the performance of Culp's shares which have appreciated
in value at a faster rate than most broad market measures over the past five
years.
SECONDARY OFFERING UNDERSCORES SOUND GROWTH STRATEGY
Culp's growth since our initial public offering had been funded entirely
from internally generated funds and borrowings. During 1997, we decided to make
a secondary offering to obtain additional capital to fund our expansion plans.
The net result was the completion in February 1997 of an offering of common
stock that added $16.3 million in equity capital to Culp. Marketing the offering
included more than 50 meetings with investors both in the United States and
overseas. We found these contacts an excellent forum for presenting our growth
strategy to audiences well versed in business objectives who were able--and
certainly willing--to challenge our plans. The bottom line was a strong
endorsement for Culp's potential for future growth. Our statement was that we
were going to stick with essentially the game plan that has produced 18
consecutive quarters of record earnings and 16 consecutive quarters of record
sales versus comparable year-earlier periods.
But underlying that broad comment was our presentation of Culp's strengths.
Attributes that we showcased included one of the broadest lines of
upholstery fabrics and mattress ticking available, a versatility in meeting
each customer's needs and a resolve throughout the organization to deliver
a consistently high level of customer service and product quality. We tried
to simplify what in reality is not an easy recipe by focusing on three
fundamental initiatives. One is our willingness and flexibility to pursue
new market opportunities. Another is the exceptional opportunity which we
have to continue building international sales. And the third is our ongoing
interest in acquiring complementary businesses in an industry where
ownership of resources is becoming more concentrated. We thought that a
sound outline for this letter was to summarize each of these areas for you,
our shareholders.
ONGOING CAPITAL INVESTMENTS SUPPORT MARKET LEADERSHIP
Maybe opportunistic is the best term to use in characterizing how Culp has built
market share. We have benefited from our heritage as a distributor that was
willing and eager to pursue any opening for a sale. Realistically, we are
probably not as nimble as we once were. The compensation for that, however,
is a vertically-integrated organization that is regarded as a valued
partner by many of the largest manufacturers of furniture and bedding in
the world. Achieving that competitive leadership has involved deliberate
planning and lots of capital. Over the past six years, we have invested
more than $100 million to modernize and expand our manufacturing capacity.
The importance we place on manufacturing efficiency was underscored during 1997
by record capital expenditures of approximately $27 million. The diversity
of some of the projects represented by this spending is noteworthy. The
addition of new air-jet weaving machines substantially increased our
capacity for jacquard greige, or unfinished, goods. We installed a
state-of-the-art flock coating line to produce flock greige goods. A new
manufacturing facility, completed in July 1997, is designed specifically
for wet printing these flocked fabrics to produce upholstery patterns that
are increasingly popular worldwide. Although these are different projects,
they are obviously linked. Each complements the other, expanding our
capacity while increasing our vertical integration and ability to help
manufacturers differentiate their products with fabrics with distinctive
patterns and textures.
(THREE GRAPHS APPEAR BELOW WITH THE FOLLOWING PLOT POINTS.)
CASH DIVIDENDS
PER SHARE
93 94 95 96 97
$0.64 $0.08 $0.10 $0.11 $0.13
SHAREHOLDER'S EQUITY
($ MILLIONS)
93 94 95 96 97
$54.5 $62.6 $71.4 $81.4 $110.8
RETURN ON
AVERAGE EQUITY
93 94 95 96 97
8.6% 13.1% 14.6% 14.4% 15.2%
INTERNATIONAL SALES CONTINUE GROWTH TREND
The 31% growth in international sales during 1997 signaled the strong
momentum that has been achieved in this portion of our business.
International sales have risen sixfold since 1990, illustrating the
global aspect of Culp's marketing efforts. Our customer base includes
distributors and manufacturers in more than 50 countries. Furniture and
bedding manufacturers throughout the world value the designs and
finishes on our fabrics as essential components of their marketing
programs. The popularity of American styles has played directly to our
strengths although we are increasingly starting to market designs
crafted for specific cultural tastes. We have a design initiative to
keep Culp at the leading edge of new patterns, colorations and
textures, and we have the established manufacturing resources and
distribution capability to supply accounts throughout the world.
Apart from outstanding growth in international sales, the geographical
expansion of our customer base firmly evidences the company's
world-class standing. Only a few years ago, our shipments outside the
United States were largely confined to the nearby markets of Canada and
Mexico. Europe has now become the largest market outside of North
America for international sales, and we ship an increasing volume to
distributors in the Middle East, Asia and the Pacific Rim. We are
continuing to broaden that geographical diversity. Establishing our own
distribution facilities in certain international markets is a distinct
possibility. We are also increasing our use of CulpLink. This
proprietary, computer-based information system allows customers via the
internet to check and enter orders; verify the exact status of any
shipment with individual identification of each roll and color
specification; and review sales and invoice history.
ACQUISITIONS OFFER ACCELERATED GROWTH POTENTIAL
Our progression toward an integrated manufacturing process has included
several strategic acquisitions. Purchases such as Rossville/Chromatex
in 1994 and Rayonese the following year added
(TWO GRAPHS APPEAR BELOW WITH THE FOLLOWING PLOT POINTS.)
INTERNATIONAL SALES
($ MILLIONS)
93 94 95 96 97
$41.5 $44.0 $58.0 $77.4 $101.6
CAPITAL EXPENDITURES
($ MILLIONS)
93 94 95 96 97
$11.9 $16.8 $18.1 $14.4 $27.0
incremental sales and earnings. Equally important, these operations
substantially broadened our marketing footprint. A stimulus for
acquiring other established fabric marketers is the consolidation
occurring at all levels within the furniture industry. Simply put, the
leading firms are increasing their market share each year. The ten
largest manufacturers of furniture in the United States accounted for
approximately 38% of total industry sales in the latest survey, up from
23% eleven years prior. These larger companies are seeking true
corporate partners who can provide not only the necessary volume of
fabrics but also consistently high product quality and customer
service. We are proud of the accomplishments Culp has made in each of
these areas and understand fully that achieving customer satisfaction
demands ongoing focus and attention.
Shortly after the close of 1997, we announced a letter of intent to acquire
certain of the assets of Phillips Mills. The inclusion of these
operations would enhance our market position in jacquard fabrics and
woven velvets. This proposed transaction illustrates our active pursuit
of other steps that can bolster Culp's market share. This initiative is
soundly supported by a strong balance sheet that at the close of 1997
included a funded debt-to-capital position of 37%. We were able to
capitalize on that financial position by closing a $125 million line of
credit that replaced an existing $65 million credit facility. This
additional loan resource significantly broadens our flexibility to
consider future growth opportunities.
CONSTRUCTION OF DESIGN CENTER UNDER WAY
As our worldwide stature has increased in recent years, we have
increasingly recognized the importance of the design of new patterns,
colorations and textures. To deliver value, our fabrics and ticking
must enhance the retail appeal of customers' products. We have
responded to this need by adding experienced personnel and investing in
new computer systems and equipment. Moreover, we have emphasized the
importance of instilling cooperation at all corporate levels to ensure
that design is not just expressed but delivered. A tangible expression
of this commitment is
(TWO PHOTOS APPEAR HERE)
(LEFT) SUPERIOR CUSTOMER SERVICE CULP'S DEDICATION TO CUSTOMER SERVICE IS A
CONSTANT. THE STANDARDS FOR QUALITY AND VALUE THAT MATTER ARE SET FOR US BY THE
MANY ACCOUNTS WE SERVE WORLDWIDE.
(RIGHT) PRODUCT DESIGN AND INNOVATION OUR FABRICS AND TICKING MUST ENHANCE THE
RETAIL APPEAL OF CUSTOMERS' PRODUCTS. THE HOWARD L. DUNN DESIGN CENTER, OPENING
IN 1998, WILL CONSOLIDATE MOST OF OUR DESIGN RESOURCES TO STRENGTHEN OUR DESIGN
LEADERSHIP.
INCREASING WORLDWIDE PRESENCE CULP'S INTERNATIONAL SALES HAVE RISEN SIXFOLD
SINCE 1990, HIGHLIGHTING THE GLOBAL ASPECT OF THE COMPANY'S MARKETING EFFORTS.
WET-PRINTED FLOCK FABRICS ARE ONE OF THE GROWTH CATEGORIES IN INTERNATIONAL
MARKETS, AND 1997 CAPITAL PROJECTS INCLUDED A FLOCK COATING LINE AS WELL AS A
NEW DEDICATED MANUFACTURING FACILITY TO ENSURE CULP'S CAPACITY TO SUPPORT FUTURE
DEMAND.
the new Howard L. Dunn Design Center that is planned for completion in
December 1997. We are excited about how this unique facility will
consolidate most of our design resources, providing an exceptional
environment for creativity and imagination.
INCENTIVES BASED ON EARNINGS GROWTH
Our corporate culture is clearly fixed on growth. We believe that an
integral part of the strategy must be establishing appropriate goals -
and rewards. Our executive compensation program has a definite focus on
increasing earnings per share. If we are successful, the resulting
corporate performance should mean an above-average return for
shareholders.
We are prepared to face a competitive marketplace again in 1998. Based on
the recent positive trends in overall consumer confidence, we believe
the year will be one of sound progress for Culp. As we have indicated
before, consumer spending on home furnishings can be influenced by a
host of variables including interest rates, employment levels and the
buoyancy of the overall economy. We have the advantage of the capital
projects during 1997 which have provided us increased capacity in some
of the most popular categories of fabrics and ticking. We have set an
aggressive plan to continue increasing international sales, and our
marketing programs are set soundly on the principles of innovation,
styling leadership and creativity. Our task is to capitalize on this
competitive advantage and further increase our market share.
Sincerely,
/s/ Robert G. Culp, III
Robert G. (Rob) Culp, III
Chairman and Chief Executive Officer
/s/ Howard L. Dunn, Jr.
Howard L. Dunn, Jr.
President and Chief Operating Officer
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following analysis of the financial condition and results of operations
should be read in conjunction with the Financial Statements and Notes and other
exhibits included elsewhere in this report.
Overview
Culp believes it is the largest manufacturer and marketer in the world for
upholstery fabrics for furniture and is one of the leading global producers of
mattress fabrics (or ticking). The company's fabrics are used primarily in the
production of residential and commercial upholstered furniture and bedding
products, including sofas, recliners, chairs, love seats, sectionals, sofa-beds,
office seating, modular office systems and mattress sets. Although Culp markets
fabrics at most price levels, the company emphasizes fabrics that have broad
appeal in the promotional and popular-priced categories of furniture and
bedding.
Culp's position as a leading worldwide manufacturer and marketer of
upholstery fabrics and mattress ticking has been achieved through internal
expansion and the integration of strategic acquisitions. In 1995, the company
completed the acquisition of Rayonese Textile Inc. ("Rayonese") in a transaction
valued at $10.5 million. The acquisition of Rayonese substantially increased the
company's capacity to manufacture jacquard greige, or unfinished, goods used by
the company in the production of printed fabrics. In 1994, the company completed
the purchase of Rossville/Chromatex in a transaction valued at $39.3 million.
This acquisition significantly added to the company's capacity to produce
jacquard and dobby upholstery fabrics marketed principally for residential
furniture. In January 1997, the company acquired a facility in Lumberton, North
Carolina and has purchased the related manufacturing equipment necessary for
this facility. This new facility, which is expected to be operational by July
1997, is expected to require capital expenditures of approximately $9 million.
This investment will approximately double Culp's capacity to produce wet-printed
flock upholstery fabrics. The company has experienced significant growth in
sales for this fabric category over the past three years, particularly in
international markets.
The company is organized into four business units. Culp Textures manufactures
jacquard and dobby woven fabrics for residential and commercial furniture.
Rossville/Chromatex manufactures jacquard and dobby woven fabrics primarily for
residential furniture. Velvets/Prints manufactures a broad range of printed and
velvet fabrics used primarily for residential and juvenile furniture. Culp Home
Fashions principally manufactures mattress ticking. The company believes that
this business unit structure, adopted in 1994, has been effective in increasing
business with existing customers, as well as in broadening the company's
customer base.
Results of Operations
The following table sets forth certain items in the company's consolidated
statements of income as a percentage of net sales.
1997 1996 1995
- --------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 81.8 82.2 82.2
- --------------------------------------------------------
Gross profit 18.2 17.8 17.8
Selling, general and
administrative expenses 11.3 11.1 10.9
- --------------------------------------------------------
Income from operations 6.9 6.7 6.9
Interest expense 1.2 1.5 1.5
Interest income (0.1) 0.0 0.0
OTHER EXPENSE 0.4 0.3 0.4
- --------------------------------------------------------
Income before income taxes 5.4 4.9 5.0
Income taxes(*) 36.0 36.5 37.0
- --------------------------------------------------------
Net income 3.5% 3.1% 3.2%
========================================================
(*) CALCULATED AS A PERCENT OF INCOME BEFORE INCOME TAXES.
The following table sets forth the company's sales by product category and
then by business unit for each of the company's three most recent years. The
table also sets forth the change in net sales for major product categories and
the business units as a percentage for comparative periods included in the
table.
(DOLLARS IN THOUSANDS) AMOUNTS PERCENT CHANGE
----------------------- --------------
1996 1995
PRODUCT CATEGORY/ TO TO
BUSINESS UNIT 1997 1996 1995 1997 1996
- ---------------------------------------------------------------------
Upholstery fabrics:
Culp Textures $ 88,218 $ 84,384 $ 85,125 4.5% (0.9)%
Rossville/
Chromatex 79,512 74,203 63,765 7.2% 16.4%
- ---------------------------------------------------------------------
167,730 158,587 148,890 5.8% 6.5%
Velvets/Prints 156,467 125,701 106,803 24.5% 17.7%
- ---------------------------------------------------------------------
324,197 284,288 255,693 14.0% 11.2%
Mattress ticking:
Culp Home
Fashions 74,682 67,379 52,333 10.8% 28.8%
- ---------------------------------------------------------------------
$398,879 $351,667 $308,026 13.4% 14.2%
=====================================================================
1997 Compared with 1996
SALES. Net sales for 1997 increased by $47.2 million, or 13.4%, compared with
1996. The company's sales of upholstery fabrics increased $39.9 million, or
14.0% in 1997 compared with 1996. Sales from Velvets/Prints were up
significantly from the prior year, reflecting increased international sales of
wet-printed flock fabrics. Sales from Rossville/Chromatex and Culp Textures also
rose for the year. Sales from Culp Home Fashions, principally represented by
mattress ticking, rose 10.8% for the year. Business within the United States,
especially sales to residential furniture manufacturers, decreased by 2.1%
during the fourth quarter of 1997 in comparison to the same period of 1996.
However, the company still achieved an 8% gain in sales to U.S.-based accounts
for the year. International sales, consisting primarily of upholstery fabrics,
increased to $101.6 million, up 31.2% from 1996. International shipments
accounted for 25.5% of the company's sales for 1997, up from 22.0% in 1996.
Sales were made to customers in over 50 countries during 1997. See note 11 on
page 21 for more information about international sales.
GROSS PROFIT AND COST OF SALES. Gross profit for 1997 increased by $9.9 million
and amounted to 18.2% of net sales compared with 17.8% in 1996. A significant
portion of the increase in gross profit dollars was generated by Velvets/Prints
and, to a lesser degree, by Culp Home Fashions. Gross profit for Culp Textures
and Rossville/Chromatex increased slightly. Factors contributing to the higher
profitability included the increased absorption of fixed costs as a result of
the growth in sales, and the benefit from the company's ongoing capital
investment in equipment designed to lower manufacturing costs and raise
productivity. The company also began to experience a stabilization in cost of
raw materials during 1997 and, in some instances, realized lower costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased as a percentage of net sales for 1997.
Although the company is continuing to emphasize cost-containment programs,
planned increases in expenses related to resources for designing new fabrics,
higher selling commissions related to international sales and higher data
processing costs contributed to the higher ratio of expenses to net sales.
INTEREST EXPENSE. Interest expense, net of interest income, of $4.4 million for
1997 was down from $5.2 million in 1996 due to lower average borrowings
outstanding.
OTHER EXPENSE. Other expense increased $565,000 in comparison to 1996, primarily
due to the non-recurring write-off of certain fixed assets totaling $175,000 and
the recognition last year of a gain of $100,000 related to an indemnification
for an environmental matter.
INCOME TAXES. The effective tax rate for 1997 decreased slightly to 36.0%
compared with 36.5% in 1996. This decrease was primarily due to the lower tax
rate related to Canadian income and tax benefits related to international sales.
NET INCOME. Net income increased 25% to $13.8 million in 1997 compared to $11.0
million in 1996.
1996 Compared with 1995
NET SALES. Net sales for 1996 increased by $43.6 million, or 14.2%, compared
with 1995. The company's sales of upholstery fabrics increased $28.6 million, or
11.2% in fiscal 1996 compared to fiscal 1995. Sales from Rossville/Chromatex and
Velvets/Prints were up significantly from the prior year, while Culp Textures'
sales were down slightly. The gain of $15.0 million in sales from the Culp Home
Fashions business unit reflected higher shipments to existing accounts and the
additional sales from Rayonese. Sales of mattress ticking for 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 1995 in which it was included in the
company's results. International sales, consisting primarily of upholstery
fabrics, increased to $77.4 million, up 33.5% from 1995. International shipments
accounted for 22.0% of the company's sales for 1996, up from 18.8% in 1995.
GROSS PROFIT AND COST OF SALES. Gross profit for 1996 increased by $7.9 million
and remained constant as a percentage of net sales at 17.8%. The increase in
gross profit was generated by improvements in Velvets/Prints and, to a lesser
degree, Culp Home Fashions. Gross profit for Culp Textures was flat and for
Rossville/Chromatex was down in comparison to 1995. The cost of most raw
materials generally rose throughout 1996, and the company was unable to offset
very much of the impact of these increases through higher prices. Raw material
price increases were offset by a shift in the company's product mix toward
fabrics with higher gross margins and increased production efficiencies. During
the latter part of the year, the company began experiencing some easing in the
rate of increase in the cost of raw materials.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased as a percentage of net sales for 1996.
Although the company continued 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.
OTHER EXPENSE. Other expense decreased $126,000 compared to 1995, primarily due
to the recognition in 1996 of a gain of $100,000 related to an indemnification
for an environmental matter.
INCOME TAXES. The effective tax rate for 1996 decreased slightly to 36.5%
compared with 37.0% in 1995.
INTEREST EXPENSE. Interest expense for 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 1996.
NET INCOME. Net income increased 12.3% to $11.0 million in 1996 compared to $9.8
million in 1995.
Liquidity and Capital Resources
LIQUIDITY. Cash and cash investments were $830,000 as of April 27, 1997 compared
with $498,000 at the end of 1996. Funded debt (long-term debt, including current
maturities, less restricted investments) decreased to $65.6 million at the close
of 1997 from $76.8 million at the end of 1996. As a percentage of total capital
(funded debt plus total shareholders' equity), the company's borrowings amounted
to 37.2% as of April 27, 1997 compared with 48.5% at the end of 1996. The
company's working capital as of April 27, 1997 was $69.8 million compared with
$57.0 million at the close of 1996.
The company's cash flow from operations was $23.4 million for 1997,
consisting of $28.2 million from earnings (net income plus depreciation,
amortization and deferred income taxes) offset by a reduction of $4.8 million
from changes in working capital. On February 4, 1997 the company sold 1.2
million shares in a public offering with net proceeds of approximately $16.3
million. The funds from operations and the net proceeds from the public offering
of stock were used principally to fund capital expenditures of $27.0 million and
reduce long-term debt.
FINANCING ARRANGEMENTS. In April 1997, the company completed a $125 million
syndicated, unsecured, multi-currency revolving credit facility. The facility,
which has a term of five years, requires quarterly payments of interest on all
outstanding borrowings and provides for a reduction of $5 million annually in
the maximum amount of the facility. As of April 27, 1997, the company had
outstanding balances of $41.0 million under the credit facility.
The company also has a total of $31.6 million in outstanding industrial
revenue bonds ("IRBs") which have been used to finance capital expenditures. The
IRBs are collateralized by restricted investments of $11.0 million as of April
27, 1997 and letters of credit for the outstanding balance of the IRBs and
certain interest payments due thereunder. The company expects to close an $8.5
million IRB to finance its new manufacturing facility in Lumberton, NC in July
1997. With the completion of this IRB, the company will reach the maximum amount
of available financing from this source for the foreseeable future.
The company's loan agreements require, among other things, that the company
maintain certain financial ratios. As of April 27, 1997, the company was in
compliance with the required financial covenants.
As of April 27, 1997, the company had three interest rate swap agreements to
reduce its exposure to floating interest rates on a $25 million notional amount.
The effect of these contracts is to "fix" the interest rate payable on $25
million of the company's bank borrowings at a weighted average rate of 7.1%. The
company also enters into foreign exchange forward and option contracts to hedge
against currency fluctuations with respect to firm commitments to purchase
machinery, equipment and certain raw materials when those commitments are
denominated in foreign currencies.
CAPITAL EXPENDITURES. The company maintains a significant program of capital
expenditures designed to increase capacity as needed, enhance manufacturing
efficiencies through modernization and increase the company's vertical
integration. Capital expenditures totaled $27.0 million for 1997. The company
anticipates spending approximately $27 million in 1998.
The company believes that cash flows from operations and funds available
under existing credit facilities and committed IRB financings will be sufficient
to fund capital expenditures and working capital requirements for the
foreseeable future.
Pending Acquisition
On April 30, 1997, Culp announced that it has signed a letter of intent to
acquire the business and certain assets relating to the upholstery fabric
businesses operating as Phillips Weaving Mills, Phillips Velvet Mills, Phillips
Printing and Phillips Mills. These operating units are owned by Phillips
Industries, Inc., a privately owned corporation based in High Point, North
Carolina. Closing of the transaction is subject to negotiation of a definitive
asset purchase agreement, completion of due diligence and certain other
conditions set forth in the letter of intent.
Inflation
The company's costs for operating expenses, such as labor, utilities and
manufacturing supplies, rose during 1997 and 1996. Additionally, generally
higher costs of raw materials were experienced during 1996. Competitive
conditions did not allow the company to fully offset the impact of these
increases through higher prices, which put pressure on profit margins. Although
the cost of the company's raw materials stabilized and, in some cases, declined
during 1997, the net incremental effect on margins will continue to be
influenced by raw material prices, other operating costs and overall competitive
conditions.
Seasonality
The company's business is slightly seasonal, with increased sales during the
company's second and fourth fiscal quarters. This seasonality results from
one-week closings of the company's manufacturing facilities, and the facilities
of most of its customers in the United States, during the first and third
quarters for the holiday weeks including July 4th and Christmas.
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, SFAS No. 123 allows the continued use of the intrinsic value based
method accompanied with pro forma disclosures of the fair value based method.
The company has adopted this alternative commencing with the year ended April
27, 1997.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share," which is effective
for financial statements for both interim and annual periods ending after
December 15, 1997. SFAS No. 128 specifies the computation, presentation,
and disclosure requirements for earnings per share for entities with publicly
held common stock. Early adoption of SFAS No. 128 is prohibited and, as a
result, the company plans to adopt SFAS No. 128 in its fiscal third quarter of
1998.
Other than the adoption of SFAS No. 128, the implementation of new
accounting standards will not have a material impact on the company's
financial statements in 1998.
Forward-Looking Information
This annual report to shareholders and the company's annual report on Form
10-K may contain statements that could be deemed forward-looking statements,
which 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.
Additionally, strengthening of the U.S. dollar against foreign currencies
could make the company's products less competitive on the basis of price in
international markets.
CONSOLIDATED BALANCE SHEETS
APRIL 27, 1997 AND APRIL 28, 1996 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996
- -----------------------------------------------------------------------------------------------------------------
ASSETS
current assets:
cash and cash investments $ 830 498
accounts receivable 56,691 52,038
inventories 53,463 47,395
other current assets 5,450 4,191
- -----------------------------------------------------------------------------------------------------------------
total current assets 116,434 104,122
restricted investments 11,018 5,250
property, plant and equipment, net 91,231 76,961
goodwill 22,262 22,871
other assets 3,007 2,440
- -----------------------------------------------------------------------------------------------------------------
total assets $ 243,952 211,644
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY current liabilities:
current maturities of long-term debt $ 100 7,100
accounts payable 29,903 27,308
accrued expenses 15,074 12,564
income taxes payable 1,580 197
- -----------------------------------------------------------------------------------------------------------------
total current liabilities 46,657 47,169
long-term debt 76,541 74,941
deferred income taxes 9,965 8,088
- -----------------------------------------------------------------------------------------------------------------
total liabilities 133,163 130,198
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 12,608,759 at
April 27, 1997 and 11,290,300 at April 28, 1996 630 565
capital contributed in excess of par value 33,899 16,878
retained earnings 76,260 64,003
- -----------------------------------------------------------------------------------------------------------------
total shareholders' equity 110,789 81,446
total liabilities and shareholders' equity $ 243,952 211,644
=================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED APRIL 27, 1997, APRIL 28, 1996,
AND APRIL 30, 1995 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
net sales $ 398,879 351,667 308,026
cost of sales 326,394 289,129 253,345
- -----------------------------------------------------------------------------------------------------------------
gross profit 72,485 62,538 54,681
selling, general and administrative expenses 45,058 39,068 33,432
- -----------------------------------------------------------------------------------------------------------------
income from operations 27,427 23,470 21,249
interest expense 4,671 5,316 4,715
interest income (280) (92) (64)
other expense 1,521 956 1,082
- -----------------------------------------------------------------------------------------------------------------
income before income taxes 21,515 17,290 15,516
income taxes 7,745 6,310 5,741
- -----------------------------------------------------------------------------------------------------------------
net income $ 13,770 10,980 9,775
net income per share $ 1.18 0.98 0.87
=================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CAPITAL
FOR THE YEARS ENDED APRIL 27, 1997, COMMON COMMON CONTRIBUTED TOTAL
APRIL 28, 1996 AND APRIL 30, 1995 STOCK STOCK IN EXCESS OF RETAINED SHAREHOLDERS'
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNT PAR VALUE EARNINGS EQUITY
- --------------------------------------------------------------------------------------------------------------------
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
proceeds from public offering of
1,200,000 shares 1,200,000 60 16,235 16,295
cash dividends ($0.13 per share) (1,513) (1,513)
net income 13,770 13,770
common stock issued in connection
with stock option plan 118,459 5 786 791
- --------------------------------------------------------------------------------------------------------------------
balance, April 27, 1997 12,608,759 $ 630 33,899 76,260 110,789
====================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 27, 1997, APRIL 28, 1996 AND APRIL 30, 1995
(DOLLARS IN THOUSANDS) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
cash flows from operating activities:
net income $ 13,770 10,980 9,775
adjustments to reconcile net income to net cash provided by
operating activities:
depreciation 12,688 12,348 11,257
amortization of intangible assets 810 748 628
provision for deferred income taxes 966 2,210 1,373
changes in assets and liabilities, net of effects of business
acquired:
accounts receivable (4,653) (7,786) (5,515)
inventories (6,068) (1,624) (7,281)
other current assets (348) (537) (310)
other assets (205) (103) (518)
accounts payable 2,586 (1,077) 159
accrued expenses 2,510 1,032 2,180
income taxes payable 1,383 (464) 25
- -----------------------------------------------------------------------------------------------------------------
net cash provided by operating activities 23,439 15,727 11,773
cash flows from investing activities:
capital expenditures (26,958) (14,385) (18,058)
purchase of restricted investments (9,770) (6,019) (57)
purchase of investments to fund deferred compensation liability (563) (1,286) -
sale of restricted investments 4,002 1,564 2,185
business acquired - - (10,455
- -----------------------------------------------------------------------------------------------------------------
net cash used in investing activities (33,289) (20,126) (26,385
cash flows from financing activities:
proceeds from issuance of long-term debt 54,500 19,854 23,455
principal payments on long-term debt (59,900) (11,555) (11,275)
cash dividends paid (1,513) (1,236) (1,120)
proceeds from common stock issued 17,086 306 92
change in accounts payable - capital expenditures 9 (3,865) 2,160
- -----------------------------------------------------------------------------------------------------------------
net cash provided by financing activities 10,182 3,504 13,312
increase (decrease) in cash and cash investments 332 (895) (1,300)
cash and cash investments, beginning of year 498 1,393 2,693
- -----------------------------------------------------------------------------------------------------------------
cash and cash investments, end of year $ 830 498 1,393
=================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) General and Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the
accounts of the company and its subsidiary, which is wholly-owned. All
significant intercompany balances and transactions are eliminated in
consolidation.
Description of Business - The company primarily manufactures and markets
furniture upholstery fabrics and mattress ticking 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 1997, 1996 and 1995 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.
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 whether 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 27, 1997, the amount of such undistributed income was $5.2
million. Foreign tax credits may be available as a reduction of United States
income taxes in the event of such distributions.
Revenue Recognition - Revenue is recognized when products are shipped to
customers. Provision is made currently for estimated product returns, claims and
allowances.
Stock Option Plan - Prior to April 29, 1996, the company accounted for its stock
option plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense was recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. On April 29, 1996, the company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
net income per share disclosures for employee stock option grants made in fiscal
1996 and future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No.
123.
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 27, 1997.
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
(11,624,136 in 1997, 11,234,363 in 1996, and 11,203,160 in 1995). 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 1996 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) Acquisition
On March 6, 1995, the company acquired Rayonese Textile Inc. (Rayonese), a
manufacturer of home furnishings fabrics located 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.
(3) Accounts Receivable A summary of accounts receivable follows:
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------
customers $ 58,568 53,392
allowance for doubtful accounts (1,500) (1,016)
reserve for returns and allowances (377) (338)
- --------------------------------------------------------
$ 56,691 52,038
========================================================
(4) Inventories
A summary of inventories follows:
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------
inventories on the FIFO cost method
raw materials $ 32,025 29,150
work-in-process 4,627 5,067
finished goods 20,212 16,708
- --------------------------------------------------------
total inventories on the
FIFO cost method 56,864 50,925
adjustments of certain inventories
to the LIFO cost method (3,401) (3,530)
- --------------------------------------------------------
$ 53,463 47,395
========================================================
(5) Property, Plant and Equipment
A summary of property, plant and equipment follows:
DEPRECIABLE LIVES
(DOLLARS IN THOUSANDS) (IN YEARS) 1997 1996
- --------------------------------------------------------------------
land and improvements 10 $ 1,795 1,765
buildings and improvements 7-40 13,719 13,529
leasehold improvements 7-10 1,379 1,320
machinery and equipment 3-12 124,531 109,906
office furniture and equipment 3-10 13,122 12,152
capital projects in progress 19,019 8,517
- --------------------------------------------------------------------
173,565 147,189
accumulated depreciation (82,334) (70,228)
- --------------------------------------------------------------------
$ 91,231 76,961
====================================================================
(6) Goodwill
A summary of goodwill follows:
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------
goodwill $ 24,218 24,218
accumulated amortization (1,956) (1,347)
- --------------------------------------------------------
$ 22,262 22,871
========================================================
(7) Accounts Payable
A summary of accounts payable follows:
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------------
accounts payable - trade $ 24,156 21,570
accounts payable - capital expenditures 5,747 5,738
- --------------------------------------------------------------
$ 29,903 27,308
==============================================================
(8) Accrued Expenses
A summary of accrued expenses follows:
(DOLLARS IN THOUSANDS) 1997 1996
- -------------------------------------------------------
compensation and benefits $ 10,217 8,153
other 4,857 4,411
- -------------------------------------------------------
$ 15,074 12,564
=======================================================
(9) Income Taxes
A summary of income taxes follows:
(DOLLARS IN THOUSANDS) 1997 1996 1995
- ---------------------------------------------------------
CURRENT
- ---------------------------------------------------------
federal $ 5,109 3,345 3,473
state 881 700 699
Canadian 789 0 0
- ---------------------------------------------------------
6,779 4,045 4,172
deferred
federal (26) 1,422 1,374
state (12) 145 195
Canadian 1,004 698 0
- ---------------------------------------------------------
966 2,265 1,569
$ 7,745 6,310 5,741
========================================================
Income before income taxes related to the company's Canadian operation for the
years ended April 27, 1997 and April 28, 1996 were $5,500,000 and $2,100,000,
respectively. Income before income taxes from this operation was not significant
for the year ended April 30, 1995.
The following schedule summarizes the principal differences between income
taxes at the federal income tax rate and the effective income tax rate reflected
in the consolidated financial statements:
1997 1996 1995
- -----------------------------------------------------------
FEDERAL INCOME TAX RATE 35.0% 34.2% 34.1%
- -----------------------------------------------------------
state income taxes, net of federal
income tax benefit 2.6 3.4 3.8
exempt income of foreign
sales corporation (1.7) (1.7) (1.5)
other 0.1 0.6 0.6
- -----------------------------------------------------------
36.0% 36.5% 37.0%
===========================================================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities consist of the following:
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------
deferred tax liabilities:
property, plant and equipment, net$ (8,903) (7,328)
goodwill (1,019) (720)
other (105) (437)
- --------------------------------------------------------
total deferred tax liabilities (10,027) (8,485)
deferred tax assets:
accounts receivable 638 474
inventories 380 148
compensation 1,231 960
liabilities and reserves 691 782
- --------------------------------------------------------
gross deferred tax assets 2,940 2,364
valuation allowance 0 0
- --------------------------------------------------------
total deferred tax assets 2,940 2,364
$ (7,087) (6,121)
========================================================
Deferred taxes are classified in the accompanying consolidated balance sheet
captions as follows:
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------
other current assets $ 2,878 1,967
deferred income taxes (9,965) (8,088)
- --------------------------------------------------------
$ (7,087) (6,121)
========================================================
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 $5,396,000 in 1997;
$4,623,000 in 1996; and $4,071,000 in 1995.
(10) Long-Term Debt A summary of long-term debt follows:
(DOLLARS IN THOUSANDS) 1997 1996
- -------------------------------------------------------------
industrial revenue bonds and
other obligations $ 31,641 22,241
revolving credit facility 41,000 -
revolving line of credit 4,000 -
revolving credit line, repaid in 1997 - 23,300
term loan, repaid in 1997 - 35,500
subordinated note payable, repaid in 1997 - 1,000
- -------------------------------------------------------------
76,641 82,041
current maturities (100) (7,100)
- -------------------------------------------------------------
$ 76,541 74,941
=============================================================
On April 23, 1997, the company entered into a revolving credit agreement (the
"Credit Agreement") providing for a five-year unsecured multi-currency revolving
credit facility with a syndicate of banks in the United States and Europe. The
Credit Agreement provides for a revolving loan commitment of $125,000,000 which
declines $5,000,000 at each of four annual dates beginning in April 1998. The
agreement requires payment of a quarterly facility fee in advance. Additionally,
the agreement requires payment of interest on any outstanding borrowings based
on, at the company's option, (1) the reference rate of the agent acting on
behalf of the syndicate of banks, or (2) a specified pricing grid which
increases from LIBOR or IBOR based on the company's debt to EBITDA ratio, as
defined by the agreement. At April 27, 1997, all of the outstanding borrowings
under the multi-currency agreement were based on LIBOR and the interest rate was
approximately 6.0%.
On April 23, 1997, the company obtained a $4,000,000 revolving line of credit
which expires on May 31, 1998. However, the line of credit will automatically be
extended for an additional three-month period on each August 31, November 30,
February 28 and May 31 unless the bank notifies the company that the line of
credit will not be extended. Additionally, the revolving line of credit requires
payment of interest monthly on any outstanding borrowings at an interest rate
based on LIBOR plus a margin based on the company's debt to EBITDA ratio, as
defined in the credit facility. At April 27, 1997, the interest rate on
outstanding borrowings was approximately 6.0%.
During 1997, the company obtained $9,500,000 of new industrial revenue bond
(IRB) financing related to the expansion of its plant and equipment at its West
Hazelton, Pennsylvania and Burlington, North Carolina facilities. The final
maturities of these IRBs range from the year 2006 to 2009. The remaining IRBs
are substantially due in one-time payments at various dates from 2008
to 2013 and all of the bonds bear interest at variable rates at approximately
64% of the prime rate (prime at April 27, 1997 was 8.5%). The IRBs are
collateralized by restricted investments of $11,018,000 and letters of credit
for $32,416,000 at April 27, 1997.
The company's loan agreements require, among other things, that the company
maintain compliance with certain positive and negative financial covenants. At
April 27, 1997, the company was in compliance with these required financial
covenants.
At April 27, 1997, the company had three interest rate swap agreements with a
bank in order to reduce its exposure to floating interest rates on a portion of
its variable rate borrowings. The following table summarizes certain data
regarding the interest rate swaps:
NOTIONAL AMOUNT INTEREST RATE EXPIRATION DATE
- -------------------------------------------------------
$15,000,000 7.3% April 2000
$ 5,000,000 6.9% June 2002
$ 5,000,000 6.6% July 2002
The company believes it could terminate these agreements as of April 27, 1997
for little or no cost based on current market conditions. Net amounts paid under
these agreements increased interest expense by approximately $301,000 in 1997;
$290,000 in 1996; and $138,000 in 1995. Management believes the risk of
incurring losses resulting from the inability of the bank to fulfill its
obligation under the interest rate swap agreements to be remote and that any
losses incurred would be immaterial.
The principal payment requirements of long-term debt during the next five
years are: 1998 - $100,000; 1999 - $4,075,000; 2000 - $200,000; 2001 - $200,000;
and 2002 - $41,154,000.
Interest paid during 1997, 1996 and 1995 totaled $4,834,000, $5,365,000, and
$4,668,000, respectively.
(11) Commitments and Contingencies
The company leases certain office, manufacturing and warehouse facilities and
equipment, primarily computer and vehicles, 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 $4,590,000 in 1997; $3,502,000 in 1996; and $2,486,000 in
1995. Future minimum rental commitments for noncancellable operating leases are
$4,091,000 in 1998; $3,840,000 in 1999; $3,092,000 in 2000; $2,067,000 in 2001;
$1,881,000 in 2002; and $10,189,000 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 approximately
$12,000,000 as of April 27, 1997.
(12) Stock Option Plans
The company has a fixed stock option plan under which options to purchase common
stock may be granted to officers, directors and key employees. At April 27,
1997, 865,728 shares of common stock were authorized for issuance under the
plan. Options are generally exercisable one year after the date of grant and
generally expire beginning ten years after the date of grant.
No compensation cost has been recognized for this stock option plan as
options are granted under the plan at an option price not less than fair market
value at the date of grant. Had compensation cost for this stock-based
compensation plan been determined consistent with SFAS No. 123, the company's
pro forma net income and net income per share for 1997 and 1996 would have
approximated the company's net income and net income per share in the
accompanying consolidated statements of income as compensation cost was
immaterial for options granted in 1997 and 1996.
The fair value of each option grant is estimated on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996: dividend yield of 1%; risk-free
interest rates of 5%; expected volatility of 44%; and expected lives of 3
years.
A summary of the status of the plan as of April 27, 1997, April 28, 1996 and
April 30, 1995 and changes during the years ended on those dates is presented
below and continued on the next page:
1997 1996 1995
WEIGHTED-AVG. WEIGHTED-AVG. WEIGHTED-AVG.
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 443,437 $ 7.46 455,721 $ 6.65 385,884 $ 5.81
Granted 82,250 12.61 83,250 8.27 97,250 9.05
Exercised (118,459) 6.81 (85,534) 3.51 (27,413) 3.31
Canceled/expired - - (10,000) 11.25 - -
------ ------ -------
Outstanding at end of year 407,228 8.69 443,437 7.46 455,721 6.65
-------- ------- -------
Options exercisable at year-end 336,228 7.91 371,437 7.37 369,721 6.07
granted during the year $ 4.55 $ 2.98 -
- ---------------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
NUMBER WEIGHTED-AVG. NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVG. EXERCISABLE WEIGHTED-AVG.
EXERCISE PRICES AT 4/27/97 CONTRACTUAL LIFE EXERCISE PRICE AT 4/27/97 EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------------
$ 2.82-$ 4.63 128,728 2.1years $ 4.01 128,728 $ 4.01
$ 7.75-$ 9.00 110,875 7.1 8.43 110,875 8.43
$ 9.90- $12.75 134,375 7.6 12.08 75,375 12.05
$13.34- $14.38 33,250 5.3 13.90 21,250 14.22
------- -------
407,228 5.5 8.69 336,228 7.91
- ---------------------------------------------------------------------------------------------------------------------
During fiscal 1995, the company adopted a stock option plan which provided for
the one-time grant to officers and certain senior managers of options to
purchase 121,000 shares of the company's common stock at $.05 (par value) per
share. 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 ended April 27, 1997. Since these options were
granted in fiscal 1995, the provisions of SFAS No. 123 are not applicable.
As of April 27, 1997, the 121,000 options outstanding under the plan have
exercise prices of $0.05 and a weighted-average remaining contractual life of
6.7 years. The options outstanding vested on April 27, 1997 as the company
achieved an annual compound rate of growth in its primary earnings per share of
17% during the three-year period ended April 27, 1997.
During March 1997, the company's board of directors approved the 1997
performance-based stock option plan which provides for the one-time grant to
certain officers and certain senior managers of options to purchase 106,000
shares of the company's common stock at $1.00 per share. Options under the plan
are exercisable the earlier of January 1, 2006 or approximately 30 days after
the end of fiscal 1999 if the company achieves net income per share of $1.50 for
fiscal 1999, which would represent a 13% compound growth rate from 1997. The
1997 performance-based option plan is pending shareholder approval at the
company's annual shareholder meeting in September 1997. As a result, the date of
grant for the options to purchase 106,000 shares will occur in September 1997,
if approved by the shareholders, and the compensation expense would begin to be
recorded under APB Opinion No. 25 in fiscal 1998, provided the company's
financial performance is on track to achieve the net income per share target.
(13) Benefit Plans
The company has a defined contribution plan which covers substantially all
employees and provides for participant contributions on a pre-tax basis and
discretionary matching contributions by the company, which are determined
annually. Company contributions to the plan were $875,000 in 1997; $791,000 in
1996; and $771,000 in 1995.
In addition to the defined contribution plan, the company has a nonqualified
deferred compensation plan covering officers and certain other associates. At
April 27, 1997 and April 28, 1996, the company had approximately $1,774,000 and
$1,286,000, respectively, of assets related to the nonqualified plan which are
included in other assets. The company also had a liability of $2,128,000 and
$1,426,000 at April 27, 1997 and April 28, 1996, respectively, which is included
in accrued expenses in the accompanying consolidated balance sheets.
(14) International Sales
International sales, of which 91%, 90% and 98% were denominated in U.S. dollars
in 1997, 1996 and 1995, accounted for 25% of net sales in 1997, 22% in 1996, and
19% in 1995, and are summarized by geographic area as follows:
(DOLLARS IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------
NORTH AMERICA
(excluding USA) $ 27,479 23,528 16,707
Europe 25,245 18,927 19,177
Middle East 23,505 15,609 6,081
Asia and Pacific Rim 19,646 12,124 8,969
South America 2,604 2,753 3,749
All other areas 3,092 4,456 3,288
- --------------------------------------------------------
$ 101,571 77,397 57,971
========================================================
(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 $27,549,000
in 1997; $27,739,000 in 1996; and $20,484,000 in 1995. The amount due from this
customer at April 27, 1997 was approximately $2,718,000 and at April 28, 1996
was approximately $2,608,000.
A director of the company is also a director of a bank participating in the
syndicated revolving credit facility and an officer and director of the lessor
of the company's office facilities in High Point. The amount of interest and
other fees paid to the bank was approximately $2,217,000 in 1997; $2,580,000 in
1996; and $2,039,000 in 1995, and the loans payable to the bank and amounts
guaranteed through letters of credit by the bank at April 27, 1997 and April 28,
1996 aggregated $28,672,000 and $48,402,000, respectively. Rent expense for the
company's office facilities in High Point was approximately $436,000 in 1997;
$421,000 in 1996; and $435,000 in 1995.
Rents paid to entities owned by certain shareholders and officers of the
company and their immediate families were $680,000 in 1997; $680,000 in 1996;
and $670,000 in 1995.
(16) Foreign Exchange Contracts
The company generally enters into foreign exchange forward and option contracts
as a hedge against its exposure to currency fluctuations on firm commitments to
purchase certain machinery and equipment and raw materials. Machinery and
equipment and raw material purchases hedged by foreign exchange forward
contracts are valued by using the exchange rate of the applicable foreign
exchange forward contract. The company had approximately $2,432,000 and
$1,924,000 of outstanding foreign exchange forward contracts as of
April 27, 1997 and April 28, 1996, respectively (primarily denominated in
German marks, Austrian shillings and Belgian francs). The contracts outstanding
at April 27, 1997 mature at various dates in fiscal 1998. Due to the short
maturity of these financial instruments, the fair values of these contracts
approximate the contract amounts at April 27, 1997 and April 28, 1996,
respectively.
(17) Stock Offering
In February of 1997, the company completed the sale of 1,200,000 shares of
common stock at a per share price of $15 less commissions and expenses of
approximately $1,700,000 which resulted in net proceeds realized of
approximately $16,300,000. The net proceeds received from the offering were used
to reduce outstanding borrowings under the company's revolving credit line.
The stock offering also included 640,000 shares of common stock sold by two
non-management shareholders at a per share price of $15 less commissions of
approximately $576,000 which resulted in net proceeds realized of approximately
$9,024,000 by the selling shareholders.
(18) Subsequent Event
On April 30, 1997, the company announced that it signed a letter of intent to
purchase the operations and certain assets relating to an upholstery fabric
business operating as Phillips Weaving Mills, Phillips Velvet Mills, Phillips
Printing and Phillips Mills. Closing of the transaction, is subject to
negotiation of a definitive asset purchase agreement, completion of due
diligence and certain other conditions set forth in the letter of intent.
SELECTED QUARTERLY DATA
FISCAL FISCAL FISCAL FISCAL FISCAL
(AMOUNTS IN THOUSANDS, 1997 1997 1997 1997 1996
EXCEPT PER SHARE AMOUNTS) 4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER 4TH QUARTER
- ---------------------------------------------------------------------------------------------------------------------
net sales $ 105,678 97,468 105,204 90,529 102,162
cost of sales 85,386 80,317 86,082 74,609 82,957
- ---------------------------------------------------------------------------------------------------------------------
gross profit 20,292 17,151 19,122 15,920 19,205
SG & A expenses 11,730 10,760 11,704 10,864 11,300
- ---------------------------------------------------------------------------------------------------------------------
income from operations 8,562 6,391 7,418 5,056 7,905
interest expense 1,019 1,228 1,242 1,182 1,352
interest income (90) (73) (60) (57) (92)
other expense 404 421 301 395 365
income before income taxes 7,229 4,815 5,935 3,536 6,280
income taxes 2,389 1,805 2,225 1,326 2,230
- ---------------------------------------------------------------------------------------------------------------------
net income 4,840 3,010 3,710 2,210 4,050
=====================================================================================================================
EBITDA (6) $ 11,582 9,279 10,540 8,003 10,814
depreciation 3,248 3,119 3,177 3,144 3,070
cash dividends 410 368 367 368 310
=====================================================================================================================
weighted average shares outstanding 12,546 11,342 11,312 11,297 11,284
=====================================================================================================================
PER SHARE DATA (3) (5)
net income $ 0.39 0.27 0.33 0.20 0.36
cash dividends 0.0325 0.0325 0.0325 0.0325 0.0275
book value 8.79 7.89 7.66 7.37 7.21
=====================================================================================================================
BALANCE SHEET DATA (5)
working capital $ 69,777 60,689 57,230 53,635 56,953
property, plant and equipment, net 91,231 86,146 80,316 78,292 76,961
total assets 243,952 228,262 219,527 208,283 211,644
capital expenditures 8,333 8,949 5,201 4,475 6,675
long-term debt 76,541 86,266 72,891 70,916 74,941
funded debt (1) 65,623 80,588 74,612 72,772 76,791
shareholders' equity 110,789 89,578 86,835 83,356 81,446
capital employed (7) 176,412 170,166 161,447 156,128 158,237
=====================================================================================================================
RATIOS & OTHER DATA (5)
gross profit margin 19.2% 17.6% 18.2% 17.6% 18.8%
operating income margin 8.1 6.6 7.1 5.6 7.7
net income margin 4.6 3.1 3.5 2.4 4.0
EBITDA margin 11.0 9.5 10.0 8.8 10.6
effective income tax rate 33.0 37.5 37.5 37.5 35.5
funded debt-to-total capital ratio (1) 37.2 47.4 46.2 46.6 48.5
working capital turnover 5.3 5.3 5.4 5.4 5.3
days sales in receivables 49 47 45 43 46
inventory turnover 6.6 6.2 6.6 6.0 6.8
=====================================================================================================================
STOCK DATA (3)
stock price
high $ 19.63 17.00 14.38 14.25 13.25
low 14.50 13.50 11.75 11.50 10.00
close 16.63 14.88 13.75 12.25 13.00
P/E ratio (2)
high 16.6 14.7 13.0 13.6 13.5
low 12.3 11.6 10.6 11.0 10.2
trading volume (shares) 2,165 945 563 1,364 1,325
=====================================================================================================================
FISCAL FISCAL FISCAL
(AMOUNTS IN THOUSANDS, 1996 1996 1996
EXCEPT PER SHARE AMOUNTS) 3RD QUARTER 2ND QUARTER 1ST QUARTER
- -------------------------------------------------------------------------------
net sales 86,476 90,672 72,357
cost of sales 71,447 74,565 60,159
- -------------------------------------------------------------------------------
gross profit 15,029 16,107 12,198
SG & A expenses 9,639 9,675 8,454
- -------------------------------------------------------------------------------
income from operations 5,390 6,432 3,744
interest expense 1,279 1,388 1,297
interest income 0 0 0
other expense 266 219 107
income before income taxes 3,845 4,825 2,340
income taxes 1,430 1,825 825
- -------------------------------------------------------------------------------
net income 2,415 3,000 1,515
===============================================================================
EBITDA (6) 8,450 9,494 6,852
depreciation 3,140 3,071 3,067
cash dividends 309 309 308
===============================================================================
weighted average shares outstanding 11,232 11,211 11,207
===============================================================================
PER SHARE DATA (3) (5)
net income 0.22 0.27 0.14
cash dividends 0.0275 0.0275 0.0275
book value 6.89 6.72 6.48
===============================================================================
BALANCE SHEET DATA (5)
working capital 52,266 46,373 45,069
property, plant and equipment, net 73,356 73,876 75,744
total assets 197,704 200,404 192,725
capital expenditures 2,620 2,084 3,006
long-term debt 68,112 65,137 67,662
funded debt (1) 79,667 76,692 79,217
shareholders' equity 77,623 75,351 72,624
capital employed (7) 157,290 152,043 151,841
===============================================================================
RATIOS & OTHER DATA (5)
gross profit margin 17.4% 17.8% 16.9%
operating income margin 6.2 7.1 5.2
net income margin 2.8 3.3 2.1
EBITDA margin 9.8 10.5 9.5
effective income tax rate 37.2 37.8 35.3
funded debt-to-total capital ratio (1) 48.5 50.6 50.4
working capital turnover 5.3 5.4 5.4
days sales in receivables 43 47 45
inventory turnover 5.7 6.0 5.1
===============================================================================
STOCK DATA (3)
stock price
high 11.50 11.00 10.00
low 9.50 9.00 7.75
close 10.00 9.75 7.75
P/E ratio (2)
high 12.2 12.1 11.2
low 10.1 9.9 8.7
trading volume (shares) 1,142 1,011 1,454
===============================================================================
(1) FUNDED DEBT INCLUDES LONG- AND SHORT-TERM DEBT, LESS RESTRICTED INVESTMENTS.
(2) P/E RATIOS BASED ON TRAILING 12-MONTH NET 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.
(8) CULP'S COMMON SHARES WERE LISTED ON THE NEW YORK STOCK EXCHANGE ON DECEMBER
31, 1996.
SELECTED ANNUAL DATA
PERCENT FIVE-YEAR
FISCAL FISCAL FISCAL FISCAL FISCAL CHANGE GROWTH
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995 1994 1993 1997/1996 RATE
- ---------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA (4) (5)
net sales $398,879 351,667 308,026 245,049 200,783 13.4% 15.8%
cost of sales 326,394 289,129 253,345 202,426 168,599 12.9 15.2
- ---------------------------------------------------------------------------------------------------------------------------
gross profit 72,485 62,538 54,681 42,623 32,184 15.9 19.2
S G & A expenses 45,058 39,068 33,432 27,858 24,203 15.3 12.9
- ---------------------------------------------------------------------------------------------------------------------------
income from operations 27,427 23,470 21,249 14,765 7,981 16.9 37.9
interest expense 4,671 5,316 4,715 2,515 1,409 (12.1) 26.9
interest income (280) (92) (64) (79) (29) 204.3 15.5
other expense 1,521 956 1,082 350 1 59.1 39.5
- ---------------------------------------------------------------------------------------------------------------------------
income before income taxes 21,515 17,290 15,516 11,979 6,600 24.4 40.5
income taxes 7,745 6,310 5,741 4,314 2,099 22.7 51.7
- ---------------------------------------------------------------------------------------------------------------------------
net income 13,770 10,980 9,775 7,665 4,501 25.4 35.9
- ---------------------------------------------------------------------------------------------------------------------------
EBITDA(6) $ 39,404 35,610 32,052 23,256 14,933 10.7 25.7
depreciation 12,688 12,348 11,257 8,497 6,724 2.8 12.4
cash dividends 1,513 1,236 1,120 887 696 22.4 23.2
- ---------------------------------------------------------------------------------------------------------------------------
weighted average shares outstanding 11,624 11,234 11,203 11,076 10,875 3.5 1.4
PER SHARE DATA (3) (4) (5)
net income $ 1.18 0.98 0.87 0.69 0.41 20.4% 34.3%
cash dividends 0.13 0.11 0.10 0.08 0.064 18.2 21.6
book value 8.79 7.21 6.37 5.60 5.01 21.9 13.5
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (4) (5)
working capital $ 69,777 56,953 38,612 37,949 34,942 22.5% 21.2%
property, plant and equipment, net 91,231 76,961 75,805 64,004 44,529 18.5 18.3
total assets 243,952 211,644 194,999 164,948 106,548 15.3 21.2
capital expenditures 26,958 14,385 18,058 16,764 11,938 87.4 16.8
businesses acquired 0 0 10,455 38,205 0 0 0
long-term debt 76,541 74,941 62,187 58,512 23,147 2.1 40.3
funded debt (1) 65,623 76,791 72,947 58,639 26,582 (14.5) 31.3
shareholders' equity 110,789 81,446 71,396 62,649 54,521 36.0 17.0
capital employed (7) 176,412 158,237 144,343 121,288 81,103 11.5 21.2
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS & OTHER DATA (4) (5)
gross profit margin 18.2% 17.8% 17.8% 17.4% 16.0
%
operating income margin 6.9 6.7 6.9 6.0 4.0
net income margin 3.5 3.1 3.2 3.1 2.2
EBITDA margin 9.9 10.1 10.4 9.5 7.4
effective income tax rate 36.0 36.5 37.0 36.0 31.8
funded debt-to-total capital ratio (1) 37.2 48.5 50.5 48.3 32.8
RETURN ON AVERAGE TOTAL CAPITAL 10.1 9.5 9.6 9.2 7.4
return on average equity 15.2 14.4 14.6 13.1 8.6
working capital turnover 5.3 5.3 5.6 5.7 5.4
days sales in receivables 49 46 47 43 43
inventory turnover 6.4 6.0 6.0 6.3 6.4
- ---------------------------------------------------------------------------------------------------------------------------
STOCK DATA (3)
stock price
high $ 19.63 13.25 12.50 17.33 7.33
low 11.50 7.75 7.25 5.67 3.60
close 16.63 13.00 9.75 11.63 7.20
P/E ratio (2)
high 16.6 13.5 14.3 25.1 17.7
low 9.7 7.9 8.3 8.2 8.7
trading volume (shares) 5,037 (8) 4,932 10,161 11,178 2,646
- ---------------------------------------------------------------------------------------------------------------------------
(1) - (8) SEE SELECTED QUARTERLY DATA TABLE FOOTNOTE
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 27, 1997 and April 28, 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended April 27, 1997. 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 27, 1997 and April 28, 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 27, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP.
Greensboro, North Carolina
May 22, 1997
MANAGEMENT'S RESPONSIBILITY
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 1997 is
presented above.
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).
/s/ Robert G. Culp, III
Robert G. Culp, III
Chairman and Chief Executive Officer
/s/ Franklin N. Saxon
Franklin N. Saxon
Senior Vice President and Chief Financial Officer
May 22, 1997
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)
Franklin N. Saxon
Senior Vice President and Chief Financial Officer, Treasurer, Secretary;
Director (E)
Kenneth M. Ludwig
Senior Vice President-Human Resources; Assistant Secretary
Harry R. Culp, D.D.S.
Director
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
Patrick H. Norton
Director (N); Senior Vice President, Sales and Marketing;
La-Z-Boy, Inc., Monroe, MI
Earl N. Phillips, Jr.
Director; Co-Founder and President, First Factors Corporation
High Point, NC
Bland W. Worley
Director (A,C,N); Retired Chairman of the Board and Chief Executive
Officer, BarclaysAmericanCorporation, Charlotte, NC
BOARD COMMITTEES:
A-AUDIT
C-COMPENSATION
E-EXECUTIVE
N-NOMINATING
SHAREHOLDER INFORMATION
Corporate Address
101 South Main Street
Post Office Box 2686
High Point, NC 27261
Telephone: (910) 889-5161
Fax: (910) 887-7089
Registrar and Transfer Agent
Wachovia Bank, N.A.
Winston-Salem, NC 27102
(800) 633-4236
Written shareholder correspondence should be sent to:
Wachovia Shareholder Services
P.O. Box 8218
Boston, MA 02266-8218
Transfers should be sent to:
Wachovia Shareholder Services
P.O. Box 8217
Boston, MA 02266-8217
Auditors
KPMG Peat Marwick LLP
Greensboro, NC 27401
Legal Counsel
Robinson, Bradshaw & Hinson, PA
Charlotte, NC 28246
Form 10-K and Quarterly Reports/Investor Contact
The Form 10-K Annual Report of Culp, Inc., as filed with the Securities and
Exchange Commission, is available from the company without charge to
shareholders upon written request. Shareholders may also obtain copies of the
company's news releases issued in conjunction with the company's quarterly
results. These requests and other investor contacts should be directed to the
Investor Relations department at the corporate address.
NYSE Symbol
The company's common stock is traded on the New York Stock Exchange under the
symbol CFI.
Analyst Coverage
These analysts cover Culp, Inc.:
Interstate/Johnson Lane - Kay Norwood, CFA
Raymond, James & Associates - Budd Bugatch, CFA
Robinson-Humphrey Co., Inc. - Lorraine Miller, CFA
Wheat First Securities, Inc. - John Baugh, CFA
Value Line, Inc. - Jed S. Brody
Stock Listing
Culp, Inc. common stock is traded on the New York Stock Exchange under the
symbol CFI. As of April 27, 1997, Culp, Inc. had approximately 2,900
shareholders based on the number of holders of record and an estimate of the
number of individual participants represented by security position listings.
Annual Meeting
Shareholders are invited to attend the annual meeting to be held Tuesday,
September 16, 1997 at the Radisson Hotel; 135 South Main Street; High Point,
North Carolina.
(Graphic appears here of number 25)
CULP, INC.
101 SOUTH MAIN STREET
POST OFFICE BOX 2686
HIGH POINT, NC 27261
TELEPHONE: (910) 889-5161
INTERNET: INVESTORRELATIONS@CULPINC.COM