What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-07-12 compared with 2023-07-14 · 461 added, 648 removed, 934 unchanged (54% of the section changed)

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Effective January 19, 2023, we entered into a second amended and restated U.S.

revolving credit agreement (the "Amended Agreement") to establish an asset-based revolving credit facility that required interest to be charged at a rate (applicable interest rate of 6.3% as of April 30, 2023) calculated using an applicable margin over Federal Reserve Bank of New York's secured overnight fund rate (SOFR), as defined in the Amended Agreement.

revolving credit agreement (the "Amended Agreement") to establish an asset-based revolving credit facility that required interest to be charged at a rate calculated using an applicable margin over Federal Reserve Bank of New York's secured overnight fund rate (SOFR), as defined in the Amended Agreement.

The interest rate under the Amended Agreement as of April 28, 2204, was 6.81%.

As of April 28, 2024, there were no outstanding borrowings under the Amended Agreement.

Our revolving credit line associated with our operations located in China bears interest at a rate determined by the Chinese government at the time of borrowing.

As of April 30, 2023, there were no borrowings outstanding under our revolving credit agreement associated with our operations located in China.

Effective on March 20, 2024, we entered into an unsecured credit agreement with a financial institution in China denominated in RMB that requires interest to be charged at a rate based on the Loan Prime Rate ("LPR") in China minus 50 basis points (2.95% as of April 28, 2024).

There were no borrowings outstanding under this agreement as of April 28, 2024.

Our previously existing revolving credit agreement with another financial institution in China bears interest at a rate determined by the Chinese government at the time of borrowing, and is not directly determined by a published interest rate benchmark.

There were no borrowings outstanding under this agreement as of April 28, 2024.

Foreign Currency

We are exposed to market risk from changes in the value of foreign currencies for our subsidiaries domiciled in Canada and China.

We try to maintain a natural hedge by keeping a balance of our assets and liabilities denominated in the local currency of our subsidiaries domiciled in Canada and China.

We are exposed to market risk from changes in the value of foreign currencies for our subsidiaries domiciled in Canada, China and Vietnam.

We try to maintain a natural hedge by keeping a balance of our assets and liabilities denominated in the local currency of our subsidiaries domiciled in Canada, China, and Vietnam.

However, there is no assurance that we will be able to continually maintain this natural hedge.

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dollar as their functional currency.

A substantial portion of the company’s imports purchased outside the U.S.

are denominated in U.S.

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We have audited the accompanying consolidated balance sheets of Culp, Inc.

(a North Carolina corporation) and subsidiaries (the “Company”) as of April 30, 2023 and May 1, 2022, the related consolidated statements of net (loss) income, comprehensive (loss) income, shareholders’

equity, and cash flows for each of the three years in the period ended April 30, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2023 and May 1, 2022, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of April 30, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated July 14, 2023, expressed an unqualified opinion.

(a North Carolina corporation) and subsidiaries (the “Company”) as of April 28, 2024 and April 30, 2023, the related consolidated statements of net loss, comprehensive loss, shareholders’ equity, and cash flows for each of the three years in the period ended April 28, 2024, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 28, 2024 and April 30, 2023, and the results of its operations and its cash flows for each of the three years in the period ended April 28, 2024, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2007.

Charlotte, North Carolina

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(dollars in thousands, except per share data and preferred and common stock shares)

April 30, 2023, and May 1, 2022

April 28, 2024, and April 30, 2023

current assets:

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operating lease liability - current

deferred compensation

deferred compensation - current

deferred revenue

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deferred income taxes

deferred compensation

deferred compensation - long-term

total liabilities

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shares, issued and outstanding 12,469,903 at April 28, 2024

and 12,228,629 at May 1, 2022

and 12,327,414 at April 30, 2023

capital contributed in excess of par value

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The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEM ENTS OF NET (LOSS) INCOME

For the years ended April 30, 2023, May 1, 2022, and May 2, 2021

CONSOLIDATED STATEM ENTS OF NET LOSS

For the years ended April 28, 2024,April 30, 2023, and May 1, 2022

(dollars in thousands, except per share data)

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interest income

gain on bargain purchase

other expense

(loss) income before income taxes

loss before income taxes

income tax expense

income from investment in unconsolidated joint venture

net (loss) income

net (loss) income per share-basic

net (loss) income per share-diluted

net loss per share-basic

net loss per share-diluted

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

For the years ended April 30, 2023, May 1, 2022, and May 2, 2021

net (loss) income

other comprehensive (loss) income

unrealized holding (loss) gain on investments

reclassification adjustment for realized loss (gain) included in

net (loss) income

total unrealized (loss) gain on investments

comprehensive (loss) income

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the years ended April 28, 2024, April 30, 2023, and May 1, 2022

other comprehensive income (loss)

unrealized holding gain (loss) on investments

reclassification adjustment for realized loss included in

total unrealized gain (loss) on investments

comprehensive loss

The accompanying notes are an integral part of the consolidated financial statements.

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(dollars in thousands, except common stock shares)

For the years ended April 30, 2023, May 1, 2022,

For the years ended April 28, 2024, April 30, 2023,

Comprehensive

and May 1, 2022

(Loss) Income

Balance, May 2, 2021

stock-based compensation

unrealized gain on investments

unrealized loss on investments

common stock issued in connection with

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with payroll withholding taxes

common stock repurchased

dividends paid

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vesting of performance-based restricted

common stock issued in connection with

vesting of time-based restricted

immediately vested common stock awards

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with payroll withholding taxes

common stock repurchased

dividends paid

Balance, May 1, 2022

Balance, April 30, 2023

stock-based compensation

unrealized loss on investments

common stock issued in connection with

vesting of performance-based restricted

unrealized gain on investments

common stock issued in connection with

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CONSOLIDATED STATEM ENTS OF CASH FLOWS

For the years ended April 30, 2023, May 1, 2022, and May 2, 2021

For the years ended April 28, 2024, April 30, 2023, and May 1, 2022

(dollars in thousands)

cash flows from operating activities:

net (loss) income

adjustments to reconcile net (loss) income to net cash provided by (used in)

adjustments to reconcile net loss income to net cash (used in) provided by

operating activities:

non-cash inventory charges

non-cash inventory (credit) charges

stock-based compensation

deferred income taxes

gain on bargain purchase

gain on sale of property, plant, and equipment

non-cash restructuring expense

income from investment in unconsolidated joint venture

realized loss (gain) from the sale of investments

realized loss from the sale of investments

foreign currency exchange (gain) loss

changes in assets and liabilities, net of effects of

acquisition and disposal of businesses:

changes in assets and liabilities:

accounts receivable

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deferred revenue

net cash provided by (used in) operating activities

net cash (used in) provided by operating activities

cash flows from investing activities:

cash paid for acquisition of assets, net of cash acquired

capital expenditures

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proceeds from note receivable

investment in unconsolidated joint venture

proceeds from the sale of short-term investments (available for sale)

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proceeds from the sale of investments (rabbi trust)

purchase of long-term investments (rabbi trust)

purchase of investments (rabbi trust)

net cash (used in) provided by investing activities

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payments associated with lines of credit

payments associated with Paycheck Protection Program loan

dividends paid

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effect of exchange rate changes on cash and cash equivalents

increase (decrease) in cash and cash equivalents

(decrease) increase in cash and cash equivalents

cash and cash equivalents at beginning of year

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The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers.

Currently, we have mattress fabric operations located in Stokesdale, NC and Quebec, Canada.

During the last half of fiscal 2023, we rationalized our domestic cut and sewn cover platform, which included the termination of agreements to lease two facilities located in High Point, NC and moving our R&D and prototyping capabilities from these facilities to our facility located in Stokesdale, North Carolina.

Additionally, we acquired the remaining fifty percent ownership interest in our former unconsolidated joint venture located in Ouanaminthe, Haiti during the fourth quarter of fiscal 2021.

As a result, we are now the sole owner with full control of this cut and sew mattress cover operation (see Note 2 of the consolidated financial statements for further details regarding this business combination).

Currently, we have mattress fabric manufacturing operations located in Stokesdale, North Carolina, and Quebec, Canada, and a mattress cover operation located in Ouanaminthe, Haiti.

During the last half of fiscal 2023, we rationalized our domestic cut and sewn cover platform, which included the termination of agreements to lease two facilities located in High Point, North Carolina and moved our R&D and prototyping capabilities from these facilities to our facility located in Stokesdale, North Carolina.

On April 29, 2024 (first quarter of fiscal 2025), our board of directors made a decision to (1) consolidate the company's North American mattress fabrics operations, that includes a gradual discontinuation of operations and sale of the company's manufacturing facility located in Quebec, Canada;

(2) move a portion of the knitting and finishing capacity from the company's manufacturing facility located in Quebec, Canada to the company's manufacturing facility located in Stokesdale, North Carolina;

(3) transition the mattress fabrics segment's weaving operation to a strategic sourcing model through the company's long standing supply partners;

and (4) consolidate the company's two leased facilities related to the sewn mattress cover operation located in Ouanaminthe, Haiti, and reduce other operation expenses at this location.

See Note 8 to the consolidated statements regarding our restructuring activities.

Upholstery Fabrics

The upholstery fabrics segment develops, sources, manufactures, and sells fabrics primarily to residential and commercial furniture manufacturers.

The upholstery fabrics segment develops, sources, manufactures, and sells fabrics to customers in the residential, commercial, and hospitality industries, and supplies window treatment products to customers in the commercial and hospitality industries.

We have upholstery fabric operations located in Shanghai, China and Burlington, NC.

During the third quarter of fiscal 2022, we also commenced operation of a new facility in Ouanaminthe, Haiti dedicated to the production of cut and sewn upholstery kits.

However, due to the decline in demand for cut and sewn upholstery kits, we terminated the agreement to lease this new facility during the third quarter of fiscal 2023, and we relocated a scaled down upholstery cut and sewn operation into our existing mattress cover facility also located in Ouanaminthe, Haiti, during the fourth quarter of fiscal 2023.

Additionally, Read Window Products, LLC (“Read”), a wholly-owned subsidiary with operations located in Knoxville, TN, provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation for Read’s products, to customers in the hospitality and commercial industries.

During the fourth quarter of fiscal 2024, we established a wholly-owned subsidiary, Culp Fabrics Vietnam Limited, with an administrative office located in Ho Chi Minh City, Vietnam, for the purpose of enhancing our strategic sourcing opportunities and to further diversify our supply chain in Asia.

During the third quarter of fiscal 2022, we commenced operation of a new leased facility in Ouanaminthe, Haiti dedicated to the production of cut and sewn upholstery kits.

Due to significant decline in demand for cut and sewn upholstery kits, we terminated the agreement to lease this facility during the third quarter of fiscal 2023, and we relocated a scaled down upholstery cut and sewn operation into our existing mattress cover facility also located in Ouanaminthe, Haiti, during the fourth quarter of fiscal 2023.

During the first quarter of fiscal 2024, demand for upholstery cut and sew kits declined more than previously anticipated, resulting in the strategic action to discontinue production of upholstery cut and sew kits in Haiti.

See Notes 8 and 9 of the consolidated financial statements for further details regarding this restructuring plan.

Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.

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Certain amounts presented in prior periods have been reclassified to conform to the current period financial statement presentation.

Non-cash charges totaling $ 1.9 million and $ 882,000 for markdowns of inventory estimated based on our policy for aged inventory were reclassified from the line item "inventories" to the line item "non-cash inventory charges" in the Consolidated Statement of Cash Flows for the years ended May 1, 2022, and May 2, 2021, respectively.

These reclassifications did not have an on effect on previously reported net cash (used in) provided by operating activities and increase (decrease) in cash and cash equivalents.

Non-cash charges totaling $ 1.9 million for markdowns of inventory based on our policy for aged inventory were reclassified from the line item "inventories" to the line item "non-cash inventory charges" in the Consolidated Statement of Cash Flows for the year ended May 1, 2022.

This reclassification did not have an effect on previously reported net cash (used in) provided by operating activities and (decrease) increase in cash and cash equivalents.

Principles of Consolidation

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All significant intercompany balances and transactions have been eliminated in consolidation.

The accounts of our subsidiary located in Shanghai, China, are consolidated as of April 30, a calendar month end, which is required by the Chinese government.

No events occurred related to the difference between our fiscal year end on the Sunday closest to April 30 and our Chinese subsidiary's year end of April 30 that materially affected the company’s financial position, results of operations, or cash flows for fiscal years 2023, 2022, and 2021.

Class International Holdings, Ltd.

Equity Method of Accounting and Consolidation

Effective January 1, 2017, Culp International Holdings, Ltd.

(Culp International), a wholly-owned subsidiary of Culp, Inc.

(“Culp”), entered into a joint venture agreement pursuant to which Culp International owned 50 % of CIH.

As a result of our initial 50 % ownership interest, Culp’s investment in CIH was accounted for under the equity method of accounting in accordance with ASC Topic 823 –

Investments –

Equity Method and Joint Ventures.

The equity method of accounting is required for an investee entity (i.e., CIH) that is not consolidated but over which the reporting entity (i.e., Culp.) exercises significant influence.

Whether or not a reporting entity exercises significant influence with respect to an investee depends on an evaluation of several factors, including representation on the investee’s board of directors, voting rights, and ownership level.

In accordance with the equity method of accounting, our 50 % proportionate share of earnings from CIH were reflected in the caption “income from investment in unconsolidated joint venture”

in the Consolidated Statement of Net Income for the first nine months of fiscal 2021.

Effective February 1, 2021, Culp International entered into a Share Purchase Agreement to acquire the remaining 50% ownership interest in CIH.

Pursuant to this transaction, Culp International is now the sole owner with full control over CIH.

As a result, effective February 1, 2021, our consolidated financial statements now include all of the accounts of CIH, and any significant intercompany balances and transactions have been eliminated in consolidation.

Furthermore, the equity method of accounting will no longer be used and the former investment in unconsolidated joint venture is now included in the net assets of our now 100 % interest in CIH.

(see Note 2 of the consolidated financial statements for further details regarding this business combination).

The accounts of our subsidiaries located in Shanghai, China, and Ho Chi Minh City, Vietnam are consolidated as of April 30, a calendar month end, which is required by the respective governments under which they are organized.

No events occurred related to the difference between our fiscal year end on the Sunday closest to April 30 and our Chinese or Vietnamese subsidiaries year end of April 30 that materially affected the company’s financial position, results of operations, or cash flows for fiscal years 2024, 2023, or 2022.

Our fiscal year is the 52 or 53-week period ending on the Sunday closest to April 30.

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operations of more than the federally insured amounts on deposit with a financial institution.

We have not experienced any losses in such accounts.

We have not experienced any credit losses regarding such accounts.

Management believes we are not exposed to any significant credit risk related to cash and cash equivalents.

Rabbi Trust Investments

We have a rabbi trust to set aside funds for participants of our deferred compensation plan (the “Plan”) that enables our participants to credit their contributions to various investment options of the Plan.

The investments associated with the rabbi trust consist of investments in a money market fund and various mutual funds that are classified as available-for-sale.

Our rabbi trust investments classified as available-for-sale were recorded at their fair value of $ 8.5 million and $ 9.4 million as of April 30, 2023, and May 1, 2022, respectively.

These investments had accumulated unrealized gains totaling $ 19,000 and $ 32,000 as of April 30, 2023, and May 1, 2022, respectively.

Our rabbi trust investments classified as available-for-sale were recorded at their fair value of $ 8.0 million and $ 8.5 million as of April 28, 2024, and April 30, 2023, respectively.

These investments had accumulated unrealized gains totaling $ 118,000 and $ 19,000 as of April 28, 2024, and April 30, 2023, respectively.

The fair value of our investments associated with our rabbi trust approximates their cost basis and reside with our U.S.

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As of the end of each reporting period, we assess the credit risk of our customers within our accounts receivable portfolio.

Our risk assessment includes the respective customer’s (i) financial position;

risk assessment includes the respective customer’s (i) financial position;

(ii) past payment history;

(iii) management’s general ability;

and (iv) historical loss experience;

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Maintenance, repairs, and minor renewals are expensed as incurred.

When properties or equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts.

Amounts received on disposal greater than or less than the book value of assets sold are credited or charged to (loss) income from operations.

When properties or equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed and amounts received on disposal greater than or less than the book value of assets sold are credited or charged to (loss) income from operations.

Management reviews long-lived assets, which consist principally of property, plant, and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recovered.

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Interest Costs

No interest costs were incurred during fiscal 2023.

Total interest costs incurred were $ 11,000 and $ 17,000 during fiscal 2024 and 2022, respectively.

No interest costs were incurred during fiscal 2023.

We capitalize interest costs incurred on funds used to construct property, plant, and equipment.

The capitalized interest is recorded as part of the asset to which it relates and is depreciated over the asset’s estimated useful life.

No interest costs for the construction of qualifying fixed assets were capitalized during fiscal 2024, 2023, or 2022.

Foreign Currency Adjustments

The United States dollar is the functional currency for the company’s Canadian and Chinese subsidiaries.

The United States dollar is the functional currency for the company’s Canadian, Chinese, and Vietnamese subsidiaries.

All monetary foreign currency asset and liability accounts are remeasured into U.S.

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Foreign currency revenues and expenses are remeasured at average exchange rates in effect during the year, except for certain expenses related to balance sheet amounts remeasured at historical exchange rates, such as depreciation expense.

Exchange gains and losses from remeasurement of foreign currency denominated monetary assets and liabilities are recorded in the other expense line item in the Consolidated Statements of Net (Loss) Income in the period in which they occur.

A summary of our foreign currency exchange gains (losses) by geographic area follows:

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Indefinite-Lived Intangible Assets

In accordance with ASC Topic 350, Intangibles –

Goodwill and Other, our business was classified into three reporting units during fiscal 2023:

In accordance with ASC Topic 350, Intangibles – Goodwill and Other, our business was classified into three reporting units during fiscal 2024:

mattress fabrics, upholstery fabrics, and Read.

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No asset impairment charges were recorded during fiscal 2024, 2023, or 2022, as it relates to indefinite-lived intangible assets.

See Note 7 of the consolidated financial statements for further details of our assessments of impairment, conclusions reached, and the performance of our quantitative test relating to our indefinite-live intangible asset (i.e.

Deferred Income Taxes –

See Note 6 of the consolidated financial statements for further details of our assessments of impairment, conclusions reached, and the result of our annual impairment test relating to our indefinite-live intangible asset (i.e.

Deferred Income Taxes – Overall

Income taxes are accounted for under the asset and liability method.

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The effect on deferred income taxes of a change in tax rates is recognized in income tax (expense) benefit in the period that includes the enactment date.

Deferred Income Taxes –

Valuation Allowance

Deferred Income Taxes – Valuation Allowance

We evaluate our deferred income taxes to determine if a valuation allowance is required.

We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not”

standard, with significant weight being given to evidence that can be objectively verified.

We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard, with significant weight being given to evidence that can be objectively verified.

Since we operate in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law.

Deferred Income Taxes –

Undistributed Earnings from Foreign Subsidiaries

Deferred Income Taxes – Undistributed Earnings from Foreign Subsidiaries

We assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S.

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We recognize an income tax benefit for a tax position taken or expected to be taken on an income tax return if the more-likely-than-not recognition threshold is met by the end of the reporting period, or is effectively settled through examination, litigation, or negotiation, or if the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired.

The income tax

effect recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

The income tax effect recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

Penalties and interest related to uncertain income tax positions are recorded as income tax expense.

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Revenue Recognition

Revenue is recognized upon the transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.We determined that our customer purchase orders represent contracts.

We determined that our customer purchase orders represent contracts.

In addition to customer purchase orders, we also have supply contracts with certain customers that define standard terms and conditions.

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Shipping costs, principally freight, that comprise payments to third-party shippers are classified as cost of sales.

Handling costs represent finished goods

warehousing costs incurred to store, move, and prepare products for shipment in the company’s various distribution facilities.

Handling costs represent finished goods warehousing costs incurred to store, move, and prepare products for shipment in the company’s various distribution facilities.

Handling costs were $ 4.6 million, $ 4.2 million, and $ 4.3 million during fiscal 2024, 2023, and 2022, respectively, and are included in selling, general and administrative expenses.

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A renewal option is considered reasonably certain to be exercised if there is a significant economic incentive to exercise the renewal option on the date a lease arrangement is commenced.

For our leases, an estimated incremental borrowing rate (“IBR”) is utilized, based on information available at the inception of the lease.

The IBR represents an estimate of the interest rate we would use at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease.

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Our equity incentive plans are described more fully in Note 13 to the notes to the consolidated financial statements.

ASC Topic 718, “Compensation –

Stock Compensation ”, requires that all stock-based compensation be recognized as compensation expense in the financial statements and that such cost be measured at the grant date for awards issued to employees and the company’s board of directors.

ASC Topic 718, “Compensation – Stock Compensation ”, requires that all stock-based compensation be recognized as compensation expense in the financial statements and that such cost be measured at the grant date for awards issued to employees and the company’s board of directors.

Compensation expense for time-vested restricted stock unit awards is amortized on a straight-line basis over the respective vesting period.

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Recently Adopted Accounting Pronouncements

There were not any recently adopted accounting pronouncements affecting our consolidated financial statements during fiscal 2023.

There were not any recently adopted accounting pronouncements during fiscal 2024.

Recently Issued Accounting Pronouncements

Effective November 27, 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07 Improvements to Reportable Segment Disclosures which enhances disclosure requirements to segment reporting including (i) significant segment expenses that are regularly provided to the Chief Operating Decision Maker (CODM) that are included within each measure of segment profit or loss, (ii) other segment items by reportable segment as defined by ASU 2023-07, and (iii) the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of each segment's profit or loss in assessing segment performance and deciding how to allocate resources.

ASU 2023-07 is effective for public entities starting in annual periods beginning after December 15, 2023 (i.e., our fiscal 2025 annual report) and interim periods beginning after December 15, 2024 (i.e., first quarter of fiscal 2026 interim report).

Management is currently evaluating the effects ASU 2023-07 will have on the notes to the consolidated financial statements.

Effective December 14, 2023, the FASB issued ASU 2023-09 Improvements to Income Tax Disclosures, which is an update to Topic 740, Income Taxes.

The amendments in this update relate to improvements regarding the transparency of income tax disclosures by

requiring consistent categories and greater disaggregation by jurisdiction of information included in the effective income tax rate reconciliation and for income taxes paid.

Also, the amendments allow investors to better assess an entity's (i) capital allocation decisions, (ii) worldwide operations, and (iii) related tax risks, tax planning, and operational opportunities that affect the effective income tax rate and prospects for future cash flows.

The other amendments in this update improve the effectiveness and comparability of disclosures relating to pretax income (or loss) and income tax expense (or benefit) and remove disclosures that are no longer considered cost beneficial or relevant.

ASU 2023-09 is effective for public entities starting in annual periods beginning after December 15, 2024 (i.e., our fiscal 2026 annual report).

Early adoption is permitted.

The company expects that the adoption ASU 2023-09 will not have an impact on our results of operations and financial condition, but will have a material impact on the disclosures required in the notes to the consolidated financial statements, which are disclosed in Note 11.

Currently, there are no new accounting pronouncements that are expected to have a material effect on our consolidated financial statements.

BUSINESS COMBINATION ACHIEVED IN STAGES

Effective January 1, 2017, Culp International Holdings, Ltd.

(“Culp International”), a wholly-owned subsidiary of the company, entered into a joint venture agreement pursuant to which Culp International owned 50 % of CLASS International Holdings, Ltd.

(“CIH).

CIH produces cut and sewn mattress covers housed in two facilities totaling 120,000 square feet, located in a modern industrial park on the northeastern border of Haiti.

Effective February 1, 2021 (sometimes referred to as the “acquisition date”), Culp International entered into a Share Purchase Agreement with its former joint venture partner pursuant to which Culp International acquired the remaining 50 % ownership interest in CIH.

Prior to the acquisition of the remaining 50 % ownership interest in CIH, we accounted for our initial 50 % ownership interest in CIH as an unconsolidated joint venture under the equity method of accounting.

In connection with the acquisition of the remaining 50% ownership interest in CIH, our consolidated financial statements now include all of the accounts of CIH, and any significant intercompany balances and transactions have been eliminated in consolidation.

The consideration transferred for our now- 100 % ownership interest in connection with this acquisition totaled $ 2.7 million, of which $ 1.7 million represented the fair value of our previously held 50% ownership interest in CIH, and $ 954,000 represented the purchase price that was mostly paid at closing on February 1, 2021, for the remaining 50% ownership interest in CIH.

We remeasured our previously held 50% ownership interest in CIH at its acquisition date fair value.

As of the acquisition date, the fair value of our previously held 50% ownership interest totaling $ 1.7 million represented its carrying amount, and therefore, no gain or loss was recognized in earnings for the remeasurement of our previously held 50% ownership interest.

Assets Acquired and Liabilities Assumed

The following table presents the final allocation of the consideration transferred to the assets acquired and liabilities assumed based on their fair values.

(dollars in thousands)

Cash and cash equivalents

ACCOUNTS RECEIVABLE

Right of use assets

Equipment and leasehold improvements

Accounts payable

Fair value of identifiable assets acquired and liabilities assumed

Gain on bargain purchase

Equipment and leasehold improvements are being depreciated on a straight-line basis over their remaining useful lives ranging from 1 to 10 years .

Gain on Bargain Purchase

Concurrent with our acquisition of the remaining 50% ownership interest in CIH, our former joint venture partner sold its mattress related business to a third party.

Our acquisition of the remaining 50% ownership interest in CIH was undertaken due to this sale and the terms negotiated in connection therewith.

As a result, the $ 3.5 million fair value of the identifiable assets acquired and liabilities assumed exceeded the consideration transferred of $ 2.7 million.

Consequently, we (i) reassessed the recognition and measurement of the assets acquired, liabilities assumed, and our previously held ownership interest;

(ii) gained an understanding of why there was a bargain purchase;

and (iii) reviewed the rebate and supply agreements that were executed concurrent with the Share Purchase Agreement described below.

As part of our review of the rebate and supply agreements, we verified that the terms of these agreements were consistent with fair market value terms and are considered separate transactions and not considered part of the business combination.

Accordingly, this acquisition has been accounted for as a bargain purchase and, as a result, we recognized a gain of $ 819,000 , which was reported in the line-item “gain on bargain purchase”

in the fiscal 2021 Consolidated Statement of Net Income.

Separate Transactions

Supply and Rebate Agreements

In connection with the Share Purchase Agreement, we entered into supply and rebate agreements with an affiliated company of our former joint venture partner to secure plant capacity utilization and preserve sales channels of certain mattress fabric products.

The supply and rebate agreements were effective as of the acquisition date and based on future sales orders consistent with current market conditions.

The transactions associated with the supply and rebate agreements were accounted for in accordance with ASC Topic 606 Revenue from Contract with Customers.

During fiscal 2023, 2022 and the period from February 1, 2021, through May 2, 2021, shipments pursuant to the supply agreement were $ 198,000 , $ 1.6 million and $ 379,000 , respectively.

During fiscal 2023, there was no charge pursuant to the rebate agreement as the terms of the rebate agreement were not met.

During fiscal 2022 and the period from February 1, 2021, through May 2, 2021, charges of $ 73,000 and $ 25,000 pursuant to the rebate agreement were included in net sales in the Consolidated Statement of Net (Loss) Income for the respective periods.

Acquisition-Related Costs

Acquisition-related costs totaling $ 30,000 were included in selling, general, and administrative expenses in the fiscal 2021 Consolidated Statement of Net Income.

Actual revenue and net loss from the acquisition date of February 1, 2021, through May 2, 2021, included in our fiscal 2021 Consolidated Statement of Net Income totaled $ 379,000 and $( 2,000 ), respectively.

(Unaudited) Pro Forma Financial Information

The following unaudited pro forma consolidated results of operations for the fiscal year ending May 2, 2021, has been prepared as if this acquisition had occurred on April 29, 2019.

(dollars in thousands, except per share data)

Income from operations

Net income per share - basic

Net income per share - diluted

The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

Equity Method of Accounting

In accordance with the equity method of accounting, we reported our previous 50% proportionate share of net income of CIH as a separate line titled “income from investment in consolidated joint venture”

in the accompanying Consolidated Statements of Net (Loss) Income.

Our 50% proportionate share of the net income of the unconsolidated joint venture was $ 31,000 during fiscal 2021.

ACCOUNTS RECEIVABLE

A summary of accounts receivable follows:

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ending balance

As of April 30, 2023, and May 1, 2022, we assessed the credit risk of our customers within our accounts receivable portfolio.

Our risk assessment includes the respective customer’s (i) financial position;

As of April 28, 2024, and April 30, 2023, we assessed the credit risk of our customers within our accounts receivable portfolio.

Our risk assessment includes the respective customer’s (i) financial position;

(ii) past payment history;

(iii) management’s general ability;

and (iv) historical loss experience;

as well as (v) any other ongoing economic conditions.

After our risk assessment was completed, we assigned credit grades to our customers, which in turn were used to determine our allowance for doubtful accounts totaling $ 342,000 and $ 292,000 as of April 30, 2023, and May 1, 2022, respectively.

After our risk assessment was completed, we assigned credit grades to our customers, which in turn were used to determine our allowance for doubtful accounts totaling $ 356,000 and $ 342,000 as of April 28, 2024, and April 30, 2023, respectively.

A summary of the activity in the allowance for returns and allowances and discounts follows:

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ending balance

Bankruptcy Proceedings

On June 25, 2022, a significant customer and its affiliates associated with our mattress fabrics segment announced that they filed voluntary petitions for reorganization under Chapter 11 of the U.S.

Bankruptcy Code.

Our customer and its affiliates entered into an asset purchase agreement for the sale of substantially all of their assets, and the new owner is now conducting normal operations.

We did not record a credit loss associated with outstanding accounts receivable dated on or prior to May 1, 2022, for this customer and its affiliates, as we received payment in full regarding these invoices.

We did not record a credit loss associated with outstanding accounts receivable dated after May 1, 2022, relating to products sold prior to the bankruptcy filing, as we received payment in full regarding these invoices.

On January 23, 2023, a significant customer and its affiliates associated with our mattress fabrics segment filed pre-planned voluntary petitions for reorganization under Chapter 11 of the U.S.

Bankruptcy Code.

Our customer and its affiliates are operating as a debtors-in-possession and subject to and within the provisions of the petitions as approved by the U.S.

Bankruptcy Court.

We did not record a credit loss associated with outstanding accounts receivable for this customer and its affiliates, in connection with products sold prior to the bankruptcy filing, as we received payment in full regarding these invoices during the fourth quarter of fiscal 2023.

As of April 30, 2023, based on information available at this time, we do not believe there is a risk of material credit loss associated with outstanding accounts receivable with this customer, as we are selling products based on credit terms, and we are being paid in the normal course of business.

REVENUE FROM CONTRACTS WITH CUSTOMERS

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The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers.

The upholstery fabrics segment develops, manufactures, sources, and sells fabrics primarily to residential and commercial furniture manufacturers.

In addition, the upholstery fabrics segment includes Read, which provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation services for Read’s products, to customers in the hospitality and commercial industries.

The upholstery fabrics segment develops, sources, manufactures, and sells fabrics to customers in the residential, commercial, and hospitality industries.

Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.

Our primary performance obligations include the sale of mattress fabrics and upholstery fabrics, as well as the performance of customized fabrication and installation services for Read’s products associated with window treatments.

Significant Judgments

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During the fourth quarter of fiscal 2023, we entered into a contract with an upholstery fabrics customer that required the customer to pay us an upfront license fee payment totaling $ 250,000 to use a certain trademark for a period of three years commencing in fiscal 2024 and extending through fiscal 2026.

There were no contract assets recognized as of April 30, 2023, or May 1, 2022.

There were no contract assets recognized as of April 28, 2024, or April 30, 2023.

A summary of the activity of deferred revenue follows:

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Ending Balance

As of April 30, 2023, total deferred revenue of $ 1.2 million pertained to (i) upfront customer deposits associated with customized fabrication and installation services related to Read totaling $ 942,000 and (ii) an upfront license fee paid to us for the licensing of a certain trademark to be used by an upholstery fabrics customer totaling $ 250,000 .

As of May 1, 2022, the entire deferred revenue amount of $ 520,000 represented upfront customer deposits associated with customized fabrication and installation services related to Read.

As of April 28, 2024, deferred revenue of $ 1.5 million pertained to (i) upfront customer deposits associated with customized fabrication and installation services related to Read totaling $ 1.3 million and (ii) an upfront license fee paid to us for the licensing of a certain trademark to be used by an upholstery fabrics customer totaling $ 167,000 .

As of April 30, 2023, deferred revenue of $ 1.2 million pertained to (i) upfront customer deposits associated with customized fabrication and installation services related to Read totaling $ 942,000 and (ii) an upfront license fee paid to us for the licensing of a certain trademark to be used by an upholstery fabrics customer totaling $ 250,000 .

Disaggregation of Revenue

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finished goods

Substantial and Unusual Losses Resulting from Subsequent Measurement of Inventory

We incurred non-cash inventory charges totaling $ 5.8 million during fiscal 2023, which represents a $ 2.9 million impairment charge associated with our mattress fabrics segment;

a total of $ 2.8 million related to markdowns of inventory in both segments that were estimated based on our policy for aged inventory;

and $ 98,000 for the loss on disposal and markdowns of inventory related to the exit of our cut and sewn upholstery fabrics operation located in Shanghai, China (see Note 9 of the consolidated financial statements for further details).

We incurred non-cash inventory charges of $ 1.9 million and $ 882,000 during fiscal 2022 and 2021, respectively, which represent markdowns of inventory in both segments that were based on our policy of aged inventory.

Measurement of Inventory to Net Realizable Value

We recorded a non-cash inventory (credit) charge of $( 1.6 ) million, $ 5.8 million, and $ 1.9 million during fiscal 2024, 2023, and 2022, respectively.

We recorded a non-cash inventory credit of $ 1.6 million during fiscal 2024, which mostly represents adjustments for markdowns of inventory estimated based on the company's policy for aged inventory that was on hand as of April 28, 2024.

This $ 1.6 million non-cash credit stems from promotional programs to reduce aged raw materials and finished goods inventory, coupled with aligning inventory purchases with consumer demand trends, and relates mostly to the mattress fabrics segment.

The $ 1.6 million also includes a $ 40,000 charge associated with the upholstery fabrics segment related to markdowns of inventory associated with the discontinuation of production of cut and sewn upholstery kits at our facility located in Ouanaminthe, Haiti.

We recorded a non-cash inventory charge o f $ 5.8 million during fiscal 2023, which represented a $ 2.9 million charge for the write down of inventory to its net realizable value associated with our mattress fabrics segment (see below section titled Mattress Fabrics Segment - Net Realizable Value for further details), a $ 2.8 million charge related to markdowns of inventory estimated based on our policy for aged inventory on hand as of April 30, 2023, and a $ 98,000 charge related to the loss on disposal and markdowns of inventory related to the exit of our cut and sew upholstery fabrics operation located in Shanghai, China.

The $ 2.8 million non-cash charge associated with the markdowns of inventory noted above resulted from a significant decrease in consumer demand for both business segments, as well as aged inventory resulting from an increase in inventory purchases to protect against supply chain disruptions and support our customers.

Mattress Fabrics Segment - Net Realizable Value

During the second quarter of fiscal 2023, our mattress fabrics segment experienced a 35.8 % decline in net sales compared with the second quarter of fiscal 2022.

This decline in net sales led to a significant decrease in gross margin to ( 8.7 %), excluding non-cash inventory charges of $ 3.8 million during the second quarter of fiscal 2023, as compared with a gross margin of 15 % during the second quarter of fiscal 2022.

The significant decline in net sales and profitability during the second quarter of fiscal 2023 stemmed from a greater than anticipated decline in consumer discretionary spending on mattress products, which we believed was due to the following factors:

This decline in net sales led to a significant decrease in gross margin to ( 8.7 %) (excluding a non-cash inventory charge of $ 3.8 million recorded during the second quarter of fiscal 2023), as compared with gross margin of 15.0 % during the second quarter of fiscal 2022.

(i) inflationary effects of commodities such as gas, food, and other necessities;

(ii) a significant increase in interest rates;

(iii) the pulling forward of demand for home goods products during the early years of the COVID-19 pandemic, which demand subsequently shifted to travel, leisure, and other services;

and (iv) excess inventory held by customers due to a decline in consumer demand.

Based on this evidence, as of October 30, 2022 (the end of our second quarter of fiscal 2023), management conducted a thorough review of our mattress fabrics inventory, and as a result, recorded a charge of $ 2.9 million within cost of sales to write down inventory to its net realizable value.

This $ 2.9 million charge was based on management's estimates of product sales prices, customer demand trends, and its plans to transition to new products.

As of January 29, 2023 (the end of our third quarter of fiscal 2023), and April 30, 2023 (the end of fiscal 2023), we reviewed our mattress fabrics inventory to determine if additional write-downs of inventory that were not recorded based on our policy for aged inventory were necessary.

Based on this assessment, no additional write-downs of inventory to their net realizable value were recorded during the third and fourth quarters of fiscal 2023.

Based on current unfavorable macroeconomic conditions, it is possible that estimates used by management to determine the write down of inventory to its net realizable value could be materially different from its actual value or our ultimate results.

These differences could result in higher than expected inventory provisions, which could adversely affect the company's results of operations and financial condition in the near term.

(iii) the pulling forward of demand for home goods products during the early years of the COVID-19 pandemic, which demand then shifted to travel, leisure, and other services;

and (iv) excess inventory held by customers due to the decline in consumer demand.

Based on this evidence, management conducted a thorough review of its mattress fabrics inventory and, as a result, recorded a charge of $ 2.9 million within cost of sales to write down inventory to its net realizable value.

This $ 2.9 million charge was based on management's best estimates of product sales prices, customer demand trends, and its plans to transition to new products.

We recorded a non-cash inventory charge of $ 1.9 million during fiscal 2022, which represents adjustments for markdowns of inventory estimated based on the company's policy for aged inventory that was on hand as of May 1, 2022.

This $ 1.9 million charge stems from the COVID-19 related shutdowns that affected our upholstery fabric operations located in China during the fourth quarter of fiscal 2022, as well as aged inventory resulting from an increase in inventory purchases to protect against supply chain disruptions and support our customers.

As of April 28, 2024, we reviewed our mattress fabrics and upholstery fabrics inventories to determine if any additional write-downs, in excess of the amount recorded based on our policy for aged inventory, were necessary.

Based on our assessment, no additional write-downs of inventories to their net realizable value were recorded for the twelve months ended April 28, 2024, other than the markdowns of inventory associated with our upholstery fabrics segment restructuring activities described more fully in Note 8 of the consolidated financial statements.

Based on current unfavorable industry macroeconomic conditions, it is possible that estimates used by management to determine the write down of inventory to its net realizable value could be materially different from the actual amounts or results.

These differences could result in higher than expected markdowns of inventory, which could adversely affect the company’s results of operations and financial condition in the near term.

PROPERTY, PLANT, AND EQUIPMENT

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However, we are required to assess this tradename annually or between annual tests if we believe indicators of impairment exist.

Accordingly, we performed an annual assessment of Read's tradename as of April 30, 2023.

First, we performed a qualitative assessment to determine if any impairment indicators existed.

(ii) processing and pricing inefficiencies associated with customization and installation services;

(iii) an unfavorable mix of small scale and larger scale projects;

and (iv) changes in management and key personnel.

Consequently, we conducted a quantitative impairment test to determine the fair value of Read's tradename by calculating Read's future discounted cash flows based on management's assumptions that involve unobservable inputs such as (i) discount rate, (ii) future growth rates, (iii) changes in working capital, and (iv) effect of strategic actions to be performed by management to address recent operating inefficiencies.

results of our quantitative impairment test, the fair value of Read's tradename exceeded its carrying amount, and therfore, no impairment was noted as of April 30, 2023.

Accordingly, on the annual testing date, April 28, 2024, we performed an impairment assessment of Read's tradename.

Our assessment consisted of a quantitative impairment test utilizing the relief from royalty method to determine the fair value of Read's tradename and comparing the fair value of the tradename to its respective carrying amount.

Based on this quantitative test, the fair value of the trade name exceeded its carrying amount and consequently no impairment was recorded during the twelve months ending April 28, 2024.

Customer Relationships

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Our customer relationships are amortized on a straight-line basis over useful lives ranging from nine to seventeen years .

The gross carrying amount of our customer relationships was $ 3.1 million as of April 30, 2023, and May 1, 2022.

Accumulated amortization for these customer relationships was $ 1.8 million and $ 1.5 million as of April 30, 2023, and May 1, 2022, respectively.

The gross carrying amount of our customer relationships was $ 3.1 million as of April 28, 2024, and April 30, 2023.

Accumulated amortization for these customer relationships was $ 2.1 million and $ 1.8 million as of April 28, 2024, and April 30, 2023, respectively.

The remaining amortization expense for the next five fiscal years and thereafter follows:

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Our non-compete agreement is associated with a prior acquisition by our mattress fabrics segment and is amortized on a straight-line basis over the fifteen-year life of the agreement.

The gross carrying amount of this non-compete agreement was $ 2.0 million as of April 30, 2023, and May 1, 2022.

Accumulated amortization for this non-compete agreement was $ 1.6 million as of April 30, 2023, and May 1, 2022.

The gross carrying amount of this non-compete agreement was $ 2.0 million as of April 28, 2024, and April 30, 2023.

Accumulated amortization for this non-compete agreement was $ 1.7 million and $ 1.6 million as of April 28, 20 24, and April 30, 2023.

The remaining amortization expense for the next five years and thereafter follows:

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FY 2027 - $ 76,000 ;

and FY 2028 - $ 73,000 .

The weighted average amortization period for the non-compete agreement is 4.0 years as of April 28, 2024.

Impairment - Mattress Fabrics Segment

As of October 30, 2022 (the end of our second quarter of fiscal 2023), management reviewed the long-lived assets associated with our mattress fabrics segment, which consisted of property, plant, and equipment, right of use assets, and finite-lived intangible assets (collectively known as the "Mattress Asset Group"), for impairment, as events and changes in circumstances occurred that indicated the carrying amount of the Mattress Asset Group may not be recoverable.

During the second quarter of fiscal 2023, our mattress fabrics segment experienced a 35.8 % decline in net sales compared with the second quarter of fiscal 2022.

This decline in net sales led to a significant decrease in gross margin to ( 23.1 %) during the second quarter of 2023, compared with gross margin of 15.0 % during second quarter of fiscal 2022.

Impairment of Definite Lived Assets - Mattress Fabrics Segment

As of April 28, 2024, management reviewed the long-lived assets associated with our mattress fabrics segment, which consisted of property, plant, and equipment, right of use assets, and definite-lived intangible assets (collectively known as the "Mattress Asset Group"), for impairment, as events and changes in circumstances occurred that indicated the carrying amount of the Mattress Asset Group may not be recoverable.

The mattress fabrics segment experienced a significant cumulative operating loss totaling $ 22.6 million commencing in the second quarter of fiscal 2023, and continuing through the fourth quarter of fiscal 2024.

We believe this significant cumulative operating loss stemmed from a decline in consumer discretionary spending on mattress products, which we believe was

driven by the following factors:

(i) inflationary effects of commodities such as gas, food, and other necessities;

(ii) a significant increase in interest rates;

(iii) the pulling forward of demand for home goods products during the early years of the COVID-19 pandemic, which demand subsequently shifted to travel, leisure, and other services;

and (iv) excess inventory held by customers due to a decline in consumer demand.

Based on the above evidence, we were required to determine the recoverability of the Mattress Asset Group, which was classified as held and used, by comparing the carrying amount of the Mattress Asset Group to the sum of the future undiscounted cash flows expected

to result from its use and eventual disposition.

If the carrying amount of an asset group exceeds its estimated future undiscounted cash flows, an impairment charge is recognized for the excess of the carrying amount over the sum of the future undiscounted cash flows of the asset group.

As of October 30, 2022, the carrying amount of the Mattress Asset Group totaled $ 38.8 million, which related to property, plant, and equipment of $ 35.9 million, right of use assets of $ 2.1 million, a non-compete agreement of $ 414,000 , and customer relationships of $ 383,000 .

The total carrying amount of the Mattress Asset Group did not exceed the sum of its future undiscounted cash flows from its use and eventual disposition.

As a result, we determined no impairment associated with the Mattress Asset Group existed as of October 30, 2022.

Since the end of the second quarter on October 30, 2022, and through the end of fiscal 2023, our mattress fabrics segment remained unprofitable, as it incurred operating losses totaling $( 4.2 ) million and $( 2.5 ) million during the third quarter and fourth quarter of fiscal 2023, respectively.

As of April 30, 2023, the carrying amount of the Mattress Asset Group totaled $ 36.8 million, which represents property, plant, and equipment of $ 33.7 million, right use assets of $ 2.3 million, a non-compete agreement of $ 377,000 , and customer relationships of $ 358,000 .

The total carrying amount of the Mattress Asset Group did not exceed the sum of its future undiscounted cash flows from its use and eventual disposition.

As result, we maintain our position that no impairment associated with the Mattress Asset Group existed as of April 30, 2023.

Impairment - Read

(iii) the pulling forward of demand for home goods products during the early years of the COVID-19 pandemic, which demand has now shifted to travel, leisure, and other services;

and (iv) excess inventory held by customers due to the decline in consumer demand.

Based on the above evidence, we were required to determine the recoverability of the Mattress Asset Group, which is classified as held and used, by comparing the carrying amount of the Mattress Asset Group to the sum of the future undiscounted cash flows expected to result from its use and eventual disposition.

If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized for the excess of the carrying amount over the fair value of the asset group.

The carrying amount of the Mattress Asset Group totaled $ 33.7 million, which represents property, plant, and equipment of $ 31.5 million, right of use assets of $ 1.6 million, customer relationships of $ 306,000 , and a non-compete agreement of $ 301,000 .

The total carrying amount of the Mattress Asset Group did not exceed the sum of its future undiscounted cash flows from its use and disposition.

As a result, we determined there was no impairment associated with the Mattress Asset Group as of April 28, 2024.

Impairment of Definite Lived Assets - Read

As of April 28, 2024, management reviewed the long-lived assets associated with Read, a separate reporting unit within our upholstery fabrics segment.

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Read's Asset Group was reviewed for impairment because events and changes in circumstances occurred that indicated the carrying amount of the Read's Asset Group may not be recoverable.

As a result, we performed a qualitative assessment to determine if any impairment indicators existed.

Based on this assessment we concluded that indicators of impairment did exist, such as unfavorable financial performance in that we have incurred net operating losses during the last two fiscal years, which stem from (i) tight labor supply and wage inflation, (ii) processing and pricing inefficiencies associated with customization and installation services, (iii) an unfavorable mix of small scale and larger scale projects;

As a result, we performed an assessment to determine if any impairment indicators existed.

Based on this assessment we concluded that indicators of impairment did exist, such as unfavorable financial performance in that we have incurred net operating losses during the last three fiscal years, which stem from (i) a tight labor supply and wage inflation, (ii) processing and pricing inefficiencies associated with customization and installation services, (iii) an unfavorable mix of small scale and larger scale projects;

and (iv) changes in management and key personnel.

Based on the above evidence, we were required to determine the recoverability of Read's Asset Group, which was classified as held and used, by comparing the carrying amount of Read's Asset Group to the sum of the future undiscounted cash flows expected to result from its use and eventual disposition.

As of April 30, 2023, the carrying amount of Read's Asset Group totaled $ 1.5 million, which represents customer relationships of $ 978,000 , property, plant, and equipment of $ 329,000 , and a right of use asset of $ 215,000 .

Based on the above evidence, we were required to determine the recoverability of Read's Asset Group, which is classified as held and used, by comparing the carrying amount of Read's Asset Group to the sum of the future undiscounted cash flows expected to result from its use and eventual disposition.

If the carrying amount of an asset group exceeds its estimated future undiscounted cash flows, an impairment charge is recognized for the excess of the carrying amount over the fair value of the asset group.

As of April 28, 2024, the carrying amount of Read's Asset Group totaled $ 1.8 million, which represents customer relationships of $ 728,000 , right of use asset of $ 725,000 , and property, plant, and equipment of $ 390,000 .

The total carrying amount of Read's Asset Group did not exceed the sum of its future undiscounted cash flows from its use and eventual disposition.

As a result, we determined no impairment associated with Read's Asset Group existed as of April 30, 2023.

As a result, we determined there was no impairment associated with Read's Asset Group as of April 28, 2024.

ACCRUED EXPENSES

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compensation and related benefits

UPHOLSTERY FABRICS SEGMENT RESTRUCTURING ACTIVITIES

Second Quarter of Fiscal 2023 - China

During the second quarter of fiscal 2023, we closed our cut and sew upholstery fabrics operation located in Shanghai, China, which included the termination of an agreement to lease a building.

RESTRUCTURING ACTIVITIES

Upholstery Fabrics Segment

Description of Activities

Ouanaminthe, Haiti

During the third quarter of fiscal 2023, Culp Upholstery Fabrics Haiti, Ltd.

("CUF Haiti") entered into an agreement to terminate a lease associated with a facility, and in turn moved the production of upholstery cut and sewn kits to an existing facility leased by Culp Home Fashions Haiti, Ltd.

("CHF Haiti") during the fourth quarter of fiscal 2023.

Both CUF Haiti and CHF Haiti are indirectly wholly-owned

subsidiaries of the company.

During the first quarter of fiscal 2024, demand for upholstery cut and sewn kits declined more than previously anticipated, resulting in the strategic action to discontinue the production of upholstery cut and sew kits in Haiti.

This restructuring activity commenced during the third quarter of fiscal 2023 and was completed during the third quarter of fiscal 2024, resulting in a cumulative restructuring and restructuring related charges of $ 1.3 million of which $ 781,000 and $ 472,000 were incurred during fiscal 2024 and fiscal 2023, respectively.

See Note 9 of the consolidated financial statements for further details regarding the agreement to terminate the above mentioned lease agreement and a related note receivable.

Shanghai, China

Cut and Sew Upholstery Fabrics Operation

During the second quarter of fiscal 2023, we closed our cut and sew upholstery fabrics operation, which included the termination of an agreement to lease a building.

This strategic action, along with the further use of our Asian supply chain, was our response to declining consumer demand for cut and sew products, by adjusting our operating costs to better align with the lower demand.

As a result of this strategic action, we recorded restructuring expense and restructuring related charges during fiscal 2023 totaling $ 713,000 , which represent represent (i) employee termination benefits of $ 468,000 , (ii) loss from the disposal and markdowns of inventory of $ 98,000 , (iii) an impairment loss associated with equipment of $ 80,000 , (iv) lease termination costs of $ 47,000 , (v) and

other associated costs of $ 20,000 .

Of the total $ 713,000 , $ 615,000 and $ 98,000 , were recorded to restructuring expense and cost of sales, respectively, in the fiscal 2023 Consolidated Statement of Net Loss.

Third and Fourth Quarters of Fiscal 2023 - Haiti

Effective January 24, 2023, Culp Upholstery Fabrics Haiti, Ltd.

("CUF Haiti") entered into an agreement to terminate a lease associated with a facility located in Ouanaminthe, Haiti ("Haiti"), that was used solely for the production of cut and sewn kits associated with our upholstery fabrics segment.

As a result, CUF Haiti's production of cut and sewn upholstery kits has been moved to an existing facility leased by Culp Home Fashions Haiti, Ltd.

("CHF Haiti").

Both CUF Haiti and CHF Haiti are indirect wholly-owned subsidiaries of Culp, Inc.

CHF Haiti's facility, which is also located in Ouanaminthe, Haiti, will not only produce cut and sewn kits associated with our upholstery fabrics segment, but will also continue to produce cut and sewn mattress covers associated with our mattress fabrics segment.

We believe this restructuring action will reduce the costs of our operations located in Haiti to better align with the declining consumer demand for cut and sewn products by consolidating existing facilities and reducing headcount.

As mentioned above, CUF Haiti entered into an agreement to terminate the lease (the "Termination Agreement") of a facility ("right of use asset").

Pursuant to the terms of the original lease agreement (the "Original Lease"), CUF Haiti was required to pay in advance $ 2.8 million for the full amount of rent due prior to the commencement of the Original Lease, and the initial lease term was set to expire on December 31, 2029 .

Pursuant to the terms of the Termination Agreement, the Original Lease was formally terminated when CUF Haiti vacated and returned possession of their right of use asset associated with the Original Lease to the lessor.

After CUF Haiti vacated and returned possession of their right of use asset to the lessor, a third party (the "Lessee") took possession of CUF Haiti's right of use asset, and the Lessee agreed to pay CUF Haiti $ 2.4 million over a period commencing on April 1, 2023 and ending on December 31, 2029, based on monthly installments as stated in the Termination Agreement.

In connection with the Termination Agreement, an affiliate of the Lessee has guaranteed payment in full of all amounts due and payable to CUF Haiti by the Lessee, and CUF Haiti has been fully and unconditionally released and discharged from all of its remaining obligations under the Original Lease.

In connection with the Termination Agreement, CUF Haiti's right of use asset was classified as held for sale and was presented separately as assets held for sale on the Consolidated Balance Sheet as of January 29, 2023 (i.e., the end of the third quarter of fiscal 2023).

As a result, CUF Haiti's right of use asset was recorded at its fair value of $ 2.0 million, which was lower than its carrying value as of January 29, 2023 (see Note 14 to the consolidated financial statements for further details regarding fair value measurement).

Consequently, since the fair value of CUF Haiti's right of use asset was lower than its carrying amount, we recorded a restructuring charge of $ 434,000 during the third quarter of fiscal 2023 to reduce the carrying amount of CUF Haiti's right of use asset to its reported fair value.

During the fourth quarter of fiscal 2023, CUF Haiti recognized the sale of its right of use asset, as it vacated and returned possession of their right of use asset to the Lessor, and the Lessee has taken possession of CUF Haiti's right of use asset.

As a result, CUF Haiti's right of use asset classified as held for sale was derecognized and a short-term and long-term note receivable was recognized based on the payments and timing of such payments due from the Lessee as stated in the Termination Agreement.

As of April 30, 2023, CUF Haiti's note receivable totaled $ 1.9 million, of which $ 219,000 and $ 1.7 million were classified as short-term and long-term, respectively.

As a result of this strategic action, we recorded restructuring expense during fiscal 2023 totaling $ 781,000 .

which represents (i) lease termination costs of $ 434,000 , (ii) an impairment loss related to leasehold improvements of $ 277,000 , (iii) employee termination benefits of $ 39,000 , and (iv) other associated costs of $ 31,000 .

The following summarizes our restructuring expense and related charges from both our restructuring activities noted above for fiscal 2023:

This restructuring activity was completed during the third quarter of fiscal 2023, and as a result we incurred a cumulative restructuring and restructuring related charge of $ 713,000 during the second and third quarters of fiscal 2023.

Upholstery Fabrics Finishing Operation

During the fourth quarter of fiscal 2024, we closed our upholstery fabrics finishing operation to align with current demand trends and we continue to leverage our strategic supply relationships to meet customer finishing needs in China.

This restructuring activity is expected to be completed by the end of the first quarter of fiscal 2025.

Financial Information

The following summarizes our restructuring expense and restructuring related charges noted above for the twelve months ending April 28, 2024, and April 30, 2023:

(dollars in thousands)

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Restructuring expense and restructuring related charges (1)(2)

(1) Of the total $ 1.5 million, $ 1.4 million and $ 98,000 were recorded to restructuring expense and cost of sales, respectively, in the fiscal 2023 Consolidated Statement of Net Loss.

(1) Of the total $ 676,000 , $ 636,000 and $ 40,000 were recorded within restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the twelve-month period ending April 28, 2024.

(2) Of the total $ 1.5 million, $ 1.4 million and $ 98,000 were recorded within restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the twelve-month period ending April 30, 2023.

The following summarizes the activity in accrued restructuring for fiscal 2024:

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End of year balance (1)

(1) Accrued restructuring of $ 3,000 was reported within accrued expenses in the Consolidated Balance Sheets for the period ending April 28, 2024.

The following summarizes the activity in accrued restructuring for fiscal 2023:

(dollars in thousands)

Beginning of year balance

Accrual established in fiscal 2023

Expenses incurred

End of year balance

Mattress Fabrics Segment and Unallocated Corporate

On April 29, 2024 (first quarter of fiscal 2025), our board of directors made a decision to (1) consolidate the company's North American mattress fabrics operations, including a gradual discontinuation of operations and sale of the company's manufacturing facility located in Quebec, Canada;

(3) transition the mattress fabrics segment's weaving operation to a strategic sourcing model through the company's long standing supply partners;

(4) consolidate the company's two leased facilities related to the sewn mattress cover operation located in Ouanaminthe, Haiti, and reduce other operating expenses at this location;

as well as (5) reduce unallocated corporate expenses and shared service expenses, with targeted annualized savings of $ 1.5 million.

We expect the gradual discontinuance of operations and the closure of the facility located in Quebec, Canada will be completed by December 31, 2024.

We expect the consolidation activity associated with the sewn mattress cover operation located in Haiti will be completed during the first quarter of fiscal 2025.

These actions are expected to result in estimated restructuring and restructuring related costs and charges of approximately $ 8.0 million, of which approximately $ 2.5 million is expected to be cash expenditures.

The costs include cash charges of approximately $ 1.1 million associated with expected ongoing operating losses and other exit and disposal expenses related to the company's manufacturing plant in Quebec, Canada;

cash charges of approximately $ 1.4 million for employee termination costs;

a non-cash charge of approximately $ 2.3 million associated with accelerated depreciation and losses on the sale of equipment;

a non-cash charge of approximately $ 2.1 million associated with write-downs and other inventory related adjustments;

and a non-cash charge of approximately $ 650,000 associated with accelerated rent amortization for a leased building in Haiti.

These restructuring charges and restructuring related costs and charges exclude any expected gain on the sale of real estate associated with the closure of the Canadian facility, the amount of which is currently undetermined but which will ultimately reduce the amount of the restructuring charges incurred.

Based on management's internal analysis we expect cash proceeds from the sale of real estate (net of all taxes and commissions) to exceed the amount of restructuring charges incurred.

Also, management estimates that the realizable fair market value of the long-lived assets at the Canadian and Haitian facilities exceed their net book value, and for that reason, no charges for impairment of long-lived assets (other than the restructuring charges noted above) are expected to be recorded in the connection with this decision for either location.

Based on changes in business and current industry economic conditions, it is possible that the above estimates provided by management to determine the annual cost savings, restructuring and restructuring related charges, and proceeds generated from the sale of the manufacturing facility located in Quebec, Canada, could be materially different from our actual results, and therefore could adversely affect the success of this restructuring plan.

NOTE RECEIVABLE

In connection with the restructuring activity of our upholstery fabrics cut and sew operation located in Ouanaminthe, Haiti (see Note 8 of the consolidated financial statements for further details) , effective January 24, 2023, CUF Haiti entered into an agreement to terminate a lease of a facility (“Termination Agreement”).

Pursuant to the terms of the original lease agreement (the “Original Lease”), CUF Haiti was required to pay in advance $ 2.8 million for the full amount of rent due prior to the commencement of the Original Lease, with the initial lease term set to expire on December 31, 2029 .

Pursuant to the terms of the Termination Agreement, the Original Lease was formally terminated when CUF Haiti vacated and returned possession of the leased facility to the lessor.

After CUF Haiti vacated and returned possession of the leased facility, a third party (the “Lessee”) took possession of this facility, and the Lessee agreed to pay CUF Haiti $ 2.4 million in the form of a note receivable over a period commencing on April 1, 2023, and ending on December 31, 2029, based on the terms stated in the Termination Agreement.

In connection with the Termination Agreement, an affiliate of the Lessee guaranteed payment in full of all amounts due and payable to

CUF Haiti by the Lessee, and CUF Haiti has been fully and unconditionally discharged from all of its remaining obligations under the Original Lease.

As of the end of our third quarter of fiscal 2023, the gross carrying amount of the note receivable totaling $ 2.4 million was recorded at its fair value of $ 2.0 million, which represented the present value of future discounted cash flows based on the payment amounts and timing of such payments due from the Lessee as stated in the Termination Agreement.

Consequently, since the fair value of the note receivable was less than its carrying amount, we recorded a restructuring charge of $ 434,000 during the third quarter of fiscal 2023 to reduce the note receivable’s carrying amount to its reported fair value.

We used an interest rate of 6.0 % to determine the present value of the future discounted cash flows, which was based on significant unobservable inputs and assumptions determined by management such as (i) the credit characteristics of the Lessee and guarantor of the Termination Agreement;

(ii) the length of the payment terms as defined in the Termination Agreement;

(iii) the payment terms as defined in the Termination Agreement being denominated in USD;

and (iv) the fact that the facility is located in, and the Lessee and guarantor conduct business in, Haiti, a foreign country.

Since management used significant unobservable inputs and assumptions to determine the fair value of this note receivable, this note receivable was classified as Level 3 within the fair value hierarchy (see Note 14 for further explanation of the fair value hierarchy).

Effective May 1, 2023, CUF Haiti formally assigned the $ 2.4 million note receivable to Culp, Inc (US.

The following table represents the remaining future principal payments as of April 28, 2024:

(dollars in thousands)

Undiscounted value of note receivable

unearned interest income

Present value of note receivable

As of April 28, 2024, note receivable totaled $ 1.7 million, of which $ 264,000 and $ 1.5 million were classified as short-term note receivable and long-term note receivable, respectively.

As of April 30, 2023, note receivable totaled $ 1.9 million, of which $ 219,000 and $ 1.7 million were classified as short-term note receivable and long-term not receivable, respectively.

We classified amortization of unearned interest income totaling $ 111,000 and $ 10,000 within interest income on our consolidated statements of net loss during fiscal 2024 and fiscal 2023, respectively.

LINES OF CREDIT

Revolving Credit Agreement –

United States

Existing Credit Agreement

As of May 1, 2022, we had a Credit Agreement (the “Existing Credit Agreement”) with Wells Fargo Bank, N.A.

(“Wells Fargo”) that provided a revolving loan commitment of $ 30 million, was set to expire on August 15, 2022 , and allowed us to issue letters of credit not to exceed $ 1 million.

Amended Agreement

Effective June 24, 2022, we entered into an Amended and Restated Credit Agreement (the “Amended Agreement”) with Wells Fargo.

The Amended Agreement amended, restated, superseded, and served as a replacement for the Existing Credit Agreement.

The Amended Agreement provided a revolving credit facility of up to $ 40 million, was secured by a lien on the company’s assets, and was set to expire in June 2025 .

The company’s available borrowings under the Amended Agreement were based on a borrowing base calculation using certain accounts receivable and inventory of the company, subject to certain sub-limits as defined in the Amended Agreement, to be calculated on a monthly basis.

Similar to the Existing Credit Agreement, the Amended Agreement contained a sub-facility that allows the company to issue letters of credit in an aggregate amount not to exceed $ 1 million.

Borrowings under the Amended Agreement incurred interest at a rate calculated using a margin (the “Applicable Margin”) over the Federal Reserve Bank of New York’s secured overnight funding rate (SOFR).

The Applicable Margin was set initially at 1.35 % and varied under the terms of the Amended Agreement from 1.35 % to 2.50 %, depending on the ratio of the company’s consolidated debt to consolidated EBITDA, as defined in the Amended Agreement, determined on a quarterly basis.

The Amended Agreement contained customary affirmative and negative covenants and required compliance by the company with certain financial covenants, including minimum tangible net worth of $ 100 million plus 50 % of annual net income, and a minimum ratio of consolidated EBITDA to consolidated net interest expense of 3.0 to 1.0 as defined in the Amended Agreement.

The EBITDA to interest expense covenant did not apply during the first three quarters of the company’s fiscal 2023, but during that period, the company was required to maintain minimum “access to liquidity”

of $ 15 million, which is defined as unencumbered liquid assets plus available and unused credit under the revolving credit facility as calculated using the borrowing base, all as defined in the Amended Agreement.

First Amendment

On August 19, 2022, we entered into a First Amendment to the Amended Agreement ("the First Amendment") with Wells Fargo.

The terms of the First Amendment amended the time period in which the financial covenant for the minimum ratio of consolidated EBITDA to consolidated net interest expense applied, such that this EBITDA to interest expense covenant did not apply during any of the four quarters of the Company's fiscal 2023.

During that time period, we were still required to maintain minimum "access to liquidity" of $ 15 million as mentioned in the above Amended Agreement section.

Second Amended and Restated Agreement

On January 19, 2023, Culp Inc., as borrower (the "company"), and Read as guarantor (the "Guarantor"), entered into a Second Amended and Restated Credit Agreement (the "ABL Credit Agreement"), by and among the company, the Guarantor, and Wells Fargo, as lender (the "Lender"), to establish an asset-based revolving credit facility (the "ABL Facility"), the proceeds of which may be used to pay fees

and expenses related to the ABL Facility and to provide funding for ongoing working capital and general corporate purposes.

The ABL Credit Agreement amends, restates, and supersedes, and serves as a replacement for, the Amended Agreement.

Revolving Credit Agreement – United States

On January 19, 2023, Culp, Inc., as borrower (the “company”), and Read, as guarantor (the “Guarantor”), entered into a Second Amended and Restated Credit Agreement (the “ABL Credit Agreement”), by and among the company, the Guarantor and Wells Fargo Bank, National Association, as the lender (the “Lender”), to establish an asset-based revolving credit facility (the “ABL Facility”).

The proceeds from the ABL Facility may be used to pay fees and expenses related to the ABL Facility and to provide funding for ongoing working capital and general corporate purposes.

The ABL Credit Agreement amends, restates and supersedes, and serves as a replacement for, the Amended and Restated Credit Agreement (the “Amended Agreement”), dated as of June 24, 2022, and the First Amendment to the Amended Agreement dated as of August 19, 2022, as amended, by and between the company and the Lender.

The ABL Facility may be used for revolving credit loans and letters of credit from time to time up to a maximum principal amount of $ 35.0 million, subject to the limitations described below.

Like the Amended Agreement, the ABL Facility contains a sub-facility that allows the company to issue letters of credit in an aggregate amount not to exceed $ 1 million.

The ABL Facility contains a sub-facility that allows the company to issue

letters of credit in an aggregate amount not to exceed $ 1 million.

The amount available under the ABL Facility is limited by a borrowing base consisting of certain eligible accounts receivable and inventory, reduced by specified reserves, as follows:

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The ABL Facility matures on January 19, 2026 .

The ABL Facility may be prepaid from time to time, in whole or in part, without prepayment or premium.

The ABL Facility may be prepaid from time to time, in whole or in part, without a prepayment penalty or premium.

In addition, customary mandatory prepayments of the loans under the ABL Facility are required upon the occurrence of certain events including, without limitation, outstanding borrowing exposures exceeding the borrowing base and certain dispositions of assets outside of the ordinary course of business.

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Cash Dominion.

such time, the Loan Parties will become subject to cash dominion, which will require prepayment of loans under the ABL Facility with the cash deposited in certain deposit accounts of the Loan Parties, including a concentration account, and will restrict the Loan Parties' ability to transfer cash from their concentration account.

Under the terms of the ABL Facility, if (i) an event of default has occurred or (ii) excess borrowing availability under the ABL Facility (based on the lesser of $ 35.0 million and the borrowing base) (the "Excess Availability") falls below $ 7.0 million at such time, the Loan Parties will become subject to cash dominion, which will require prepayment of loans under the ABL Facility with the cash deposited in certain deposit accounts of the Loan Parties, including a concentration account, and will restrict the Loan Parties' ability to transfer cash from their concentration account.

Such cash dominion period (a "Dominion Period') shall end when Excess Availability shall be equal to or greater than $ 7.0 million for a period of 60 consecutive days and no event of default is continuing.

Financial Covenants.

The ABL Facility contains a springing covenant requiring that the company's fixed charge coverage ratio be no less than 1.10 to 1.00 during any period that (i) an event of default has occurred or (ii) Excess Availability under the ABL Facility falls below $ 5.25 million at such time.

below $ 5.25 million at such time.

Such compliance period shall end when Excess Availability shall be equal to or greater than $ 5.25 million for a period of 60 consecutive days and no event of default is continuing.

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• enter into transactions with affiliates

Effective January 19, 2023, interest was charged under the ABL Agreement at a rate (applicable interest rate of 6.3 % as of April 30, 2023) calculated using the Applicable Margin over SOFR based on the company's excess availability under the ABL Facility, as defined

in the ABL Agreement.

Under the Existing Credit Agreement, interest was charged at a rate (applicable interest rate of 2.40 % as of May 1, 2022) as a variable spread over LIBOR based on a ratio of debt to EBITDA , as defined in the Existing Credit Agreement.

There were $ 275,000 of outstanding letters of credit provided by the ABL Agreement and the Existing Agreement, as applicable, as of April 30, 2023 and May 1, 2022.

As of April 30, 2023, we had $ 725,000 remaining for the issuance of additional letters of credit under the ABL Agreement.

There were no borrowings outstanding under either the ABL Agreement or the Existing Credit Agreement, as applicable, as of April 30, 2023 and May 1, 2022, respectively.

As of April 30, 2023, our available borrowings calculated under the provisions of the ABL Agreement totaled $ 26.8 million.

Interest is charged under the ABL Credit Agreement at a rate (applicable interest rate of 6.81 % and 6.30 % as of April 28, 2024, and April 30, 2023, respectively) calculated using the Applicable Margin over SOFR based on the company's excess availability under the ABL Facility, as defined in the ABL Agreement.

There were $ 535,000 , and $ 275,000 of outstanding letters of credit provided by the ABL Credit Agreement as of April 28, 2024, and April 30, 2023, respectively.

As of April 28, 2024, we had $ 465,000 remaining for the issuance of additional letters of credit under the ABL Credit Agreement.

There were no borrowings outstanding under the ABL Credit Agreement as of April 28, 2024 and April 30, 2023, respectively.

As of April 28, 2024, our available borrowings calculated under the provisions of the ABL Credit Agreement totaled $ 18.5 million.

Revolving Credit Agreements - China Operations

Denominated in Chinese Yuan Renminbi ("RMB")

We have an unsecured credit agreement denominated in RMB with a bank located in China that provides for a line of credit of up to 40 million RMB ($ 5.8 million USD as of April 30, 2023).

Agricultural Bank of China

Effective on March 20, 2024, we entered into an unsecured credit agreement denominated in RMB, that provided for a line of credit up to 29 million RMB ($ 4.0 million USD as of April 28, 2024).

Of this 29 million RMB line of credit, 9.6 million RMB, 9.7 million RMB, and 9.7 million RMB expires on March 7, 2025, March 8, 2025, and March 9, 2025, respectively.

Interest charged under this agreement is based on the Loan Prime Rate ("LPR") in China minus 50 basis points ( 2.95 % as of April 28, 2024).

There were no borrowings outstanding under this agreement as of April 28, 2024.

Also on March 20, 2024, we entered into an additional unsecured credit agreement denominated in RMB that provided for a line of credit of up to 1 million RMB, which such agreement expired on April 26, 2024 , after borrowings made during the fourth quarter of fiscal 2024 were repaid in full during the fourth quarter of fiscal 2024.

Bank of China

Also, we have an unsecured credit agreement denominated in RMB with another bank located in China that provides for a line of credit of up to 35 million RMB ($ 4.8 million USD as of April 28, 2024).

Interest charged under this agreement is based on an interest rate determined by the Chinese government at the time of borrowing .

This agreement is set to expire on November 24, 2023 .

There were no borrowings outstanding under this agreement as of April 30, 2023 and May 1, 2022, respectively.

Denominated in United States Dollar ("USD")

We had an unsecured credit agreement denominated in USD with another bank located in China that provided for a line of credit of up to $ 2 million USD, which expired on August 30, 2022 .

Currently, the company does not plan to renew or replace this agreement.

This agreement is set to expire on October 24, 2024 .

Our borrowing capacity of 35 million RMB is restricted to certain consolidated net sales and consolidated profitability requirements as defined in the agreement.

These requirements relate to our total consolidated Culp Inc.

entity as a whole.

Currently, Culp Inc.

does not meet the

consolidated net sales and consolidated profitability requirements set forth in the agreement;

and therefore, we cannot borrow under this agreement.

There were no borrowings outstanding under either of these agreement as of April 28, 2024 and April 30, 2023, respectively.

Our loan agreements require, among other things, that we maintain compliance with certain financial covenants.

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uncertain income tax positions

2017 Tax Cuts and Jobs Act

undistributed earnings –

foreign subsidiaries

undistributed earnings – foreign subsidiaries

federal & state carryforwards and credits

1 unchanged sentence

valuation allowance

(Loss) income before income taxes related to our foreign and U.S.

Loss before income taxes related to our foreign and U.S.

operations consists of:

(dollars in thousands)

Cayman Islands

Total Foreign

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valuation allowance

income tax effects of the 2017 Tax Cuts and Jobs Act

global intangible low taxed income tax (GILTI) (1)

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stock-based compensation

gain on bargain purchase

consolidated effective income tax rate (3) (4) (5)

(1) Our consolidated effective income tax rate during fiscal 2023 was much more negatively affected by the mix of earnings and losses between our U.S.

operations and foreign subsidiaries, as compared with fiscal 2022 and 2021.

During fiscal 2023, we incurred a significantly higher pre-tax loss from our U.S.

operations totaling $( 33.5 ) million, compared with $( 7.6 ) million and $( 4.7 ) million for fiscal 2022 and 2021, respectively.

As a result, a significantly higher income tax benefit was not recognized due to a full valuation allowance being applied against our U.S.

net deferred income tax assets during fiscal 2023, as compared with

fiscal 2022 and 2021.

In addition, almost all of our taxable income for each of fiscal 2023, 2022, and 2021 was earned by our foreign operations located in China and Canada, which have higher income tax rates than the U.S.

(2) During fiscal 2023, we incurred a significantly higher consolidated pre-tax loss totaling $( 28.4 ) million, compared with a much lower consolidated pre-tax loss totaling $( 325,000 ) during fiscal 2022 and pre-tax income totaling $ 10.9 million during fiscal 2021.

As a result, the principal differences between income tax expense at the U.S.

federal income tax rate and the effective income tax rate reflected in the consolidated financial statements were more pronounced for fiscal 2022 and 2021, compared with fiscal 2023.

(3) “Other”

for all periods presented represents miscellaneous adjustments that pertain to U.S.

(1) See the below section titled "GILTI" for further details for the GILTI tax incurred during fiscal 2022.

(2) “Other” for all periods presented represents miscellaneous adjustments that pertain to U.S.

permanent differences such as meals and entertainment and income tax provision to return adjustments.

(3) Our negative consolidated effective income tax rates during fiscal 2024, 2023, and 2022, were caused by the mix of earnings between our U.S.

operations and foreign subsidiaries, as our taxable income stems from our operations located in China and Canada, which have higher income tax rates than the U.S.

In addition, we applied a full valuation allowance against our U.S.

deferred income tax assets during fiscal 2024, 2023, and 2022, respectively.

Consequently, an income tax benefit was not recognized for the pre-tax losses associated with our U.S.

operations totaling $( 18.6 ) million, $( 33.5 ) million, and $( 7.6 ) million that were incurred during fiscal 2024, 2023, and 2022, respectively.

(4) During fiscal 2024, we incurred a significantly lower consolidated pre-tax loss of $( 10.8 ) million, compared with a significantly higher pre-tax loss of $( 28.4 ) million incurred during fiscal 2023.

As a result, the principal differences between income tax expense at the U.S.

federal income tax rate and the effective income tax rate reflected in the consolidated financial statements were more pronounced during fiscal 2024 compared with fiscal 2023.

(5) During fiscal 2023, we incurred a significantly higher consolidated pre-tax loss totaling $( 28.4 ) million, compared with a much lower consolidated pre-tax loss totaling $( 325,000 ) during fiscal 2022.

As a result, the principal differences between income tax expense at the U.S.

federal income tax rate and the effective income tax rate reflected in the consolidated financial statements were more pronounced for fiscal 2022, compared with fiscal 2023.

Deferred Income Taxes - Overall

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foreign income tax credits - U.S.

loss carryforwards –

loss carryforwards – U.S.

valuation allowance - U.S.

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Net deferred liabilities

(1) Pertains to the company’s operations located in China.

(2) Pertains to the company’s operations located in the U.S.

(1) Pertains to the company’s operations located in China.

(2) Pertains to the company’s operations located in the U.S.

As of April 28, 2024, our U.S.

federal net operating loss carryforwards totaled $ 69.6 million, with related future income tax benefits of $ 14.6 million.

In accordance with the 2017 Tax Cuts and Jobs Act (“TCJA”), U.S.

federal net operating loss carryforwards generated in fiscal 2019 and after do not expire.

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As of April 28, 2024, our U.S.

state net operating loss carryforwards totaled $ 27.2 million, with related future income tax benefits of $ 1.0 million.

state net operating loss carryforwards totaling $ 27.2 million have expiration dates ranging from fiscal years 2024 through 2044 .

state net operating loss carryforwards totaled $ 31.7 million, with related future income tax benefits of $ 1.3 million, have expiration dates ranging from fiscal years 2025 through 2045 .

foreign income tax credits of $ 783,000 have expiration dates ranging from fiscal years 2026 through 2028 , which represent 10 years from when the associated earnings and profits from our foreign subsidiaries were repatriated to the U.S.

Effective July 20, 2020, the U.S.

Treasury Department finalized and enacted previously proposed regulations regarding the GILTI tax provisions of the TCJA.

With the enactment of these final regulations, we became eligible for an exclusion from GILTI if we meet the provisions for the GILTI High-Tax exception included in these final regulations on a jurisdiction-by-jurisdiction basis.

To meet the provisions of the GILTI High-Tax exception, the tested foreign entity’s effective income tax rate related to current year’s earnings must

be higher than 90 % of the U.S.

federal income tax rate of 21 % (i.e., 18.9 %).

In addition, the enactment of the new regulations and the provisions for the GILTI High-Tax exception were retroactive to the original enactment of the GILTI tax provision, which included our 2019 and 2020 fiscal years.

Since we met the requirements for the GILTI High-Tax exception for our 2019 and 2020 fiscal years, we recorded a non-cash income tax benefit of $ 3.6 million resulting from the re-establishment of certain U.S.

federal net operating loss carryforwards.

The $ 3.6 million income tax benefit was recorded as a discrete event in which its full income tax effects were recorded during the first quarter of fiscal 2021.

Fiscal 2024 and 2023

We do not expect to incur GILTI tax for the 2024 tax year, as we expect to meet the GILTI High-Tax exception regarding our operations located in China and Canada, and we incurred taxable losses associated with our operations located in Haiti.

We did not incur GILTI tax for the 2023 tax year, as we met the GILTI High-Tax exception.

We did not meet the GILTI High-Tax exception for the 2021 tax year regarding our foreign operations located in China.

This was due primarily to significant income tax deductible foreign exchange losses that significantly lowered income tax expense associated with the current year’s earnings.

This was due primarily to significant income tax deductible foreign exchange losses that significantly lowered income tax expense associated with the current year’s earnings associated with our operations located in China.

As a result, the current effective income tax rate was lower than the required 18.9 % current effective income tax rate to meet the GILTI High-Tax exception.

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As a result, our current year's income tax expense was much lower than prior fiscal years, and therefore, our current effective income tax rate was lower than the required 18.9 % current effective income tax rate to meet the GILTI High-Tax exception.

For our operations located in Haiti, taxable income or losses are not subject to income tax, as we are located in an economic zone that permits a 0 % income tax rate for the first fifteen years of operations, for which we have nine years remaining.

Since our operations located in Haiti are not subject to income tax, our current effective tax rate was 0 %, which is lower than the required 18.9 % current effective income tax rate to meet the GILTI High-Tax exception.

Although our operations located in Canada and Haiti did not meet the GILTI High-Tax exception, we incurred a nominal amount of GILTI tax for the 2022 tax year, as the losses subject to GILTI tax from our Haitian operations mostly offset the income subject to GILTI tax from our Canadian operation.

We do not expect to pay GILTI tax for the 2023 tax year, as we expect to meet the GILTI High-Tax exception regarding our operations located in China and Canada, and we incurred taxable losses associated with our operations located in Haiti.

Deferred Income Taxes –

Valuation Allowance

Deferred Income Taxes – Valuation Allowance

We evaluate the realizability of our deferred income taxes to determine if a valuation allowance is required.

We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not”

standard, with significant weight being given to evidence that can be objectively verified.

Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law.

As a result of the U.S.

tax law change relating to the GILTI tax provisions of the TCJA, we assessed the need for an additional valuation allowance against our U.S.

net deferred income assets as of the end of the first quarter of fiscal 2021.

GILTI represented a significant source of our U.S.

taxable income during fiscal 2019 and 2020 that offset our U.S.

pre-tax losses during such years, and which offset was reversed because of the retroactivity of the new GILTI regulations.

Consequently, due to the retroactivity of the new regulations, we experienced a recent history of cumulative U.S.

pre-tax losses during the last two fiscal years, and we expected at the time of this assessment that our history of U.S.

pre-tax losses would continue into fiscal 2021.

As a result of the significant weight of this negative evidence, we believed it was more-likely-than-not that our U.S.

deferred income tax assets would not be fully realizable.

Accordingly, we recorded a non-cash income tax charge of $ 7.0 million to provide for a full valuation allowance against our U.S.

net deferred income tax assets.

This $ 7.0 million income tax charge was recorded as a discrete event in which its full income tax effects were recorded during the first quarter of fiscal 2021.

As of April 28, 2024, we evaluated the realizability of our U.S.

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net deferred income tax assets.

Based on our assessments as of April 30, 2023, and May 1, 2022, valuation allowances against our U.S.

Based on our assessments as of April 28, 2024, and April 30, 2023, valuation allowances against our U.S.

net deferred income tax assets pertain to the following:

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beginning balance

change in judgement of beginning of year U.S.

valuation allowance (1)

change in valuation allowance associated with current year earnings

1 unchanged sentence

ending balance

(1) Refer to the above "Assessment" subsection within the section titled Deferred Income Taxes –

Valuation Allowance for further details regarding our assessment and conclusions reached for providing a full valuation allowance against our U.S net deferred income tax assets during the first quarter of fiscal 2021.

(2) Amounts represent changes in our U.S.

net deferred income tax asset balances during the current year that pertain to (i) income tax provision to return adjustments, (ii) changes in estimates of our U.S.

(1) Amounts represent changes in our U.S.net deferred income tax asset balances during the current year that pertain to (i) income tax provision to return adjustments;

(ii) changes in estimates of our U.S.

effective income tax rate that pertain to U.S.

state income tax rates and apportionment percentages, (iii) recognition of an uncertain income tax position due to the expiration of statute of limitations, (iv) expiration of certain U.S.

state loss carryforwards, and (v) other immaterial items.

Deferred Income Taxes –

Undistributed Earnings from Foreign Subsidiaries

state income tax rates and apportionment percentages, (iii) recognition of an uncertain income tax position due to expiration of statute of limitations;

(iv) expiration of certain U.S.

state loss carryforwards;

and (v) other immaterial items.

Deferred Income Taxes – Undistributed Earnings from Foreign Subsidiaries

We assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S.

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As a result of the TCJA, a U.S.

corporation is allowed a 100 % dividend received deduction for earnings and profits received from a 10 % owned foreign corporation.Therefore, a deferred income tax liability will be required only for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the U.S.

corporation is allowed a 100 % dividend received deduction for earnings and profits received from a 10 % owned foreign corporation.

Therefore, a deferred income tax liability will be required only for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the U.S.

parent company.

As a result, we recorded a deferred income tax liability of $ 4.2 million and $ 3.6 million as of April 30, 2023, and May 1, 2022, respectively.

As a result, we recorded a deferred income tax liability of $ 4.8 million and $ 4.2 million as of April 28, 2024, and April 30, 2023, respectively.

Uncertainty in Income Taxes

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If it is determined that any of the above conditions occur regarding our uncertain income tax positions, an adjustment to our unrecognized income tax benefit will be recorded at that time.

The following table sets forth the change in the company’s unrecognized income tax benefit:

(dollars in thousands)

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ending balance

As of April 30, 2023, we had $ 1.2 million of total gross unrecognized tax benefits, of which the entire amount was classified as income taxes payable - long-term in the accompanying Consolidated Balance Sheets.

As of May 1, 2022, we had $ 1.1 million of total gross

unrecognized tax benefits, of which the entire amount was classified as income taxes payable - long-term in the accompanying Consolidated Balance Sheets.

These unrecognized income tax benefits would favorably affect income tax expense in future periods by $ 1.2 million and $ 1.1 million as of April 30, 2023, and May 1, 2022, respectively.

As of April 28, 2024, and April 30, 2023, we had $ 1.3 million and $ 1.2 million of total gross unrecognized tax benefits, of which the entire amount was classified as income taxes payable - long-term in the accompanying Consolidated Balance Sheets.

These unrecognized income tax benefits would favorably affect income tax expense in future periods by $ 1.3 million and $ 1.2 million as of April 28, 2024, and April 30, 2023, respectively.

We elected to classify interest and penalties as part of income tax expense.

As of April 30, 2023, and May 1, 2022, the gross amount of interest and penalties due to unrecognized tax benefits was $ 239,000 and $ 185,000 , respectively.

As of April 28, 2024, and April 30, 2023, the gross amount of interest and penalties due to unrecognized tax benefits was $ 281,000 and $ 239,000 , respectively.

Our gross unrecognized income tax benefit of $ 1.3 million as of April 28, 2024, relates to income tax positions for which significant change is currently not expected within the next year.

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(dollars in thousands)

United States federal - Alternative Minimum Tax

(AMT) credit refunds (1)

United States federal - Transition Tax

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Canada - Income Taxes

(1) In accordance with the provisions of the TCJA, we elected to treat our prior AMT credit carryforward balance of $1.5 million as refundable.

We received refunds totaling $ 1.5 million in two separate installments totaling $ 746,000 and $ 764,000 during the first and second quarters of fiscal 2021, respectively.

COMMITMENTS AND CONTINGENCIES

LEASES, COMMITMENTS, AND CONTINGENCIES

Balance Sheet

The right of use assets and lease liabilities associated with our operating leases as of April 30, 2023, and May 1, 2022, are as follows:

The right of use assets and lease liabilities associated with our operating leases as of April 28, 2024, and April 30, 2023, are as follows:

(dollars in thousands)

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Operating lease liability - current

Operating lease liability –

Operating lease liability – noncurrent

Supplemental Cash Flow Information

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Weighted average discount rate

As of May 1, 2022, the weighted average remaining lease term and discount rate for our operating leases follows:

As of April 30, 2023, the weighted average remaining lease term and discount rate for our operating leases follows:

Weighted average lease term

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Present value of lease liabilities

Related Party Lease –

Mattress Fabrics Segment

Related Party Lease – Mattress Fabrics Segment

On March 23, 2023, we terminated an agreement with a partnership owned by an immediate family member of an officer of the company, pursuant to which we leased a 63,522 square foot facility for our domestic mattress cover operation.

Prior to the termination of the lease agreement, rent payments totaled $ 123,000 , $ 148,000 , and $ 151,000 in fiscal 2023, 2022, and 2021, respectively.

In accordance with the termination of the lease agreement, we were reimbursed $ 67,000 for leasehold improvements we made to the leased property.

The company is involved in legal proceedings and claims which have arisen in the ordinary course of business.

Management has determined that these actions, when ultimately concluded and settled, will not have a material adverse effect on our financial position, results of operations, or cash flows.

Accounts Payable –

Capital Expenditures

As of April 30, 2023, and May 1, 2022, we had total amounts due regarding capital expenditures totaling $ 56,000 and $ 473,000 , respectively, which pertained to outstanding vendor invoices, none of which were financed.

Prior to the termination of the lease agreement, rent payments totaled $ 123,000 , and $ 148,000 during fiscal 2023 and 2022, respectively.

In accordance with the termination of the lease agreement, we were reimbursed $ 67,000 in fiscal 2023 for leasehold improvements we made to the leased property.

Accounts Payable – Capital Expenditures

As of April 28, 2024, and April 30, 2023, we had total amounts due regarding capital expenditures totaling $ 343,000 and $ 56,000 , respectively, which pertained to outstanding vendor invoices, none of which were financed.

Purchase Commitments - Capital Expenditures

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and Canadian mattress fabrics operations totaling $ 679,000 .

The company is involved in legal proceedings and claims which have arisen in the ordinary course of business.

Management has determined that these actions, when ultimately concluded and settled, will not have a material adverse effect on our financial position, results of operations, or cash flows.

STOCK-BASED COMPENSATION

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On September 16, 2015, our shareholders approved an equity incentive plan titled the Culp, Inc.

2015 Equity Incentive Plan (the “2015 Plan”).

The 2015 Plan authorizes the grant of stock options intended to qualify as incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based units, and other equity and cash related awards as determined by the Compensation Committee of our board of directors.

An aggregate of 1,200,000 shares of common stock were

authorized for issuance under the 2015 Plan, with certain sub-limits that would apply with respect to specific types of awards that may be issued as defined in the 2015 Plan.

As of April 30, 2023, there were 224,266 shares available for future equity-based grants under the company’s 2015 Plan.

An aggregate of 1,200,000 shares of common stock were authorized for issuance under the 2015 Plan, with certain sub-limits that would apply with respect to specific types of awards that may be issued as defined in the 2015 Plan.

Effective September 27, 2023, our shareholders approved an amendment and restatement of the 2015 Plan (the "Amended and Restated Plan").

The Amended and Restated Plan authorizes the issuance of an additional 960,000 shares of common stock in addition to the shares of common stock still available for issuance under the 2015 Plan.

The Amended and Restated Plan also removed certain sub-limits that previously applied with respect to specific type of awards that may be issued under the plan .

As of April 28, 2024, there were 976,008 shares available for future equity-based grants under the company’s Amended and Restated Plan.

Time-Based Restricted Stock Awards

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(1) During fiscal 2024, time-based restricted stock units totaling 151,652 vested at a fair value of $ 857,000 , or $ 5.65 per share.

During fiscal 2023, time-based restricted stock units totaling 32,799 vested at a fair value of $ 167,000 , or $ 5.10 per share.

The following table summarizes information related to our grants of time-based restricted stock unit awards associated with certain senior executives and key members of management during fiscal years 2024, 2023, and 2022:

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Stock Awarded

January 8, 2024 (2)

September 28, 2023 (2)

September 28, 2023 (3)

September 6, 2022 (2)

August 10, 2022 (2)

July 22, 2021 (2)

August 6, 2020

(1) Price per share represents closing price of our common stock on the date the respective award was granted.

(1) Price per share represents the closing price of our common stock on the date the respective award was granted.

(2) Time-based restricted stock units awarded to senior executives and key employees.

(3) Time-based restricted stock units award to outside directors.

We recorded compensation expense of $ 823,000 , $ 808,000 , and $ 893,000 within selling, general, and administrative expense for time-based restricted stock units in fiscal 2024, 2023, and 2022, respectively.

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The fair market value per share was determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock for the performance-based component.

The following table provides assumptions used to determine the fair market value of the market-based total shareholder return component using the Monte Carlo simulation model on our outstanding performance-based restricted stock units granted to senior executives on August 10, 2022, and July 22, 2021:

September 28,

Closing price of our common stock

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35.7 % - 91.5

41.6 % - 105.1

45.7 % - 101.5

Risk-free interest rate

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Correlation coefficient of peer companies

(1) The expected volatility and correlation coefficient of our peer companies for the August 10, 2022, and July 22, 2021, grant dates were based on peer companies that were approved by the Compensation Committee of our board of directors as an aggregate benchmark for determining the market-based total shareholder return component.

Therefore, we disclosed ranges of the expected volatility and correlation coefficient for the companies that represented this peer group.

Key Employees

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The following table summarizes information related to our grants of performance-based restricted stock units associated with certain senior executives and key employees that were unvested as of April 28, 2024:

Performance-Based

Restricted Stock

Units Expected

Date of Grant

Units Awarded

Price Per Share

Vesting Period

January 8, 2024 (1)

September 28, 2023 (1)

August 10, 2022 (1)

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(2) Performance-based restricted stock units awarded to key employees.

(3) Amounts represent the maximum number of common stock shares that could be earned if certain performance targets are met, as defined in the related restricted stock unit award agreements.

(3) Amounts represent the maximum number of common stock shares that could be earned if certain performance targets are met as defined in the related restricted stock unit award agreements as of the date of grant.

(4) Compensation cost is based on an assessment each reporting period to determine the probability of whether or not certain performance targets will be met and how many shares are expected to be earned as of the end of the vesting period.

These amounts represent the number of shares that are expected to vest as of April 28, 2024.

(5) Price per share represents the fair market value per share ($ 1.11 per $1, or an increase of $ 0.62 to the closing price of our common stock on the date of grant) determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock ($ 5.61 ) for the performance-based component of the performance-based restricted stock units granted to senior executives on January 8, 2024.

(6) Price per share represents the fair market value per share ($ 1.15 per $1, or an increase of $ 0.84 to the closing price of our common stock on the date of grant) determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock ($ 5.59 ) for the performance-based component of the performance-based restricted stock units granted to senior executives on September 28, 2023.

(7) Price per share represents the fair market value per share ($ 1.14 per $1, or an increase of $ 0.71 to the closing price of our common stock on the date of grant) determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock ($ 5.06 ) for the performance-based component of the performance-based restricted stock units granted to senior executives on August 10, 2022.

(6) Price per share represents the fair market value per share ($ 1.08 per $1, or an increase of $ 1.18 to the closing price of our common stock on the date of grant) determined using the Monte Carlo simulation model for the market-based total shareholder return

component and the closing price of our common stock ($ 14.75 ) for the performance-based component of the performance-based restricted stock units granted to certain senior executives on July 22, 2021.

(8) Price per share represents the fair market value per share ($ 1.08 per $1, or an increase of $ 1.18 to the closing price of our common stock on the date of grant) determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock ($ 14.75 ) for the performance-based component of the performance-based restricted stock units granted to certain senior executives on July 22, 2021.

(9) Price per share represents the closing price of our common stock on the date of grant.

There were no performance-based restricted stock units that vested during fiscal 2024.

The following table summarizes information related to our performance-based restricted stock units that vested during fiscal 2023 and 2022:

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Fiscal 2022 (2)

Fiscal 2021 (1)

Fiscal 2021 (2)

(1) Performance-based restricted stock units vested for senior executives.

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Date of Grant

April 3, 2023 - Fiscal 2023

January 3, 2023 - Fiscal 2023

October 3, 2022 - Fiscal 2023

July 3, 2023 - Fiscal 2024

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We recorded $ 84,000 , $ 335,000 , and $ 321,000 of compensation expense within selling, general, and administrative expense for these common stock awards for fiscal 2024, 2023, and 2022, respectively.

ASC Topic 820 establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the company’s assumptions (unobservable inputs).

Determining where an asset or liability falls within that hierarchy depends on the lowest level input that is significant to the fair value measurement as a whole.

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The hierarchy consists of three broad levels, as follows:

Level 1 –

Quoted market prices in active markets for identical assets or liabilities,

Level 2 –

Inputs other than level 1 inputs that are either directly or indirectly observable, and

Level 3 –

Unobservable inputs developed using the company’s estimates and assumptions, which reflect those that market participants would use.

Level 1 – Quoted market prices in active markets for identical assets or liabilities,

Level 2 – Inputs other than level 1 inputs that are either directly or indirectly observable, and

Level 3 – Unobservable inputs developed using the company’s estimates and assumptions, which reflect those that market participants would use.

The determination of where an asset or liability falls in the hierarchy requires significant judgment.

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Moderate Allocation Mutual Fund

Fair value measurements as of May 1, 2022, using:

Fair value measurements as of April 30, 2023, using:

active markets

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We classified a right of use asset associated with a leased facility as held for sale in the Consolidated Balance Sheet as of January 29, 2023 (i.e., the end of the third quarter of fiscal 2023), in connection with the restructuring activity associated with our upholstery fabrics cut and sew operation located in Haiti (which is described more fully in Note 8 of the consolidated financial statements).

This right of use asset classified as held for sale was recorded at its fair value of $ 2.0 million, which represented the present value of future discounted cash flows based on the payments and timing of such payments due from the Lessee as stated in the Termination Agreement (which is

described more fully in Note 9 of the consolidated financial statements).

The interest rate used to determine the present value of the future discounted cash flows was based on significant unobservable inputs based on assumptions determined by management such as (i) the credit characteristics of the Lessee and guarantor of the Termination Agreement;

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As a result, since management used significant unobservable inputs and assumptions to determine the fair value of this right of use asset, this right of use asset was classified as level 3 within the fair value hierarchy defined above.

During the fourth quarter of fiscal 2023, the right of use asset mentioned above was vacated and possession was returned to the Lessor, and the Lessee took possession of this right of use asset as described more fully in Note 9 of the consolidated financial statements.

During the fourth quarter of fiscal 2023, the right of use asset mentioned above was vacated and possession was returned to the Lessor, and the Lessee took possession of this right of use asset.

As a result, the right of use asset classified as held for sale as of January 29, 2023, was derecognized and a short-term and long-term note receivable was recognized based on the payments and timing of such payments due from the Lessee as stated in the Termination Agreement.

As of April 30, 2023, this note receivable totaled $ 1.9 million, of which $ 219,000 and $ 1.7 million were classified as short-term and long-term, respectively.

Fourth Quarter of Fiscal 2021

We had assets and liabilities that were required to be measured at fair value on a nonrecurring basis that pertained to assets acquired and certain liabilities that were assumed in connection with the CIH business combination effective February 1, 2021.

See Note 2 of the consolidated financial statements for further details regarding this business combination.

Fair value measurements on February 1, 2021, using:

Quoted Prices

identical assets

(amounts in thousands)

Right of use assets

Equipment and leasehold improvements

The fair values of the right of use assets were based on our analysis of a recent appraisal of the annual lease rates per square foot for industrial buildings that are similar in nature and within the same locale.

We believe the annual lease rates per square foot presented in our recent appraisal represent significant observable inputs, and therefore these right of use assets were classified as level 2.

Additionally, in connection with the CIH business combination effective February 1, 2021, we acquired cash, accounts receivable, and certain other current assets, and we assumed accounts payable.

Based on the nature of these items and their short-term maturity, the carrying amounts of these items approximated their fair values.

See Note 2 of the consolidated financial statements for the final allocation of the acquisition cost to assets acquired and liabilities assumed based on their fair values.

NET (LOSS) INCOME PER SHARE

Basic net (loss) income per share is computed using the weighted-average number of shares outstanding during the period.

Diluted net (loss) income per share uses the weighted-average number of shares outstanding during the period plus the dilutive effect of stock-based compensation calculated using the treasury stock method.

Weighted average shares used in the computation of basic and diluted net (loss) income per share are as follows:

See Note 9 of the consolidated financial statements for further details regarding this note receivable.

NET LOSS PER SHARE

Basic net loss per share is computed using the weighted-average number of shares outstanding during the period.

Diluted net loss per share uses the weighted-average number of shares outstanding during the period plus the dilutive effect of stock-based compensation calculated using the treasury stock method.

Weighted average shares used in the computation of basic and diluted net loss per share are as follows:

(in thousands)

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weighted-average common shares outstanding, diluted

Shares of unvested common stock that were not included in the computation of diluted net (loss) income per share consist of the following:

Shares of unvested common stock that were not included in the computation of diluted net loss per share consist of the following:

(in thousands)

antidilutive effect from decrease in the price per share of our common stock

antidilutive effect from decrease in the price per share of our

antidilutive effect from net loss incurred during the fiscal year

total unvested shares of common stock not included in

computation of diluted net (loss) income per share

computation of diluted net loss per share

BENEFIT PLANS

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Deferred Compensation Plan

We have a nonqualified deferred compensation plan (the “Plan”) covering senior executives and certain key members of management.

The Plan provides for participant deferrals on a pre-tax basis that are subject to annual deferral limits by the IRS and non-elective contributions made by the company.

Participant deferrals and non-elective contributions made by the company are immediately vested.

Our contributions to the Plan were $ 215,000 , $ 212,000 , and $ 143,000 in fiscal years 2023, 2022, and 2021, respectively.

Our nonqualified deferred compensation plan liability was $ 8.2 million and $ 9.3 million as of April 30, 2023, and May 1, 2022, respectively.

We have a rabbi trust (the “Trust”) to set aside funds for the participants of the Plan that allows the participants to direct their contributions to various investment options in the Plan.

Our contributions to the Plan were $ 229,000 , $ 215,000 , and $ 212,000 during fiscal years 2024, 2023, and 2022, respectively.

Our nonqualified deferred compensation plan liability was $ 7.8 million and $ 8.2 million as of April 28, 2024, and April 30, 2023, respectively.

We have a rabbi trust (the “Trust”) to set aside funds for the participants of the Plan that allows the participants to direct their contributions to various investment options in the Plan.

The investment options in the Plan consist of a money market fund and various mutual funds.

The funds set aside in the Trust are subject to the claims of our general creditors in the event of the company’s insolvency, as defined in the Plan.

The investment assets of the Trust are recorded at their fair value of $ 8.5 million and $ 9.4 million as of April 30, 2023, and May 1, 2022, respectively.

The investment assets of the Trust are classified as available for sale and accordingly, changes in their fair values are recorded in other comprehensive (loss) income.

The funds set aside in the Trust are subject to the claims of our general creditors in the event of the company’s insolvency, as defined in the Plan.

The investment assets of the Trust are recorded at their fair value of $ 8.0 million and $ 8.5 million as of April 28, 2024, and April 30, 2023, respectively.

The investment assets of the Trust are classified as available for sale and accordingly, changes in their fair values are recorded in accumulated other comprehensive income.

SEGMENT INFORMATION

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Upholstery Fabrics

The upholstery fabrics segment develops, manufactures, sources, and sells fabrics primarily to residential and commercial furniture manufacturers.

In addition, this segment includes Read, which provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation services for Read’s products, to customers in the hospitality and commercial industries.

The upholstery fabrics segment develops, manufactures, sources, and sells fabrics to customers in the residential, commercial, and hospitality industries.

Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.

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One customer within the upholstery fabrics segment represented 12 %, 15 %, and 13 % of consolidated net sales during fiscal 2024, 2023, and 2022, respectively.

No customers within the upholstery fabrics segment accounted for greater than 10 % of the consolidated net accounts receivable balance as of April 30, 2023, or May 1, 2022.

No customers within the upholstery fabrics segment accounted for greater than 10 % of the consolidated accounts receivable, net balance as of April 28, 2024, or April 30, 2023.

No customers within the mattress fabrics segment represented greater than 10 % of consolidated net sales during fiscal 2024, 2023, or fiscal 2022.

No customers within the mattress fabrics segment accounted for greater than 10 % of the consolidated net accounts receivable balance as of April 30, 2023, or May 1, 2022.

No customers within the mattress fabrics segment accounted for greater than 10 % of the consolidated accounts receivable, net balance as of April 28, 2024, or April 30, 2023.

Employee Workforce Concentration

The hourly employees associated with our manufacturing facility located in Canada (approximately 11 % of our workforce) are represented by a local, unaffiliated union.

The collective bargaining agreement for these employees expires on February 1, 2026.

We are not aware of any efforts to organize any more of our employees, and we believe our relations with our employees are good.

Hourly employees associated with our manufacturing facility located in Quebec, Canada (approximately 14 % of our workforce) are represented by a local unaffiliated union with a collective bargaining agreement that expires on February 1, 2026.

On April 29, 2024 (first quarter of fiscal 2025), our board of directors made a decision to gradually discontinue the operations and sale of the company's manufacturing facility located in Quebec, Canada.

During this gradual discontinuation of operations, hourly employees will be entitled to compensation and benefits in accordance with the collective bargaining agreement noted above.

Financial Information

We evaluate the operating performance of our business segments based upon (loss) income from operations before certain unallocated corporate expenses and other items that are not expected to occur on a regular basis, such as restructuring expense and restructuring related charges.

Cost of sales in each of our business segments include costs to develop, manufacture, or source our products, including costs such as raw material and finished goods purchases, direct and indirect labor, overhead and incoming freight charges.

Unallocated corporate expenses primarily represent compensation and benefits for certain senior executives and their support staff, all costs associated with being a public company, amortization of intangible assets, and other miscellaneous expenses.

Cost of sales for each segment includes costs to develop, manufacture, or source our products, including costs such as raw material and finished goods purchases, direct and indirect labor, overhead and incoming freight charges.

Unallocated corporate expenses primarily represent compensation and benefits for certain executives and their support staff, all costs associated with being a public company, amortization of intangible assets, and other miscellaneous expenses.

Segment assets include assets used in the operations of each segment and consist of accounts receivable, inventories, property, plant, and equipment, and right of use assets.

4 unchanged sentences

upholstery fabrics

gross (loss) profit:

gross profit (loss):

mattress fabrics

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total segment (loss) income from operations

restructuring expense (1)

restructuring related charge (1) (3)

(loss) income from operations

restructuring expense (2) (4)

loss from operations

interest expense

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other expense

gain on bargain purchase (3)

(loss) income before income taxes

(1) Restructuring expense totaling $ 1.4 million for fiscal 2023 relates to both our restructuring activities for our cut and sew upholstery fabrics operations (i) located in Shanghai, China, which occurred during the second quarter of fiscal 2023, and (ii) located in Ouanaminthe, Haiti, which occurred during the third and fourth quarters of fiscal 2023.

loss before income taxes

(1) Cost of sales for fiscal 2024 includes a restructuring related charge totaling $ 40,000 , which pertained to markdowns of inventory related to the discontinuation of production of cut and sewn upholstery kits at the company's facility in Ouanaminthe, Haiti.

(2) Restructuring expense of $ 636,000 for fiscal 2024 represents impairment charges related to equipment of $ 329,000 and employee termination benefits of $ 103,000 related to the discontinuation of production of cut and sewn upholstery kits at the company's facility in Ouanaminthe, Haiti.

In addition, during the fourth quarter of fiscal 2024, restructuring expense of $ 204,000 was incurred for employee termination benefits related to the closure of the upholstery fabrics finishing operation located in Shanghai, China.

(3) Cost of sales for fiscal 2023 includes a restructuring related charge totaling $ 98,000 , which pertained to a loss on disposal and markdowns of inventory related to the exit of our cut and sew upholstery fabrics operations located in Shanghai, China.

(4) Restructuring expense of $ 1.4 million for fiscal 2023 relates to both our restructuring activities for our cut and sew upholstery fabrics operations located in Shanghai, China, which occurred during the second quarter of fiscal 2023, and located in Ouanaminthe, Haiti, which occurred during the third and fourth quarters of fiscal 2023.

Restructuring expense represents employee termination benefits of $ 507,000 , lease termination costs of $ 481,000 , impairment losses totaling $ 357,000 that relate to leasehold improvements and equipment, and $ 51,000 for other associated costs.

(2) Cost of sales for fiscal 2023 includes a restructuring related charge totaling $ 98,000 , which pertained to a loss on disposal and markdowns of inventory related to the exit of our cut and sew upholstery fabrics operation located in Shanghai, China.

(3) Effective February 1, 2021, we acquired the remaining fifty percent ownership interest in our former unconsolidated joint venture located in Haiti.

Pursuant to this transaction, we are now the sole owner with full control over this operation.

The gain on bargain purchase represents the net assets acquired from this transaction that exceeded the fair value of our previously held 50 % ownership interest of $ 1.7 million and the $ 954,000 total purchase price for the remaining 50% ownership interest.

Balance sheet information for our business segments follow:

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cash and cash equivalents

short-term investments –

short-term investments – rabbi trust

short-term note receivable

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long-term investments - rabbi trust

(1) The $ 31.5 million as of April 28, 2024, represents property, plant, and equipment of $ 21.5 million, $ 9.4 million, and $ 555,000 located in the U.S., Canada, and Haiti, respectively.

(2) The $ 33.7 million as of April 30, 2023, represents property, plant, and equipment of $ 22.7 million, $ 10.4 million, and $ 608,000 located in the U.S., Canada, and Haiti, respectively.

(3) The $ 1.6 million as of April 28, 2024, represents right of use assets of $ 1.1 million and $ 545,000 located in Haiti and Canada, respectively.

(4) The $ 2.3 million as of April 30, 2023, represents right of use assets of $ 1.5 million and $ 776,000 located in Haiti and Canada, respectively.

(5) The $ 1.1 million as of April 28, 2024, represents property, plant, and equipment of $ 1.0 million and $ 120,000 located in the U.S.

and China, respectively.

(6) The $ 1.7 million as of April 30, 2023, represents property, plant, and equipment of $ 974,000 , $ 592,000 , and $ 105,000 located in the U.S., Haiti, and China, respectively.

(7) The $ 2.0 million as of April 28, 2024, represents right of use assets of $ 1.3 million and $ 709,000 located in the U.S.

and China, respectively.

(8) The $ 2.6 million as of April 30, 2023, represents right of use assets of $ 1.5 million and $ 1.1 million located in China and the U.S., respectively.

(9) The $ 585,000 as of April 28, 2024, and $ 691,000 as of April 30, 2023, represent property, plant, and equipment associated with unallocated corporate departments and corporate departments shared by both the mattress fabrics and upholstery fabrics segments located in the U.S.

(10) The $ 2.6 million as of April 28, 2024, and $ 3.3 million as of April 30, 2023, represent right of use assets associated with unallocated corporate departments and corporate departments shared by both the mattress fabrics and upholstery fabrics segments located in the U.S.

Capital expenditures and depreciation expense information for our business segments follow:

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total depreciation expense

(1) The $ 33.7 million as of April 30, 2023, represents property, plant, and equipment of $ 22.7 million, $ 10.4 million, and $ 608,000 located in the U.S., Canada, and Haiti, respectively.

(2) The $ 38.7 million as of May 1, 2022, represents property, plant, and equipment of $ 25.6 million, $ 12.4 million, and $ 757,000 located in the U.S., Canada, and Haiti, respectively.

(3) The $ 2.3 million as of April 30, 2023, represents right of use assets of $ 1.5 million and $ 776,000 located in Haiti and Canada, respectively.

(4) The $ 3.5 million as of May 1, 2022, represents right of use assets of $ 2.0 million, $ 1.2 million, and $ 291,000 located in Haiti, the U.S., and Canada, respectively.

(5) The $ 1.7 million as of April 30, 2023, represents property, plant, and equipment of $ 974,000 , $ 592,000 , and $ 105,000 located in the U.S., Haiti, and China, respectively

(6) The $ 2.0 million as of May 1, 2022, represents property, plant, and equipment of $ 1.0 million, $ 756,000 , and $ 255,000 located in the U.S., Haiti, and China, respectively.

(7) The $ 2.6 million as of April 30, 2023, represents right of use assets of $ 1.5 million and $ 1.1 million located in China and the U.S., respectively.

(8) The $ 8.1 million as of May 1, 2022, represents right of use assets of $ 3.7 million, $ 2.6 million, and $ 1.8 million located in China, Haiti, and the U.S., respectively.

(9) The $ 691,000 as of April 30, 2023, and $ 941,000 as of May 1, 2022, represent property, plant, and equipment associated with unallocated corporate departments and corporate departments shared by both the mattress fabrics and upholstery fabrics segments located in the U.S.

(10) The $ 3.3 million as of April 30, 2023, and $ 4.0 million as of May 1, 2022, represent right of use assets located in the U.S.

associated with unallocated corporate departments and corporate departments shared by both the mattress fabrics and upholstery fabrics segments located in the U.S.

(1) Capital expenditure amounts are stated on an accrual basis.

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STATUTORY RESERVES

Our subsidiary located in China was required to transfer 10 % of its net income, as determined in accordance with the People’s Republic of China (PRC) accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reached 50 % of the company’s registered capital.

As of April 28, 2024, the statutory surplus reserve fund represents the 50 % registered capital requirement, and therefore, our subsidiary located in China is no longer required to transfer 10% of its net income in accordance with PRC accounting rules and regulations.

The transfer to this reserve must be made before distributions of any dividend to shareholders.

As of April 30, 2023, the company’s statutory surplus reserve was $ 4.2 million.

The statutory surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’

losses, if any.

As of April 28, 2024, the company’s statutory surplus reserve was $ 4.0 million.

The statutory surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any.

The statutory surplus reserve fund may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them provided that the remaining reserve balance after such issue is not less than 25 % of the registered capital.

The company’s subsidiary located in China can transfer funds to the parent company, except for the statutory surplus reserve of $ 4.2 million, to assist with debt repayment, capital expenditures, and other expenses of the company’s business.

The company’s subsidiary located in China can transfer funds to the parent company, except for the statutory surplus reserve of $ 4.0 million, to assist with debt repayment, capital expenditures, and other expenses of the company’s business.

COMMON STOCK REPURCHASE PROGRAM

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DIVIDEND PROGRAM

On June 29, 2022, our board of directors announced the decision to suspend the company’s quarterly cash dividend.

Accordingly, we did no t make any dividend payments during fiscal 2023.

During fiscal 2022, dividend payments totaled $ 5.5 million, which represented quarterly dividend payments ranging from $ 0.11 per share to $ 0.115 per share.

On June 29, 2022 (fiscal 2023), our board of directors announced the decision to suspend the company’s quarterly cash dividend.

We believed that preserving capital and managing our liquidity was in the company’s best interest to support future growth and the long-term interests of our shareholders.

Accordingly, we did no t make any dividend payments during fiscal 2024 or fiscal 2023.

During fiscal 2022, dividend payments totaled $ 5.5 million, which represented quarterly dividend payments ranging from $ 0.11 per share to $ 0.115 per share.

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This evaluation was conducted under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer.

Based upon that evaluation, we have concluded that these disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports filed by us and submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported as and when required.

Further, we concluded that our disclosure controls and procedures have been designed to ensure that information required to be disclosed in reports filed by us under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, in a manner to allow timely decisions regarding the required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal Control –

Integrated Framework.

Based on this assessment, management concluded that our internal control over financial reporting was effective as of April 28, 2024.

Grant Thornton LLP, an independent registered public accounting firm, has audited the consolidated financial statements as of and for the years ended April 30, 2023, May 1, 2022, and May 2, 2021, and has audited the company’s effectiveness of internal controls over financial reporting as of April 30, 2023, as stated in their reports, which are included in Item 8 and Item 9A hereof.

Grant Thornton LLP, an independent registered public accounting firm, has audited the consolidated financial statements as of and for the years ended April 28, 2024, April 30, 2023, and May 1, 2022, which are included in Item 8.

This annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

Management’s report was not subject to attestation by our registered public accounting firm pursuant to Securities and Exchange Commission rules that permit us to provide only management’s report in this annual report.

During the quarter ended April 28, 2024, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of Culp, Inc.

(a North Carolina corporation) and subsidiaries (“the Company”) as of April 30, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended April 30, 2023, and our report dated July 14, 2023, expressed an unqualified opinion on those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

/s/ GRANT THORNTON LLP

Charlotte, North Carolina

July 14, 2023

OTHE R INFORMATION

On July 12, 2013, the board of directors of the company designated Kenneth R.

Bowling, the company's existing chief financial officer and treasurer, as the company’s principal accounting officer as defined by the Securities and Exchange Commission.

This appointment is effective July 21, 2023, following the last day of employment for Thomas B.

Gallagher, Jr., who served as the company’s principal accounting officer prior to Mr.

Bowling's designation.

Bowling joined the company in 1997 as controller for the Culp Velvets/Prints division.

He was promoted to corporate controller in 2001 and was named corporate controller and assistant treasurer in 2002.

In 2004, he was promoted to vice president, finance and treasurer.

Bowling became the company’s chief financial officer in 2007 and corporate secretary in 2008, and he was named senior vice president in 2016.

Bowling was named executive vice president.

On July 12, 2023, the compensation committee of the company's board of directors (the “Committee”) reviewed achievement of the applicable performance measures established under the company’s annual incentive program for the fiscal 2023 year, as previously described in the section titled “Consideration of Shareholder Advisory Vote and Changes for Fiscal 2023”

of the Company’s Proxy Statement filed with the Securities and Exchange Commission on August 24, 2022, in order to determine the bonus payments, if any, payable to the company's named executive officers under such program.

The committee determined that bonuses would be due to executive officers in each of the executive shared services reporting unit and the upholstery fabrics reporting unit, based on the attainment of free cash flow-based targets, but no bonus had been achieved by the mattress fabrics reporting unit.

With respect to the bonus payable to executive officers in the upholstery fabrics reporting unit, the Committee also reviewed other factors it deemed relevant to the bonus determination, including the company's significant consolidated operating loss for fiscal 2023.

Specifically, the Committee noted that the annual incentive bonus program for the upholstery fabrics reporting unit was tied to measures of adjusted operating income and adjusted free cash flow, with an allocation between the two performance measures of 20% operating income and 80% free cash flow, but for the executive shared services reporting unit, the fiscal 2023 annual incentive bonus program was tied solely to the measure of adjusted free cash flow, with a negative moderator of 20% applied against any bonus earned as a result of the company's consolidated operating loss for fiscal 2023.

Based on the company's significant consolidated operating loss for fiscal 2023, the Committee determined that a negative moderator of 20% should also be applied against any bonus earned by the upholstery fabrics reporting unit.

As a result, the Committee determined that the upholstery fabrics reporting unit had achieved a level of adjusted free cash flow for fiscal 2023 that, absent the 20% negative moderator, would have resulted in the payment of a bonus to Mr.

Boyd Chumbley, president of the upholstery fabrics division, in the amount of $318,474.24, but with the application of the 20% negative moderator, the amount of Mr.

Chumbley's bonus would now be $254,779.92, a reduction of $63,694.32 from what would have otherwise been payable to Mr.

Chumbley without the addition of the 20% negative moderator.

During the three months ended April 28, 2024, none of the company's directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted or terminated a "Rule 10b5-1 trading arrangement" or a "Non-Rule 10b5-1 trading arrangement" (as such terms are defined in Item 408 of Regulation S-K).

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

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DIRECTORS, EXECUTIVE OF FICERS, AND CORPORATE GOVERNANCE

“Delinquent Section 16(a) Reports,”

“Corporate Governance –

Code of Business Conduct and Ethics,”

and “Board Committees and Attendance –

Audit Committee,”

which information is herein incorporated by reference.

Information with respect to executive officers and directors of the company is included in the company’s definitive Proxy Statement to be filed within 120 days after the end of the company’s fiscal year pursuant to Regulation 14A of the Securities and Exchange Commission, under the captions “Nominees, Directors, and Executive Officers,” “Section 16(a) Reports,” “Corporate Governance – Code of Business Conduct and Ethics,” and “Board Committees and Attendance – Audit Committee,” which information is herein incorporated by reference.

EXECUT IVE COMPENSATION

and “Compensation Committee Interlocks and Insider Participation,”

which information is herein incorporated by reference.

Information with respect to executive compensation is included in the company’s definitive Proxy Statement to be filed within 120 days after the end of the company’s fiscal year pursuant to Regulation 14A of the Securities and Exchange Commission, under the captions “Executive Compensation” (except for the information appearing under the heading "Pay versus Performance") and “Compensation Committee Interlocks and Insider Participation,” which information is herein incorporated by reference.

SECURITY OWNERS HIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information with respect to the security ownership of certain beneficial owners and management is included in the company’s definitive Proxy Statement to be filed within 120 days after the end of the company’s fiscal year pursuant to Regulation 14A of the Securities and Exchange Commission, under the captions “Executive Compensation Plan Information,”

“Beneficial Owners of 5% or More of Our Common Stock,”

and “Nominees, Directors, and Executive Officers,”

which information is herein incorporated by reference.

The following table sets forth information as of the end of fiscal 2023 regarding shares of our common stock that may be issued upon the exercise of equity awards previously granted and currently outstanding equity awards under the company’s equity incentive and stock option plans, as well as the number of shares available for the grant of equity awards that had not been granted as of that date.

The following table sets forth information as of the end of fiscal 2024 regarding shares of our common stock that may be issued upon the exercise of equity awards previously granted and currently outstanding equity awards under the company’s equity incentive and stock option plans, as well as the number of shares available for the grant of equity awards that had not been granted as of that date.

EQUITY COMPENSATION PLAN INFORMATION

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Plan Category

Equity compensation plans approved by security

Equity compensation plans not approved by

security holders

(1) For performance-based restricted stock unit awards, the number of shares shown represents the maximum number of shares that could be issued if certain performance targets are met.

None of these performance-based restricted stock unit shares (i.e., 321,690 shares) are currently expected to vest and be issued due to challenging financial performance measures that are unlikely to be met.

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders

(1) For performance-based restricted stock unit awards, the number of shares represents the maximum number of shares with remaining performance periods that could be issued if certain performance targets are met.

The performance based shares with remaining open performance periods total 332,857 of which 9,164 are expected to vest based on estimated operating performance relative to pre-established targets.

For time-based restricted stock unit awards, the number of shares shown represents the number of shares to be issued upon completion of the time-based vesting period for such restricted stock units.

(2) All of the shares shown in column (a) are issueable under restricted stock units that do not require the payment of consideration by the recipient upon vesting of the award and issuance of the shares, and therefore there is no exercise price information shown in column (b).

(2) All of the shares shown in column (a) are issuable under restricted stock units that do not require the payment of consideration by the recipient upon vesting of the award and issuance of the shares, and therefore there is no exercise price information shown in column (b).

CERTAIN RELATIONSHIPS AND RELATE D TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information with respect to certain relationships and related transactions is included in the company’s definitive Proxy Statement to be filed within 120 days after the end of the company’s fiscal year pursuant to Regulation 14A of the Securities and Exchange Commission, under the captions “Corporate Governance –

Director Independence”

and “Certain Relationships and Related Transactions,”

which information is herein incorporated by reference.

PRINCIPAL ACCO UNTANT FEES AND SERVICES

Information with respect to accountants fees and services is included in the company’s definitive Proxy Statement to be filed within 120 days after the end of the company’s fiscal year pursuant to Regulation 14A of the Securities and Exchange Commission, under the caption “Fees Paid to Independent Auditors,”

which information is herein incorporated by reference.

EXHIBITS AND FIN ANCIAL STATEMENT SCHEDULES

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Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 )

Consolidated Balance Sheets –

April 30, 2023, and May 1, 2022

Consolidated Statements of Net (Loss) Income - for the years ended April 30, 2023, May 1, 2022, and May 2, 2021

Consolidated Statements of Comprehensive (Loss) Income - for the years ended April 30, 2023, May 1, 2022, and May 2, 2021

Consolidated Statements of Shareholders’

Equity –

for the years ended April 30, 2023, May 1, 2022, and May 2, 2021

Consolidated Statements of Cash Flows –

for the years ended April 30, 2023, May 1, 2022, and May 2, 2021

Consolidated Balance Sheets – April 28, 2024, and April 30, 2023

Consolidated Statements of Net Loss - for the years ended April 28, 2024, April 30, 2023, and May 1, 2022

Consolidated Statements of Comprehensive Loss - for the years ended April 28, 2024, April 30, 2023, and May 1, 2022

Consolidated Statements of Shareholders’ Equity – for the years ended April 28, 2024, April 30, 2023, and May 1, 2022

Consolidated Statements of Cash Flows – for the years ended April 28, 2024, April 30, 2023, and May 1, 2022

Notes to Consolidated Financial Statements

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The following exhibits are attached at the end of this report or incorporated by reference herein.

Management contracts, compensatory plans, and arrangements are marked with an asterisk (*).

Articles of Incorporation of the company, as amended, were filed as Exhibit 3(i) to the company’s Form 10-Q for the quarter ended July 28, 2002, filed September 11, 2002 (Commission File No.

001-12597), and are incorporated herein by reference.

Restated and Amended Bylaws of the company, as amended July 10, 2019, were filed as Exhibit 3(ii) to the company’s Form 10-K for the year ended April 28, 2019, filed July 12, 2019 (Commission File No.

001-12597), and are incorporated herein by reference.

Description of Capital Stock of the company was filed as Exhibit 4.1 to the company’s Form 10-K for the year ended May 3, 2020, filed July 17, 2020 (Commission File No.