Good day, and welcome to the Culp, Inc. 3Q 2014 Conference Call. Today’s call is being recorded. At this time for opening remarks and introductions, I’d like to turn the call over to Ms. Dru Anderson. Please go ahead?

Thank you. Good morning, and welcome to the Culp conference call to review the company’s results for the third quarter of fiscal 2014. As we start, let me express that some statements made in this call will be forward-looking statements. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results or otherwise are not statements of historical facts. Actual performance of the company may differ from that projected in such statements. Investors should refer to statements filed by the Company with the Securities and Exchange Commission, including the Form 8-K filed yesterday, for a discussion of those factors that could affect Culp’s operations, and the forward-looking statements made in this call. The information being provided today is as of this date only, and Culp expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any changes in expectations. In addition, during this call, the Company will be discussing non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurement is included as a schedule to the Company’s 8-K filed yesterday. This information is also available on the Investor Relations section of the Company’s website at www.culp.com. A slide presentation with supporting summary financial information, and additional quarterly performance charts are also available on the Company’s website as part of the webcast of today’s call. I will now turn the call over to Frank Saxon, President and Chief Executive Officer of Culp. Please go ahead, sir?

Thank you, Dru. Good morning, everyone, and thanks for joining us today. I’d like to welcome you to the Culp quarterly conference call with analysts and investors. With me on the call today is Ken Bowling, our Chief Financial Officer. I’ll begin the call with some brief comments about Culp, and then Ken will review the financial results for the quarter. I’ll then update you on the various strategic actions in each of our businesses, and then after that, Ken will review the fourth quarter business outlook, and then we’ll be happy to take your questions. Now, looking at the third quarter, we continue to build our sales momentum thus far in fiscal 2014, with a 14% sales gain for the quarter compared with a year ago. Additionally, pre-tax income was $4.6 million, the highest third quarter in 15 years; even after absorbing the approximate $600,000 gross profit impact in our mattress fabrics business as mentioned in the press release. These favorable results are primarily related to our products as we continue to experience excellent customer response to our creative design, and innovative fabrics. We have worked diligently as our top strategic priority to drive product innovation, and creativity throughout our company. It is very encouraging to see significant tangible progress resulting from these efforts with increased sales to existing key customers as well as new customers. As we’ve said on many occasions, we compete in a product and fashion oriented business, that is always changing. Our ability to adapt quickly to such changes, and to create innovative fabrics season after season is the key to our long-term success. We are on track to report another outstanding year of solid sales growth, consistent profitability and excellent free cash flow. As a result, we have the financial strength to invest aggressively in capital expenditures and working capital to drive organic growth, as well as to provide added value to shareholders through regular and special dividends, and share repurchases. I’ll now turn the call over to Ken who will review the financial results for the quarter.

Thank you, Frank. As mentioned earlier on the call, we have posted Slide presentations to our Investor Relations website, they cover key quarterly and annual performance measures as well as our capital allocation strategy. Total sales for this quarter was $72.4 million, up 14% from the third quarter of last year, reflecting the highest sales level for the third quarter in 10 years. On a pre-tax basis, we reported income of $4.6 million compared with $4.5 million for the same period last year. Pre-tax margin was 6.3% compared with 7.1% a year ago. Adjusted net income, a non-GAAP measure was $3.9 million or $0.31 per share compared with $3.9 million or $0.32 per share for the prior year period. The Company’s overall adjusted effective income tax rate through the third quarter was 15.5% compared with 14.4% for the same period last year. This adjusted effective income tax rate or ongoing estimated cash tax rate represents income tax expense for the Culp’s non-U.S. entities divided by consolidated income before taxes. This information is important, because the Company currently does not pay cash taxes in the U.S., nor do we expect to for a number of years due to approximately $51 million in loss carry forwards as of the end of last fiscal year. Here are the results for our two businesses. For mattress fabrics, we reported $38.5 million in sales for the third quarter, up 9% as compared with the third quarter of last year. Operating income for this segment was $3.3 million for the third quarter compared with $4.2 million last year. Operating income margin was 8.6% of sales, compared with 11.7% a year ago. Our operating results for the third quarter were affected by higher than expected transition cost in Culp-Lava, our mattress cover operation, as well as additional…

Thanks, Ken. I will now provide you with an update on each of our businesses, and let’s start with mattress fabrics. Our mattress fabrics business had a solid performance in the third quarter of fiscal 2014. These results reflect the growing consumer demand for better designed bedding products, and strong market penetration. Culp is well positioned to meet this demand with our extensive design capabilities and technical expertise, supported by a scalable manufacturing platform and reactive capacity. We now offer a complete array of innovative fabrics and mattress covers to all major players across all categories in the mattress industry. As Ken noted in his remarks, we incurred some short-term challenges in the third quarter related to the absorption of some mattress cover business that was acquired earlier this fiscal year from a major competitor. I want to give you some perspective on the strategic reasons we entered into this transaction. The overall objective of the agreement was to help facilitate the exit and closing of this competitor’s El Salvador operation, by having Culp purchase most of the plant’s equipment, which was knit machines, and transferring the fabric and mattress cover production to Culp facility in North Carolina. Therefore, the key strategic benefit to Culp was gaining immediate access and current business to one of the largest bedding manufacturers in the U.S. This access contributed significantly to the successful new product placements we enjoyed at the recent Las Vegas bedding market. Additionally, Culp received a long-term non-compete agreement from this major global competitor for the North American market. Although we did experience some significant cost pressure in the third quarter and to a lesser extent in the fourth quarter as the program winds down, we believe the long-term growth potential as a result of this transaction far outweighs the short-term…

Given the adverse weather conditions experienced in many parts of the country thus far in calendar 2014, and related impact on furniture and mattress manufacturers and retailers, providing guidance for our fiscal fourth quarter has become more difficult. At this time, and even with the weather related challenges, we expect overall sales to be up 3% to 7% as compared with the fourth quarter of last year. For the year, we expect overall sales to exceed last year’s annual sales by approximately 5%. We expect fourth quarter sales in our mattress fabrics business to be up 3% to 7% as compared to the same period a year ago. Operating income in this segment is expected to be flat to slightly higher, while margins are expected to be slightly lower as compared with the same period a year ago. This performance reflects significant improvement over the results for the third quarter of this fiscal year. For the full fiscal year, we expect mattress fabric sales to be approximately 4% higher than last fiscal year, and operating income margins are expected to be somewhat lower than the same period a year ago. In our upholstery fabrics business, we expect fourth quarter sales to be up 1% to 5% as compared to the previous year’s fourth quarter results. Because the Chinese New Year holiday falls entirely in the fourth quarter of this fiscal year, our sales and production schedules will be affected by the extended break. We believe the upholstery fabrics segment’s operating income and margins will be flat to slightly lower when compared with the same quarter of last year. For the full fiscal year, we expect upholstery fabric sales to be approximately 10% higher than last fiscal year. Operating income in this segment is expected to be significantly higher than last fiscal year, while operating margins are expected to be moderately higher as compared to last year. Considering these factors, we expect to report pre-tax income for our fourth quarter in the range of $5 million to $5.9 million. Pre-tax income for last year’s fourth quarter was $5.9 million. For fiscal 2014 as a whole, we expect pre-tax income in the range of $19.9 million to $20.8 million compared with $20.3 million last fiscal year. Notably, last year’s $20.3 million was the highest level in 15 years, and was up 43% from the prior year. Frank?

We are pleased with our performance to date in fiscal 2014, and our ability to grow our business in the global market place. Our creative designs and innovative fabric piles are resonating with our customers in both businesses with favorable results. We are building a strong economic mote [ph] in both businesses with our flexible and scalable global manufacturing platform, which is supported by our design expertise, product innovation and outstanding customer service. We look forward to our future growth prospects, and our ability to continue generating strong free cash flow. Above all, we are committed to outstanding performance for our customers as a financially stable and trusted source for innovative fabrics. With that we will now take your questions.

Thank you. (Operator Instructions) We’ll take our first question from Budd Bugatch with Raymond James.

Good morning. Frank. Good morning, Ken. Thank you for all of the color, and thank you for taking my question. I guess, the thing that I would like to explore, have you explore more if it is – the surprise or – what happened to the additional $600,000 of cost of goods sold that came in the quarter, and then what’s the persistence of that? I know you’ve told us, some smaller amount going forward, but maybe you could quantify what that is in the fourth fiscal quarter and maybe in fiscal 2015 and beyond?

Okay. Let me address Budd, the second part of your question first. We’ve said in our release that this program will be ending in the fourth quarter. We’ll be winding down the production, so we do not expect any impact next year. And I guess, as an estimate in Q4 maybe $100,000 to $200,000 in operating – in the gross profit area in our mattress fabric area, so it’s much lesser expense, because most of the production that we absorbed for these covers was in the third quarter. And only a much less significant piece is being produced in the fourth quarter. Additionally, and what very encouraging is, the fourth quarter mix of business for our mattress cover business, which is relatively new, only a year old, is with a broader mix of customers, all at excellent programs. So we’ve made very solid progress, particularly resulting from the Vegas market, where we’ve got a growing number of programs, and we’re currently hiring in that operation now. So the mix is significantly better. Only a small amount of the – maybe unfavorable mix, I would say that we incurred in the third quarter. And I guess to answer the first part of your question; we are still relatively new at the cutting and sewing the mattress covers. And as I said in the press release, the major benefit to the transaction we did, entered into, back in May of this fiscal year was to gain access to one of the large bedding manufacturers in the U.S., and that is proven to be a very good situation as to the future growth prospects with the customer. I wish we’d have known it earlier, but we simply didn’t. We’re new in the business, and we just didn’t. So I don’t know what else to say.

Okay, all right. And just one other issue on that, of the $600,000 is there any way to classify what kind of expenses they were, were there asset write downs, was it simple…

It’s just overhead, overhead and productivity, labor and productivity in the plant, in the cut-and-sewn operation itself.

In the El Salvador plant or in the…

No, in the U.S. We began producing the mattress covers only in our third quarter. It took a while to transition the business to us. We had to go through supplier qualification, approval et cetera. So, we didn’t actually begin producing the covers until the third quarter.

Got you, okay.

And a substantial part of the production in the third quarter was this program. Now the good news, making a smooth transition for the customer of this program was very, very important and we excelled at that. And we think that contributed, had some impact on the receptivity to the number of placements we got in Vegas. So again, some short-term pain for long-term gain.

Okay.

And the good news, the problem is over in the fourth quarter. As you know, Budd, in the mattress industry most of the programs run two years or so thereabout, and a lot of new introductions at Vegas. So that particular program is over from our production point of view. I don’t think it’s quite over for the customer. They got to work through whatever – how they run those things down, but it’s true from our perspective.

I see. And you talked a little bit about Europe and coming on slower than you would have liked. Can you give us some feel of when that becomes material or does it become material for the business, and what the opportunity is there? Is it still the same opportunity that you saw when you made the decision to expand in Europe, I think now that year-after-year?

Okay. Absolutely. No question. The European theater is the second largest furniture market in the world. It is a large area that we would like to participate in. Most of our – the skill sets, the core competencies in our upholstery fabric area with the China platform, our design capabilities, all should work well in Europe as they do in the U.S., and other parts of the world. So, today we still think the opportunity is as good as it’s always been. We’ve got about $2.5 million of capital in Europe. We’ve got five employees. We’ve got $3 million to $4 million in annual sales, and we’ve reduced our operating losses this year. We’re not going to be breakeven yet, but we’re not a big operating loss at all. It’s a small operating loss, and it’s just taken time to learn the customer base, learn the products they need, which are somewhat different from the U.S. market, and just learn about how to do business in Europe. So it has taken us some additional time, and I would hope next year we will see additional sales growth, and we will see breakeven results at some point next year. We have made great progress with a very large customer in Europe, and across the world. I’ll even say IKEA is a big customer in Europe and across the world. We made very good progress with them year-over-year, but it is not easy. So for really that reason alone, the positive traction we’re gaining there gives us more optimism to stay on the course, and be patient. As long as we have a lot of capital, as long as we don’t lose the budget money, let’s just hang with it.

Okay. Thank you very much. Good luck on the fourth quarter and in 2015.

Okay. Thank you, Budd.

Thank you. We’ll take our next question from Kevin Tracey with Oberon Asset Management.

Thank you for taking my question. In the past you all have talked about your mattress fabrics business growing at about GDP rates, but it sounds like you all are gaining market share, and you now have access to a new major customer. So is it fair to expect your mattress business to grow at a faster rate than the GDP over the next couple of years?

That’s a great question, Kevin. And that’s exactly how we see it internally today, and we talk about growing the business faster than the industry growth, given the success we’re having with product innovation, and access to all customers in our cut-and-sewn operation there. We do see us growing faster than the industry growth.

Okay, great. Well, thanks. Good luck.

All right. Thank you.

Thank you. (Operator Instructions) And it appears we have no further questions at this time.

All right. Thank you, operator. And again, I thank all of you for your participation, and your interest in Culp. We look forward to updating you on our progress next quarter. Have a great day.

Thank you. Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect.