Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Interest Rates
We are exposed to market risk from changes in interest rates regarding our credit agreements.
Revolving Credit Agreement – United States
Our U.S. revolving credit agreement ("Credit Agreement") with Wells Fargo Bank N.A., permits both base rate borrowings and borrowings that require interest to be charged at a variable rate calculated using an applicable margin over SOFR (the secured overnight financing rate administered by the Federal Reserve Bank of New York (or its successor)), as defined in the Credit Agreement. The interest rate under the Credit Agreement as of April 27, 2025, was 5.78%. As of April 27, 2025, outstanding borrowings under the Credit Agreement totaled $4.6 million.
Credit Agreements - China Operations
Effective November 5, 2024, we entered into an unsecured credit agreement with the Bank of China that provides for a 10.0 million RMB ($1.4 million USD as of April 27, 2025) working capital loan. Interest is charged at a variable rate under the agreement based on the China Loan Prime Rate ("China LPR") minus 50 basis points, which represents 2.60% as of April 27, 2025. As of April 27, 2025, the outstanding balance under the working capital loan was 10.0 million RMB ($1.4 million USD).
Effective March 5, 2025, we entered into a separate unsecured credit agreement with the Agriculture Bank of China ("ABC") that provides for a line of credit of up to 29.0 million RMB ($4.0 million USD as of April 27, 2025). Interest is charged under this agreement at a variable rate based on the China LPR minus 50 basis points (applicable interest rate of 2.60% as of April 27, 2025). As of April 27, 2025, the outstanding balance under this agreement was 29.0 million RMB ($4.0 million USD).
During the first quarter of fiscal 2026 we entered into unsecured working loan agreements with ABC that provide for 21 million RMB ($2.9 million USD as of borrowing dates ranging from May 12, 2025 through May 28, 2025). Interest is charged under these agreements at variable rates based on the China LPR at the time of the borrowing minus 50 basis points (2.60% as of borrowing dates ranging from May 12, 2025 through May 28, 2025).
Currently, we have supplier financing arrangements that bear interest at a fixed rate, which is paid in full at the time of borrowing and therefore borrowings under these agreements are not subject to future changes in the market rate of interest.
Foreign Currency
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. Our foreign subsidiaries use the U.S. dollar as their functional currency. A substantial portion of the company’s imports purchased outside the U.S. are denominated in U.S. dollars. A 10% change in the above exchange rates as of April 27, 2025, would not have materially affected our results of operations or financial position.
49
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGIST ERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Culp, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Culp, Inc. (a North Carolina corporation) and subsidiaries (the “Company”) as of April 27, 2025 and April 28, 2024, 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 27, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of April 27, 2025 and April 28, 2024, and the results of its operations and its cash flows for each of the three years in the period ended April 27, 2025, in conformity with accounting principles generally accepted in the United States of America .
Basis for opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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.
We conducted our audits in accordance with the standards of the PCAOB. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion .
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2007.
Charlotte, North Carolina
July 11, 2025
50
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data and preferred and common stock shares)
April 27, 2025, and April 28, 2024
2025
2024
current assets:
cash and cash equivalents
$
5,629
$
10,012
short-term investments - rabbi trust
1,325
903
accounts receivable, net
21,844
21,138
inventories
49,309
44,843
short-term notes receivable
280
264
current income taxes receivable
—
350
assets held for sale
2,177
—
other current assets
2,970
3,371
total current assets
83,534
80,881
property, plant and equipment, net
24,836
33,182
right of use assets
5,908
6,203
long-term investments - rabbi trust
5,722
7,102
intangible assets
960
1,876
long-term notes receivable
1,182
1,462
deferred income taxes
637
518
other assets
591
830
total assets
$
123,370
$
132,054
current liabilities:
lines of credit - current
$
8,114
$
—
accounts payable - trade
27,323
25,607
accounts payable - capital expenditures
23
343
operating lease liability - current
2,394
2,061
deferred compensation - current
1,325
903
deferred revenue
422
1,495
accrued restructuring
610
—
accrued expenses
5,333
6,726
income taxes payable - current
1,420
972
total current liabilities
46,964
38,107
lines of credit - long term
4,600
—
operating lease liability - long-term
2,535
2,422
income taxes payable - long-term
790
2,088
deferred income taxes
5,155
6,379
deferred compensation - long-term
5,686
6,929
total liabilities
65,730
55,925
commitments and contingencies (notes 11, 13, and 14)
shareholders' equity:
preferred stock, $ .05 par value, authorized 10,000,000 shares
—
—
common stock, $ .05 par value, authorized 40,000,000
shares, issued and outstanding 12,559,129 at April 27, 2025
and 12,469,903 at April 28, 2024
628
624
capital contributed in excess of par value
45,589
45,011
accumulated earnings
11,273
30,376
accumulated other comprehensive income
150
118
total equity
57,640
76,129
total liabilities and equity
$
123,370
$
132,054
The accompanying notes are an integral part of these consolidated financial statements.
51
CONSOLIDATED STATEM ENTS OF NET LOSS
For the years ended April 27, 2025, April 28, 2024, and April 30, 2023
(dollars in thousands, except per share data)
2025
2024
2023
net sales
$
213,237
$
225,333
$
234,934
cost of sales
( 188,170
)
( 197,394
)
( 224,038
)
gross profit
25,067
27,939
10,896
selling, general and administrative expenses
( 35,705
)
( 38,611
)
( 37,978
)
restructuring expense
( 7,739
)
( 636
)
( 1,396
)
loss from operations
( 18,377
)
( 11,308
)
( 28,478
)
interest expense
( 231
)
( 11
)
—
interest income
915
1,174
531
other expense
( 1,018
)
( 625
)
( 443
)
loss before income taxes
( 18,711
)
( 10,770
)
( 28,390
)
income tax expense
( 392
)
( 3,049
)
( 3,130
)
net loss
$
( 19,103
)
$
( 13,819
)
$
( 31,520
)
net loss per share-basic
$
( 1.53
)
$
( 1.11
)
$
( 2.57
)
net loss per share-diluted
$
( 1.53
)
$
( 1.11
)
$
( 2.57
)
The accompanying notes are an integral part of these consolidated financial statements.
52
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the years ended April 27, 2025, April 28, 2024, and April 30, 2023
2025
2024
2023
net loss
$
( 19,103
)
$
( 13,819
)
$
( 31,520
)
unrealized holding gain (loss) on investments
32
99
( 13
)
comprehensive loss
$
( 19,071
)
$
( 13,720
)
$
( 31,533
)
The accompanying notes are an integral part of the consolidated financial statements.
53
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except common stock shares)
Capital
Accumulated
Contributed
Other
For the years ended April 27, 2025, April 28, 2024,
Common Stock
in Excess
Accumulated
Comprehensive
Total
and April 30, 2023
Shares
Amount
of Par Value
Earnings
Income
Equity
Balance, May 1, 2022
12,228,629
$
611
$
43,143
$
75,715
$
32
$
119,501
net loss
—
—
—
( 31,520
)
—
( 31,520
)
stock-based compensation
—
—
1,145
—
—
1,145
unrealized loss on investments
—
—
—
—
( 13
)
( 13
)
common stock issued in connection with
vesting of performance-based restricted
stock units
982
—
—
—
—
—
common stock issued in connection with
vesting of time-based restricted
stock units
32,799
2
( 2
)
—
—
—
immediately vested common stock awards
71,732
3
( 3
)
—
—
—
common stock surrendered in connection
with payroll withholding taxes
( 6,728
)
—
( 33
)
—
—
( 33
)
Balance, April 30, 2023
12,327,414
616
44,250
44,195
19
89,080
net loss
—
—
—
( 13,819
)
—
( 13,819
)
stock-based compensation
—
—
915
—
—
915
unrealized gain on investments
—
—
—
—
99
99
common stock issued in connection with
vesting of time-based restricted
stock units
151,653
8
( 8
)
—
—
—
immediately vested common stock awards
16,616
1
( 1
)
—
—
—
common stock surrendered in connection
with payroll withholding taxes
( 25,780
)
( 1
)
( 145
)
—
—
( 146
)
Balance, April 28, 2024
12,469,903
624
45,011
30,376
118
76,129
net loss
—
—
—
( 19,103
)
—
( 19,103
)
stock-based compensation
—
—
650
—
—
650
unrealized gain on investments
—
—
—
—
32
32
common stock issued in connection with
vesting of time-based restricted
stock units
102,720
5
( 5
)
—
—
—
common stock surrendered in connection
with payroll withholding taxes
( 13,494
)
( 1
)
( 67
)
—
—
( 68
)
Balance, April 27, 2025
12,559,129
$
628
$
45,589
$
11,273
$
150
$
57,640
See accompanying notes to consolidated financial statements.
54
CONSOLIDATED STATEM ENTS OF CASH FLOWS
For the years ended April 27, 2025, April 28, 2024, and April 30, 2023
(dollars in thousands)
2025
2024
2023
cash flows from operating activities:
net loss
$
( 19,103
)
$
( 13,819
)
$
( 31,520
)
adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
depreciation
5,440
6,521
6,845
non-cash inventory (credit) charge
( 2,423
)
( 1,628
)
5,819
amortization
405
390
438
stock-based compensation
650
915
1,145
deferred income taxes
( 1,343
)
387
( 2
)
gain on sale of equipment
( 27
)
( 299
)
( 314
)
non-cash restructuring expense
2,708
330
791
foreign currency exchange gain
( 145
)
( 593
)
( 537
)
changes in assets and liabilities:
accounts receivable
( 722
)
3,559
( 2,642
)
inventories
( 2,059
)
1,593
15,370
other current assets
384
( 329
)
( 297
)
other assets
114
( 115
)
86
accounts payable-trade
1,852
( 2,926
)
10,274
deferred revenue
( 1,073
)
303
672
accrued restructuring
633
—
—
accrued expenses and deferred compensation
( 2,456
)
( 1,870
)
853
income taxes
( 485
)
( 643
)
823
net cash (used in) provided by operating activities
( 17,650
)
( 8,224
)
7,804
cash flows from investing activities:
capital expenditures
( 2,947
)
( 3,711
)
( 2,108
)
proceeds from the sale of property, plant and equipment
1,945
385
468
proceeds from notes receivable
610
330
15
proceeds from the sale of investments (rabbi trust)
1,725
1,449
2,058
purchase of investments (rabbi trust)
( 735
)
( 884
)
( 1,185
)
net cash provided by (used in) investing activities
598
( 2,431
)
( 752
)
cash flows from financing activities:
proceeds from lines of credit
21,648
4,166
—
payments associated with lines of credit
( 8,907
)
( 4,146
)
—
common stock surrendered for payroll withholding taxes
( 68
)
( 146
)
( 33
)
payments for debt issuance costs
—
—
( 403
)
net cash provided by (used in) financing activities
12,673
( 126
)
( 436
)
effect of exchange rate changes on cash and cash equivalents
( 4
)
( 171
)
( 202
)
(decrease) increase in cash and cash equivalents
( 4,383
)
( 10,952
)
6,414
cash and cash equivalents at beginning of year
10,012
20,964
14,550
cash and cash equivalents at end of year
$
5,629
$
10,012
$
20,964
The accompanying notes are an integral part of these consolidated financial statements.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Our operations are classified into two reportable segments: mattress fabrics and upholstery fabrics.
Mattress Fabrics
The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers. Currently, we have a mattress fabric manufacturing operation located in Stokesdale, North Carolina, and a sewn mattress cover operation located in Ouanaminthe, Haiti.
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 the closure and sale of the company's manufacturing facility and related land (collectively referred to as the "Property") located in Quebec, Canada; (2) move a portion of the knitting and finishing capacity from the company's Property 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 sewn mattress cover operation located in Ouanaminthe, Haiti, from two leased facilities into one building, and reduce other operating expenses at this location. See Note 10 to the consolidated financial statements for further details regarding the restructuring activities announced on May 1, 2024.
All the above restructuring activities related to this announcement have been completed, including the sale of the Property located in Quebec, Canada, effective April 30, 2025. See Note 8 located in the notes to the consolidated financial statements for further details regarding the sale of the Property.
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.
Upholstery Fabrics
The upholstery fabrics segment develops, sources, manufactures, and sells fabrics primarily to residential, commercial, and hospitality furniture manufacturers. As of April 27, 2025, we had upholstery fabric operations located in Shanghai, China, and Burlington, North Carolina. 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 capabilities and to further diversify our supply chain in Asia.
On April 24, 2025, we announced that we will close our leased facility operated by our upholstery fabrics segment located in Burlington, North Carolina, and transition its production and distribution activities utilizing a shared management model within our owned facility located in Stokesdale, North Carolina. Our Stokesdale, North Carolina facility has historically been solely operated by our mattress fabrics segment. We expect this transition to be substantially completed by December 31, 2025.
During fiscal 2023, Culp Upholstery Fabrics - Haiti, Ltd. entered into an agreement to terminate a lease agreement for a facility located in Ouanaminthe, Haiti, and relocated a scaled down upholstery cut and sewn kits operation into our existing mattress cover facility also located in Ouanaminthe, Haiti. During the first quarter of fiscal 2024, demand for upholstery cut and sew kits declined more than previously anticipated, resulting in a strategic action to discontinue production of upholstery cut and sewn kits in Haiti. See Note 10 of the consolidated financial statements for further details regarding this restructuring plan.
Additionally, Read Window Products, LLC (“Read”), a wholly-owned subsidiary with operations located in Knoxville, Tennessee, and our upholstery fabrics facility located in Burlington, North Carolina, provides window treatments and sourcing of upholstery fabrics and other products, as well as related measuring and installation services, to customers in the hospitality and commercial markets. Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows. The activities located at our Burlington, North Carolina, facility will transition to our facility located in Stokesdale, North Carolina, as part of our previously announced shared management model noted above.
Basis of Presentation
The consolidated financial statements of the company have been prepared in accordance with U.S. generally accepted accounting principles.
56
Principles of Consolidation
Overall
The consolidated financial statements include the accounts of the company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The accounts of our subsidiaries located in Shanghai, China, and Ho Chi Minh City, Vietnam, are consolidated as of April 30th, 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 and Vietnamese subsidiaries year end of April 30 that materially affected the company’s financial position, results of operations, and cash flows for fiscal years 2025, 2024, or 2023.
Fiscal Year
Our fiscal year is the 52 or 53-week period ending on the Sunday closest to April 30. Fiscal 2025, 2024, and 2023 each comprised 52-week periods.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposit and money market accounts. We consider all highly liquid instruments with original maturities of three months or less to be cash equivalents.
A summary of our cash and cash equivalents by geographic area follows:
April 27,
April 28,
(dollars in thousands)
2025
2024
United States
$
151
$
2,912
China
4,723
6,554
Canada
701
371
Vietnam
38
81
Haiti
8
86
Cayman Islands
8
8
$
5,629
$
10,012
Throughout the year, we have cash balances regarding our U.S. operations of more than the federally insured amounts on deposit with a financial institution. 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 $ 7.0 million and $ 8.0 million as of April 27, 2025, and April 28, 2024, respectively. These investments had accumulated unrealized gains totaling $ 150,000 and $ 118,000 as of April 27, 2025, and April 28, 2024, respectively. The fair value of our investments associated with our rabbi trust approximates their cost basis and reside with our U.S. operations.
Accounts Receivable and Current Expected Credit Losses
Substantially all of our accounts receivable were due from manufacturers in the bedding and furniture industries. We grant credit to customers and generally do not require collateral. We record an allowance for doubtful accounts that reflects estimates of probable credit losses. As of the end of each reporting period, we assess the credit risk of our customers within our accounts receivable portfolio. Our
57
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 is completed, we assign credit grades to our customers, which, in turn, are used to determine our allowance for doubtful accounts. We do not have any off-balance sheet credit exposure related to our customers.
Inventories
We account for inventories at the lower of first-in, first-out (FIFO) cost basis or net realizable value. Management continuously examines inventory to determine if there are indicators that the carrying value exceeds its net realizable value. Historical experience has shown that the most significant indicators that would require inventory markdowns are the age of the inventory and the planned discontinuance of certain patterns. As a result, we provide inventory valuation markdowns based upon established percentages associated with the age of inventory that are continually evaluated and based on historical experience and judgment. Also, we provide inventory valuation markdowns associated with restructuring activities and on the planned discontinuance of certain patterns based on the current market values at that time of assessment as compared to their current carrying values.
Based on current unfavorable industry macroeconomic conditions in the home furnishings and bedding industries, 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 of our 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.
During the fourth quarter of fiscal 2025, we assessed the percentages associated with the age of our inventory and the related aging categories. This assessment was based on a change in current market trends related to extended life cycles for finished goods inventory. As a result of our assessment, we recorded a total non-cash inventory credit of $ 1.7 million for both our mattress fabrics and upholstery fabrics segments due to a change in accounting estimate related to the finished goods inventory markdown reserve. The $ 1.7 million non-cash inventory credit was recorded within cost of sales in our fiscal 2025 Consolidated Statement of Net Loss.
Based on the above policy, we recorded a non-cash inventory (credit) charge within the Consolidated Statements of Net Loss of $( 2.4 ) million, $( 1.6 ) million, and $ 5.8 milli on during fiscal 2025, 2024, and 2023, respectively. The $ 5.8 million charge during fiscal 2023 includes an additional $ 2.9 million charge for the write-down of inventory to its net realizable value associated with our mattress fabrics segment. As of April 27, 2025, and April 28, 2024, the reserve for inventory markdowns was $ 7.8 million and $ 9.6 million, respectively.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Major renewals and betterments are capitalized. Maintenance, repairs, and minor renewals are expensed as incurred. When property, plant, or equipment is 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 property, plant, or equipment 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. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of the asset to future net undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset 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. After the impairment loss is recognized, the adjusted carrying amount is the new accounting basis. Assets to be disposed of by sale are reported at the lower of the carrying value or fair value less cost to sell when the company has committed to a disposal plan and would be reported separately as assets held for sale in the Consolidated Balance Sheets.
Interest Costs
Total interest costs incurred were $ 231,000 and $ 11,000 during fiscal 2025 and 2024, 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 2025, 2024, or 2023.
58
Foreign Currency Adjustments
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. dollars at year-end foreign currency exchange rates. Non-monetary assets and liabilities such as property, plant, and equipment and right of use assets are recorded at historical foreign currency exchange rates. Foreign currency revenues and expenses are remeasured at average foreign currency exchange rates in effect during the year, except for certain expenses related to balance sheet amounts remeasured at historical foreign currency exchange rates, such as depreciation expense. Foreign currency exchange rate 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 in the period in which they occur.
A summary of our foreign currency exchange rate gains (losses) by geographic area follows:
(dollars in thousands)
2025
2024
2023
China
$
141
$
604
$
588
Canada
( 23
)
( 58
)
( 88
)
Vietnam
( 1
)
( 1
)
—
$
117
$
545
$
500
Indefinite-Lived Intangible Assets
In accordance with ASC Topic 350, Intangibles – Goodwill and Other, our business was classified into three reporting units during fiscal 2025: mattress fabrics, upholstery fabrics, and Read.
ASC Topic 350 requires us to assess indefinite-lived intangible assets such as our tradename for impairment annually (the last day of our fiscal year) or between annual tests if we believe certain indicators of impairment exist. Such indicators could include but are not limited to: (1) deterioration in the environment of the industry and markets in which we operate, (2) unanticipated competition, (3) a deterioration in general economic conditions, (4) an overall decline in financial performance, such as negative and declining cash flows, or a decline in actual or planned revenue or earnings compared with actual and projected results or relevant prior periods, and (5) a decrease in the price per share of our common stock. As a result, we first assess qualitative factors, such as the indicators outlined above, to determine whether it is more likely than not that the fair value of our tradename is less than its carrying amount. If we conclude that it is more likely than not that the fair value of our tradename is less than its carrying amount, we would conduct a quantitative impairment test. The quantitative impairment test would involve comparing the fair value of our tradename with its carrying value. We would estimate the fair value of our tradename using an income, discounted cash flows, or market approach, as appropriate, that would require management assumptions (i.e., unobservable inputs). If the carrying amount of our tradename exceeds the tradename's fair value, an impairment loss is recognized in an amount equal to that excess.
As a result of our annual impairment assessment as of April 27, 2025, we recorded an asset impairment charge totaling $ 540,000 , which represents the entire carrying value of our Read tradename. This charge was classified as restructuring expense in our fiscal 2025 consolidated statement of net loss. No asset impairment charges were recorded during fiscal 2024 and 2023 related to indefinite-lived intangible assets.
See Note 6 of the consolidated financial statements for further details of our assessment of impairment, conclusions reached, and the result of our annual impairment test relating to our indefinite-live intangible asset (i.e. tradename).
Income Taxes
Deferred Income Taxes – Overall
Income taxes are accounted for under the asset and liability method. Deferred income taxes are recognized for temporary differences between the financial statement carrying amounts and the tax basis of our assets, liabilities, U.S. loss carryforwards, and foreign income tax credits at income tax rates expected to be in effect when such amounts are realized or settled. 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
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. 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.
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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. parent company. We are required to record a deferred tax liability for undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely. As a result of the 2017 Tax Cuts and Jobs Act, 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 tax liability will only be required 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.
Uncertain Income Tax Positions
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. Penalties and interest related to uncertain income tax positions are recorded as income tax expense. Significant judgment is required in the identification of uncertain income tax positions and in the estimation of penalties and interest on uncertain income tax positions.
Revenue from Contracts with Customers
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. In addition to customer purchase orders, we also have supply contracts with certain customers that define standard terms and conditions. Our contracts generally include promises to sell upholstery fabrics, mattress fabrics, or home goods products. In addition, we provide fabrication and installation services for our own products associated with customized window treatments.
Revenue associated with sales of our products is recognized at the point in time when control of the promised goods has been transferred to the customer. The point in time when control transfers to the customer depends on the contractually agreed upon shipping terms, but typically occurs once the product has been shipped or once it has been delivered to a location specified by the customer. For certain warehousing arrangements, transfer of control to the customer is deemed to have occurred when the customer pulls the inventory for use in their production.
Revenue associated with our customized fabrication services, which are performed on various types of window treatments, is recognized over time once the customized products are deemed to have no alternative use and for which we have an enforceable right to payment for the services performed. Revenue for our customized fabrication services is recognized over time using the output method based on units produced. Revenue associated with our installation services for our own products is also recognized over time as the customer receives and consumes the benefits of the promised installation services. Revenue associated with our installation services is recognized over time using the output method based on units installed.
Transaction Price
The transaction price is typically allocated to performance obligations based upon stand-alone selling prices. We elected the practical expedient to not adjust the transaction price for the effects of a significant financing component because the period between the satisfaction of the performance obligation and the customer’s payment is generally one year or less. We did not disclose the value of unsatisfied performance obligations as substantially all of any unsatisfied performance obligations as of April 27, 2025, will be satisfied within one year or less.
Revenue Measurement
Revenue is measured as the amount of consideration we expect to receive in exchange for the transfer of the promised products and services. The amount of consideration we expect to receive changes due to variable consideration associated with allowances for sales returns, early payment discounts, and volume rebates that we offer to customers. The amount of variable consideration included in the transaction price is only included in net sales to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur in a future period.
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Our mattress fabrics and upholstery fabrics segments only allow product returns to the extent that the products or services did not meet the contractually agreed upon specifications at the time of sale. Customers must receive authorization prior to returning products. Estimates of allowances for sales returns are based on historical data, current potential product return issues, and known sales returns for which customers have been granted authorization. Known sales returns for which customers have been granted permission to return products for a refund or credit continue to be recorded as a contra account receivable. Estimates for potential future sales returns and related customer accommodations are recorded within accrued expenses. We record estimates for sales returns on a gross basis rather than a net basis, and an estimate for a right of return asset is recorded in other current assets and cost of goods sold. Variable consideration associated with early payment cash discounts are estimated using current payment trends and historical data on a customer-by-customer basis. The variable consideration associated with volume rebates is based on the portion of the rebate earned relative to the total amount of rebates the customer is expected to earn over the rebate period, as determined using historical data and projections.
We evaluated the nature of our warranties related to our contracts with customers and determined that any such warranties are assurance-type warranties that cover only compliance with agreed upon specifications, and therefore are not considered separate performance obligations.
Shipping and Handling Costs
Revenue received for shipping and handling costs, which is immaterial for all periods presented, is included in net sales. 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 were $ 4.6 million, $ 4.6 million, and $ 4.2 million during fiscal 2025, 2024, and 2023, respectively, and are included in selling, general and administrative expenses.
Sales and Other Taxes
Sales and other taxes collected from customers and remitted to governmental authorities are presented on a net basis and, as such, are excluded from revenues.
Leases
We lease manufacturing facilities, office space, distribution centers, and equipment under operating lease arrangements. We determine if an arrangement is a lease at its inception if it conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Operating leases with an initial term of 12 months or less are not recognized in our Consolidated Balance Sheets. We account for lease components separately from non-lease components. We recognize a right of use asset and lease liability on the commencement date of a lease arrangement based on the present value of lease payments over the lease term.
A lease term may include renewal options if it is reasonably certain that the option to renew a lease period will be exercised. 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.
Stock-Based Compensation
Our equity incentive plans are described in more detail in Note 15 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. Compensation expense for time-vested restricted stock unit awards is amortized on a straight-line basis over the respective vesting period. Compensation expense for performance-based restricted stock unit awards is recorded based on an assessment each reporting period to determine the probability of whether or not certain performance targets will be met and how many common stock shares are expected to be earned as of the end of the vesting period. If certain performance targets are not expected to be achieved, compensation expense will not be recorded, and any previously recognized compensation expense will be reversed.
Fair Value of Financial Instruments
The accompanying consolidated financial statements include certain financial instruments, and the fair market value of such instruments may differ from amounts reflected on a historical basis. These financial instruments include our short-term and long-term investments
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related to a rabbi trust that sets aside funds for participants in our deferred compensation plan and are classified as available-for-sale. The fair value measurements of our financial instruments are described in more detail in Note 16 of the consolidated financial statements.
The carrying amount of cash and cash equivalents, accounts receivable, other current assets, accounts payable, lines of credit - current, and accrued expenses approximates their fair value because of the short maturity of these financial instruments. The carrying amount of our lines of credit - long term approximates its fair value because the respective variable rates of interest associated with the lines of credit are comparable to the market rate of interest.
Recently Adopted 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 became effective during the fourth quarter of fiscal 2025 , and therefore, we applied this new guidance in our fiscal 2025 consolidated financial statements. This guidance did not have an impact on our results of operations and financial condition, but did have a material impact on the disclosures required in the notes to the consolidated financial statements, which are disclosed in Note 19 of the consolidated financial statements.
Recently Issued Accounting Pronouncements
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 of 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 12 of the consolidated financial statements.
In November 2024, the FASB issued ASU 2024 - 03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (“ASU 2024-03 ” ), which is an update to Topic 220, Income Statement - Reporting Comprehensive Income. ASU 2024-03 enhances transparency and decision-usefulness of expense disclosures in response to investors' requests for more detailed, disaggregated expense information, enabling a clearer understanding of a public business entity's performance and cost structure. The amendments improve disclosure requirements in financial statement notes for specific expense categories including: (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, (e) certain amounts that are already required to be disclosed under current generally accepted accounting principles in the same disclosure as other disaggregation requirements, (f) qualitative description of amounts remaining in relevant expense captions that are not necessarily disaggregated quantitatively, as well as (g) the total amount of selling expenses, and in annual reporting periods, the entity's definition of selling expense. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, (i.e., our fiscal 2028 annual report) and interim reporting periods beginning after December 15, 2027 (i.e., first quarter of fiscal 2029 interim report). Early adoption is permitted. The company is currently evaluating ASU 2024-03 to determine the impact it will have on its consolidated financial statements and related disclosures.
Currently, there are no new accounting pronouncements that are expected to have a material effect on our consolidated financial statements.
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2. ACCOUNTS RECEIVABLE
A summary of accounts receivable follows:
April 27,
April 28,
April 30,
(dollars in thousands)
2025
2024
2023
customers
$
22,799
$
21,660
$
25,244
allowance for doubtful accounts
( 651
)
( 356
)
( 342
)
allowance for cash discounts
( 108
)
( 113
)
( 96
)
reserve for returns and allowances and discounts
( 196
)
( 53
)
( 28
)
$
21,844
$
21,138
$
24,778
A summary of the activity in the allowance for doubtful accounts follows:
(dollars in thousands)
2025
2024
2023
beginning balance
$
( 356
)
$
( 342
)
$
( 292
)
provision for bad debts
( 342
)
( 276
)
( 121
)
write-offs, net of recoveries
47
262
71
ending balance
$
( 651
)
$
( 356
)
$
( 342
)
As of April 27, 2025, and April 28, 2024, 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 $ 651,000 and $ 356,000 as of April 27, 2025, and April 28, 2024, respectively.
A summary of the activity in the allowance for returns and allowances and discounts follows:
(dollars in thousands)
2025
2024
2023
beginning balance
$
( 166
)
$
( 124
)
$
( 95
)
provision for returns and allowances and discounts
( 1,423
)
( 1,173
)
( 1,212
)
credits issued and discounts taken
1,285
1,131
1,183
ending balance
$
( 304
)
$
( 166
)
$
( 124
)
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Nature of Performance Obligations
Our operations are classified into two business segments: mattress fabrics and upholstery fabrics. The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers. The upholstery fabrics segment develops, sources, manufactures, and sells fabrics primarily to residential, commercial, and hospitality manufacturers. In addition, the upholstery fabrics segment includes Read and our facility located in Burlington, North Carolina, which provides window treatments and sourcing of upholstery fabrics and other products, as well as related measuring and installation services to customers in the hospitality and commercial markets. 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 products associated with window treatments.
Significant Judgments
See Note 1 of the consolidated financial statements for disclosure of our accounting policies regarding our significant judgments associated with revenue recognition, determining our transaction prices, and revenue measurement.
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Contract Assets & Liabilities
Certain contracts relating to customized fabrication and installation services associated with Read require upfront customer deposits that result in a contract liability which is recorded on the Consolidated Balance Sheets as deferred revenue. Revenue on contract liabilities associated with customized fabrication and installation services is generally recognized within one year as the satisfaction of performance obligations is generally one year or less. If upfront deposits or prepayments are not required, customers may be granted terms which generally range from 15 - 60 days. Our terms are customary within the industries in which we operate and are not considered financing arrangements.
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 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 27, 2025, or April 28, 2024.
A summary of the activity of deferred revenue follows:
(dollars in thousands)
Fiscal 2025
Fiscal 2024
Fiscal 2023
Beginning Balance
$
1,495
$
1,192
$
520
Revenue recognized on contract liabilities
( 3,980
)
( 3,932
)
( 4,885
)
Payments received for services not yet rendered
2,907
4,235
5,557
Ending Balance
$
422
$
1,495
$
1,192
As of April 27, 2025, deferred revenue of $ 422,000 pertained to: (i) upfront customer deposits associated with customized fabrication and installation services related to Read totaling $ 339,000, 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 $ 83,000 . 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 . Revenue recognized during the period that was included in the contract liability balance at the beginning of the period was $ 1.4 million, $ 1.0 million, and $ 520,000 for fiscal years 2025, 2024, and 2023, respectively
Disaggregation of Revenue
The following table presents our disaggregated revenue related to operations by segment, timing of revenue recognition, and product sales versus services rendered for fiscal 2025:
(dollars in thousands)
Mattress
Fabrics
Upholstery
Fabrics
Total
Products transferred at a point in time
$
113,906
$
87,322
$
201,228
Services transferred over time
—
12,009
12,009
Total Net Sales
$
113,906
$
99,331
$
213,237
The following table presents our disaggregated revenue related to operations by segment, timing of revenue recognition, and product sales versus services rendered for fiscal 2024:
(dollars in thousands)
Mattress
Fabrics
Upholstery
Fabrics
Total
Products transferred at a point in time
$
116,370
$
98,976
$
215,346
Services transferred over time
—
9,987
9,987
Total Net Sales
$
116,370
$
108,963
$
225,333
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The following table presents our disaggregated revenue related to operations by segment, timing of revenue recognition, and product sales versus services rendered for fiscal 2023:
(dollars in thousands)
Mattress
Fabrics
Upholstery
Fabrics
Total
Products transferred at a point in time
$
110,995
$
114,996
$
225,991
Services transferred over time
—
8,943
8,943
Total Net Sales
$
110,995
$
123,939
$
234,934
4. INVENTORIES
A summary of inventories follows:
(dollars in thousands)
April 27,
2025
April 28,
2024
raw materials
$
5,733
$
6,214
work-in-process
2,747
1,854
finished goods
40,829
36,775
$
49,309
$
44,843
5. PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant, and equipment follows :
(dollars in thousands)
depreciable lives
(in years)
April 27,
2025
April 28,
2024
land and improvements
0 - 10
$
596
$
947
buildings and improvements
7 - 40
25,286
30,774
leasehold improvements
**
2,044
2,388
machinery and equipment
3 - 15
50,361
67,703
data processing equipment and software
3 - 7
8,500
8,597
office furniture and equipment
3 - 10
1,250
1,456
capital projects in progress
549
1,596
88,586
113,461
accumulated depreciation
( 63,750
)
( 80,279
)
$
24,836
$
33,182
** Shorter of life of lease or useful life .
6. INTANGIBLE ASSETS
A summary of intangible assets follows:
(dollars in thousands)
April 27,
2025
April 28,
2024
Tradename
$
—
$
540
Customer relationships, net
734
1,035
Non-compete agreement, net
226
301
$
960
$
1,876
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Tradename
A summary of the change in the carrying amount of our tradename follows:
(dollars in thousands)
2025
2024
2023
beginning balance
$
540
$
540
$
540
loss on impairment
( 540
)
—
—
ending balance
—
$
540
$
540
Our tradename pertains to Read, a separate reporting unit within our upholstery fabrics segment. This tradename was determined to have an indefinite useful life at the time of its acquisition, and therefore was not amortized.
We are required to assess our tradename for impairment annually or between annual tests if we believe indicators of impairment exist. Accordingly, we performed our annual impairment assessment of Read's tradename as of April 27, 2025. Initially, we performed a qualitative assessment in which we concluded it was more-likely-than-not the fair value of Read's tradename was less than its carrying amount. This conclusion was based on management's decision, announced on April 24, 2025, to strategically transform the company's operating model by combining certain activities within the mattress fabrics and upholstery fabrics business segments and becoming one integrated and Culp-branded business. Since the company is transforming to a single Culp-branded business, Read's tradename will be phased out during fiscal 2026, and will no longer be used to market upholstery fabric products to customers associated with the hospitality industry. Consequently , we recorded an asset impairment charge totaling $ 540,000 , which represents the entire carrying value of our Read tradename. This charge was classified as restructuring expense within our fiscal 2025 consolidated statement of net loss.
Customer Relationships
A summary of the change in the carrying amount of our customer relationships follows:
(dollars in thousands)
2025
2024
2023
beginning balance
$
1,035
$
1,335
$
1,636
amortization expense
( 301
)
( 300
)
( 301
)
ending balance
734
1,035
1,335
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 were $ 3.1 million as of April 27, 2025, and April 28, 2024. Accumulated amortization for our customer relationships were $ 2.4 million and $ 2.1 million as of April 27, 2025, and April 28, 2024, respectively.
The remaining amortization expense for the next five fiscal years and thereafter follows: FY 2026 - $ 301,000 ; FY 2027 - $ 280,000 ; FY 2028 - $ 51,000 ; FY 2029 - $ 51,000 ; FY 2030 - $ 51,000 .
The weighted average amortization period for our customer relationships is 3.0 years as of April 27, 2025.
Non-Compete Agreement
A summary of the change in the carrying amount of our non-compete agreement follows:
(dollars in thousands)
2025
2024
2023
beginning balance
$
301
$
377
$
452
amortization expense
( 75
)
( 76
)
( 75
)
ending balance
$
226
$
301
$
377
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 27, 2025, and April 28, 2024. Accumulated amortization for this non-compete agreement was $ 1.8 million and $ 1.7 million as of April 27, 20 25, and April 28, 2024, respectively.
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The remaining amortization expense for the next five years and thereafter follows: FY 2026 - $ 76,000 ; FY 2027 - $ 76,000 ; and FY 2028 - $ 74,000 .
The weighted average amortization period for the non-compete agreement is 3.0 years as of April 27, 2025.
Impairment of Definite Lived Assets - Mattress Fabrics Segment
As of April 27, 2025, 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 $ 36.4 million commencing in the second quarter of fiscal 2023, and continuing through the fourth quarter of fiscal 2025. 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 with such demand shifting 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 $ 23.9 million, which represents property, plant, and equipment of $ 23.3 million, right of use assets of $ 125,000 , customer relationships of $ 255,000 , and a non-compete agreement of $ 226,000 . The total carrying amount of the Mattress Asset Group did not exceed the sum of its expected 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 27, 2025.
7. NOTES RECEIVABLE
Culp Upholstery Fabrics - Haiti, Ltd. ("CUF Haiti")
In connection with the restructuring activity of our upholstery fabrics cut and sew operation located in Ouanaminthe, Haiti, effective January 24, 2023, CUF Haiti entered into an agreement to terminate a lease of a facility (“Termination Agreement”). See Note 10 of the consolidated financial statements for further details regarding this restructuring activity.
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 carrying amount of the note receivable totaling $ 2.4 million wa s 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 , 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 are 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
67
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 16 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 (its U.S. parent company).
The following table represents the remaining future principal payments as of April 27, 2025:
(dollars in thousands)
2026
$
390
2027
330
2028
360
2029
360
2030
240
Undiscounted value of note receivable
$
1,680
Less: unearned interest income
( 218
)
Present value of note receivable
$
1,462
As of April 27, 2025, this note receivable totaled $ 1.5 million, of which $ 280,000 and $ 1.2 million were classified as short-term note receivable and long-term note receivable, respectively. As of April 28, 2024, this 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. We classified amortization of unearned interest income totaling $ 96,000 and $ 111,000 within interest income on our consolidated statements of net loss during fiscal 2025 and fiscal 2024, respectively.
As of April 27, 2025, we believe there is no expected credit loss related to the collectability of this note receivable, as the Lessee has made all the required payments stated in the Termination Agreement. We will continue to evaluate the facts and circumstances at the end of each reporting period to determine if an expected credit loss is deemed necessary.
Culp Home Fashions - Haiti, Ltd. ("CHF Haiti")
Effective August 2, 2024, CHF Haiti entered into an agreement to terminate a lease of a facility ("CHF Termination Agreement"). Pursuant to the terms of the CHF Termination Agreement, CHF Haiti was entitled to a payment of $ 250,000 from the lessor at the earlier of February 28, 2025, or 15 days after a new lease with a third party is signed. In connection with the CHF Termination Agreement, CHF Haiti has been fully and unconditionally discharged from all its remaining obligations under this lease.
During the fourth quarter of fiscal 2025, CHF Haiti received the full payment of $ 250,000 .
8. ASSETS HELD FOR SALE
As of April 27, 2025, we classified the Property (as defined in note one of the consolidated financial statements) located in Quebec, Canada as held for sale totaling $ 2.2 million, which is presented separately in the consolidated balance sheet as of April 27, 2025, and is no longer being depreciated. See Note 10 in the consolidated financial statements for further details regarding the restructuring activities announced on May 1, 2024 (first quarter of fiscal 2025).
Effective April 30, 2025 (first quarter of fiscal 2026), we closed on the sale of our Property located in Quebec, Canada, pursuant to which we will record a gain from this sale totaling $ 4.0 million USD that will be recorded within restructuring expense (credit) in the consolidated statement of net income (loss) for the first quarter of fiscal 2026.
The sale of our property was pursuant to an amended agreement effective April 2, 2025, which incorporated an original agreement and prior amendment (collectively referred to as the "Sales Agreement"), to sell our Property located in Quebec, Canada to a third party. Pursuant to the Sales Agreement, the total sales price for this Property was $ 8.6 million CAD ($ 6.2 million USD as of April 30, 2025), of which $ 750,000 CAD ($ 543,000 USD as of April 27, 2025) was received in the fourth quarter of fiscal 2025 and recorded within accrued expenses in the Consolidated Balance Sheet, $ 1.3 million CAD ($ 905,000 USD as of April 30, 2025) was received at closing in the first quarter of fiscal 2026, with the remaining balance of $ 6.6 million CAD ($ 4.8 million USD as of April 30, 2025) to be received along with interest earned at rates ranging from 6 % to 10 % over a period of six to twelve months, as specified in the Sales Agreement.
68
9. ACCRUED EXPENSES
(dollars in thousands)
April 27,
2025
April 28,
2024
compensation and related benefits
$
2,534
$
4,204
other
2,799
2,522
$
5,333
$
6,726
10. RESTRUCTURING ACTIVITIES
Mattress Fabrics Segment, Upholstery Fabrics Segment, and Unallocated Corporate - Initiated During Fiscal 2025
Restructuring Activities Announced May 1, 2024
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 the closure and sale of the Property located in Quebec, Canada, (2) move a portion of the knitting and finishing capacity from that facility 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; (4) consolidate the company's sewn mattress cover operation located in Ouanaminthe, Haiti, from two leased facilities into one building and reduce other operating expenses at this location; as well as (5) reduce unallocated corporate and shared service expenses.
All of the above restructuring activities related to this announcement have been completed, including the sale of the Property located in Quebec, Canada, effective April 30, 2025 (first quarter of fiscal 2026). Accordingly, we expect to record a gain from this sale totaling $ 4.0 million that will be recorded in restructuring expense (credit) in the consolidated statement of net income (loss) for the first quarter of fiscal 2026. See Note 8 located in the notes to the consolidated financial statements for further details regarding the sale of the Property.
During fiscal 2025, we incurred restructuring and restructuring related charges totaling $ 8.7 million related to the above mentioned initiatives, of which $ 8.5 million and $ 154,000 relate to the mattress fabrics and upholstery fabrics segments, respectively. As mentioned above, the restructuring activities related to this announcement were completed during the first quarter of fiscal 2026. Accordingly, we expect to record a restructuring credit of $ 3.8 million for the first quarter of fiscal 2026, which reflects the gain on the sale of Property located in Quebec, Canada, partially offset by other expected restructuring expenses. Overall, we expect cumulative restructuring and restructuring related charges of approximately $ 4.9 million related to this initiative, most of which relates to the mattress fabrics segment.
Restructuring Activities Announced April 24, 2025
On April 24, 2025 (fourth quarter of fiscal 2025), the company announced a strategic transformation of its operating model that will combine certain activities within the mattress fabrics and upholstery fabrics business segments and create an integrated Culp-branded business. As part of this strategic transformation , we will close our leased facility operated by our upholstery fabrics segment located in Burlington, North Carolina, and transition its production and distribution activities utilizing a shared management model within our owned facility located in Stokesdale, North Carolina. Our Stokesdale, North Carolina facility has historically been solely operated by our mattress fabrics segment.
During fiscal 2025, we incurred restructuring expense of $ 676,000 related to this strategic transformation, of which $ 540,000 and $ 136,000 relate to unallocated corporate and the upholstery fabrics segment, respectively. The estimated cumulative restructuring and restructuring related charges for these initiatives is expected to be $ 1.5 million, of which $ 288,000 is expected to be cash expenditures. The $ 1.5 million of estimated cumulative restructuring and restructuring related charges associated with these activities represents: (i) a non-cash charge for impairment of Read's tradename totaling $ 540,000 (see Note 6 located in the notes to the consolidated financial statements for further details); (ii) a non-cash charge of $ 425,000 associated with markdowns and other inventory related adjustments; (iii) non-cash lease termination costs of $ 224,000 ; (iv) cash charges for employee termination benefits of $ 173,000 , and (v) cash charges for facility consolidation and relocation expenses of $ 115,000 . We expect the initiatives associated with this strategic transformation to be substantially completed by December 31, 2025.
69
The following summarizes restructuring and restructuring related charges associated with the above announcements for the year ended April 27, 2025:
Year Ended
(dollars in thousands)
April 27, 2025
Additional depreciation expense for shortened useful lives of equipment
$
1,339
Employee termination benefits
1,552
Impairment of intangible asset
540
Facility consolidation and relocation expenses
2,437
Loss on disposal, valuation, and markdowns of inventory
1,621
Lease termination costs
849
Other associated costs
1,024
Net gain on sale of equipment
( 16
)
Restructuring expense and restructuring related charges (1) (2) (3)
$
9,346
(1 ) Of the total $ 9.3 million, $ 7.7 million and $ 1.6 million were recorded within restructuring expense and cost of sales, respectively, in the fiscal 2025 Consolidated Statement of Net Loss.
(2) Of the total $ 9.3 million, $ 8.7 million and $ 676,000 relate to the restructuring activities announced on May 1, 2024, and the strategic transformation initiatives announced on April 24, 2025, respectively.
(3 ) Of the total $ 9.3 million, $ 8.5 million, $ 540,000 , and $ 290,000 relate to the mattress fabrics segment, unallocated corporate, and the upholstery fabrics segment, respectively.
The following summarizes accrued restructuring costs for the two plans described above for the year ended April 27, 2025:
Employee
Other
Facility Consolidation
Termination
Associated
and Relocation
(dollars in thousands)
Benefits
Costs
Costs
Total
Beginning balance
$
—
$
—
$
—
$
—
Expenses incurred
1,667
1,032
2,437
5,136
Change in estimate adjustments
( 115
)
( 8
)
—
( 123
)
Payments
( 1,019
)
( 926
)
( 2,435
)
( 4,380
)
Foreign currency exchange remeasurement
( 11
)
( 10
)
( 2
)
( 23
)
Ending Balance
$
522
$
88
$
—
$
610
Upholstery Fabrics Segment - Restructuring Activities Initiated During Fiscal 2024 and 2023
Ouanaminthe, Haiti
Cut and Sew Upholstery Fabrics Operation
During the third quarter of fiscal 2023, CUF Haiti entered into an agreement to terminate a lease associated with one of its facilities and moved the production of upholstery cut and sewn kits to an existing facility leased by CHF Haiti during the fourth quarter of fiscal 2023. Both CUF Haiti and CHF Haiti are indirect 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 sewn kits in Haiti.
This restructuring activity commenced during the third quarter of fiscal 2023 and was completed during the third quarter of fiscal 2024 and resulted in a cumulative restructuring and restructuring related charge of $ 1.3 million.
See Note 7 of the consolidated financial statements for further details regarding the agreement to terminate the above mentioned lease and the establishment of a note receivable.
70
Shanghai, China
Upholstery Fabrics Finishing Operation
During the fourth quarter of fiscal 2024, we closed our upholstery fabrics finishing operation in China to align with current demand trends. This restructuring activity was completed during the first quarter of fiscal 2025 and resulted in a cumulative restructuring and restructuring related charge totaling $ 218,000 .
Cut and Sewn Upholstery Fabrics Operation
During the second quarter of fiscal 2023, we closed our cut and sewn upholstery fabrics operation, which included a termination of an agreement to lease a building. This strategic action was our response to declining consumer demand for cut and sew products, by adjusting our operating costs to better align with lower demand. This restructuring activity was completed during the third quarter of fiscal 2023, and resulted in a cumulative restructuring and restructuring related charge of $ 713,000 during the second and third quarters of fiscal 2023.
The following summarizes restructuring expense and restructuring related charges associated with our upholstery fabrics segment's restructuring activities initiated during fiscal 2024 and 2023, for fiscal years 2025, 2024, and 2023:
(dollars in thousands)
2025
2024
2023
Employee termination benefits
$
—
$
307
$
507
Lease termination costs
—
—
481
Impairment loss - property, plant, and equipment
—
329
357
Loss on disposal and markdowns of inventory
—
40
98
Other associated costs
14
—
51
Restructuring expense and restructuring related charges (1) (2) (3)
$
14
$
676
$
1,494
(1 ) The total $ 14,000 was recorded within restructuring expense in the fiscal 2025 Consolidated Statement of Net Loss.
(2) Of the total $ 676,000 , $ 636,000 and $ 40,000 were recorded within restructuring expense and cost of sales, respectively, in the fiscal 2024 Consolidated Statement of Net Loss.
(3 ) Of the total $ 1.5 million, $ 1.4 million and $ 98,000 were recorded within restructuring expense and cost of sales, respectively, in the fiscal 2023 Consolidated Statement of Net Loss.
The following summarizes the activity in accrued restructuring associated with our upholstery fabrics segment's restructuring activities initiated during fiscal 2024 and 2023, for fiscal years ended 2025, 2024, and 2023:
Employee
Lease
Other
Termination
Termination
Associated
(dollars in thousands)
Benefits
Costs
Costs
Total
Balance, May 1, 2022
$
—
$
—
$
—
$
—
Accrual established in fiscal 2023
507
47
—
554
Expenses incurred
—
—
51
51
Payments
( 507
)
( 47
)
( 51
)
( 605
)
Balance, April 30, 2023
—
—
—
—
Accrual established in fiscal 2024
307
—
—
307
Expenses incurred
—
—
—
—
Payments
( 304
)
—
—
( 304
)
Balance, April 28, 2024 (1)
3
—
—
3
Expense incurred
—
—
14
14
Payments
( 3
)
—
( 14
)
( 17
)
Balance, April 27, 2025
$
—
$
—
$
—
$
—
(1 ) Accrued restructuring was reported within accrued expenses within the Consolidated Balance Sheet as of April 28, 2024.
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11. LINES OF CREDIT
The summary of borrowings under our lines of credit follows:
(dollars in thousands)
April 27,
2025
April 28,
2024
Wells Fargo - U.S. revolving line of credit
$
4,600
$
—
Agricultural Bank of China - revolving line of credit
3,988
—
Agricultural Bank of China - supplier financing arrangements
2,751
—
Bank of China - working capital loan
1,375
—
Lines of credit (1)
$
12,714
$
—
(1) Of the total $ 12.7 million, $ 8.1 million and $ 4.6 million were recorded within lines of credit - current and lines of credit - long-term, respectively, within the Consolidated Balance Sheet as of April 27, 2025.
Revolving Credit Agreement – United States
On June 12, 2025, Culp, Inc., as borrower (the “Company”), and Read and Culp Fabrics Global, LLC, each a wholly owned domestic subsidiary of the Company, as guarantors (collectively, the “Guarantors”), entered into a Third Amendment to the Second Amended and Restated Credit Agreement (the “Third Amendment”), by and among the Company, the Guarantors and Wells Fargo Bank, National Association, as lender (the “Lender”). The Third Amendment amends the Second Amended and Restated Credit Agreement dated as of January 19, 2023, (as amended, restated, supplemented, or otherwise modified from time to time, the “Credit Agreement”), an asset-based revolving credit facility (the “ABL Facility”). 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 Credit Agreement amended, restated and superseded, and served as a replacement for, the Amended and Restated Credit Agreement, dated as of June 24, 2022, as amended, by and between the Company and the Lender.
Pursuant to the Third Amendment, the term of the ABL Facility was extended for three years and now matures on June 12, 2028 .
Pursuant to the Credit Agreement, the ABL Facility contains the following terms:
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 $ 30.0 million, which may be increased upon mutual agreement by up to $ 10.0 million via an accordion feature , subject to the limitations described below.
The Company may issue letters of credit under a sub-facility within the ABL Facility in an aggregate amount not to exceed $ 2 million.
72
The amount available unde r the ABL Facility is limited by a borrowing base consisting of certain eligible accounts receivable and inventory, reduced by specified reserves, as follows:
• 85 % of eligible accounts receivable, plus
• the least of:
i) the sum of:
o lesser of (i) 65 % of eligible inventory valued at cost based on a first-in first-out basis (net of intercompany profits) and (ii) 85 % of the net-orderly-liquidation value percentage of eligible inventory, plus
o the least of (i) 65 % of eligible in-transit inventory valued at cost based on a first-in first-out basis (net of intercompany profits), (ii) 85 % of the net-orderly-liquidation value percentage of eligible in-transit inventory, and (iii) $ 4.0 million, plus
o the lesser of (i) 65 % of eligible raw material inventory valued at cost based on a first-in first-out basis (net of intercompany profits) and (ii) 85 % of the net-orderly-liquidation value percentage of eligible raw material inventory
In each case, the net-orderly-liquidation value is calculated based on the lower of (i) a first-in first-out basis and (ii) market value, and is (A) net of intercompany profits, (B) net of write-ups and write-downs in value with respect to currency exchange rates and (C) consistent with most recent appraisals received and acceptable to Lender.
ii) $ 20.0 million; and
iii) An amount equal to 200 % of eligible accounts receivable.
• minus applicable reserves.
The ABL Facility permits both base rate borrowings and borrowings that bear interest at annual rate equal to daily simple SOFR (the secured overnight financing rate administered by the Federal Reserve Bank of New York (or its successor)), in each case, plus an Applicable Margin equal to: (i) 75 basis points for base rate borrowings and 175 basis points for SOFR-based borrowings (if the average monthly excess availability under the ABL Facility is greater than 66 2/3%), (ii) 100 basis points for base rate borrowings and 200 basis points for SOFR-based borrowings (if the average monthly excess availability under the ABL Facility is less than or equal to 66 2/3% and greater than 33 1/3%), or (iii) 125 basis points for base rate borrowings and 225 basis points for SOFR-based borrowings (if the average monthly excess availability under the ABL Facility is less than or equal to 33 1/3%), as applicable, with a fee on unutilized commitments at an annual rate of 37.5 basis points (if usage is equal to or greater than 50% of the maximum credit available under the ABL Facility) or 50 basis points (if usage is less than 50% of the maximum credit available under the ABL Facility).
Outstanding balances associated with 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. Accrued interest is payable monthly in arrears.
The Company’s obligations under the ABL Facility (and certain related obligations) are: (a) guaranteed by the Guarantors and each of the company’s future domestic subsidiaries is required to guarantee the ABL Facility on a senior secured basis (such guarantors and the company, the “Loan Parties”) and (b) secured by all assets of the Loan Parties, subject to certain exceptions. The liens and other security interests granted by the Loan Parties on the collateral for the benefit of the Lender under the ABL Facility are, subject to certain permitted liens, first-priority .
Cash Dominion. 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 $ 30.0 million and the borrowing base) (the "Excess Availability") falls below 6.0 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 $ 6.0 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
73
below $ 4.5 million at such time. Such compliance period shall end when Excess Availability shall be equal to or greater than $ 4.5 million for a period of 60 consecutive days and no event of default is continuing.
Affirmative and Restrictive Covenants. The Credit Agreement governing the ABL Facility contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the company's ability to, among other things:
• incur additional indebtedness;
• make investments;
• pay dividends and make other restricted payments;
• sell certain assets;
• create liens;
• consolidate, merge, sell or otherwise dispose of all or substantially all of the company's assets; and
• enter into transactions with affiliates
The applicable interest rate under the ABL Facility was 5.78 % and 6.81 % as of April 27, 2025, and April 28, 2024, respectively.
There were $ 925,000 , and $ 535,000 of outstanding letters of credit provided by the ABL Facility as of April 27, 2025, and April 28, 2024, respectively. As of April 27, 2025, we had $ 75,000 remaining for the issuance of additional letters of credit, based on an aggregate letters of credit amount not to exceed $ 1 million as stated in the Credit Agreement.
As of April 27, 2025, our available borrowings calculated under the provisions of the Credit Agreement totaled $ 21.4 million.
Credit Agreements - China Operations
Agricultural Bank of China - Unsecured Credit Agreement
Effective March 5, 2025, we entered into an unsecured credit agreement denominated in RMB, that provides for a line of credit of up to 29.0 million RMB ($ 4.0 million USD as of April 27, 2025) and expires on March 4, 2026. Interest charged under this agreement is based on the Loan Prime Rate ("LPR") in China minus 50 basis points (applicable interest rate of 2.60 % as of April 27, 2025). As of April 27, 2025, the outstanding balance under this agreement was approximately $ 4.0 million USD.
Agricultural Bank of China - Supplier Financing Arrangements
Based on the company's request, certain suppliers entered into supply chain financing arrangements on April 8, 2025 and April 24, 2025, with such agreements totaling 20.0 million RMB ($ 2.8 million USD as of April 27, 2025), and expiring on dates ranging from April 2, 2026 through April 23, 2026 . As a result of these expiration dates, we were able to extend our payment terms beyond those that are normal and customary. The suppliers that entered into these supply chain financing arrangements assigned their receivables due from the company to the Agricultural Bank of China, under a reverse factoring agreement with no recourse, and, in turn, received payments from the Agricultural Bank of China under terms that are normal and customary. Interest is charged under these agreements at a fixed rate of 2.72 % and was paid in full at the time these agreements became effective. As of April 27, 2025, the outstanding balance of $ 2.8 million USD was recorded within lines of credit-current in the Consolidated Balance Sheet as of April 27, 2025. There were no supplier financing arrangements as of April 28, 2024.
The following summarizes the activity associated with our supply chain financing arrangements for the year ended April 27, 2025:
(dollars in thousands)
2025
Outstanding at the beginning of the year
$
—
Vendor invoices financed during the year
2,743
Vendor invoices paid during the year
—
Foreign currency exchange remeasurement
8
Ending balance
$
2,751
74
Bank of China - Credit Agreement
Effective November 5, 2024, we entered into a credit agreement (“Agreement”) denominated in RMB that provides for a 10.0 million RMB ($ 1.4 million USD as of April 27, 2025) unsecured working capital loan and 25.0 million RMB ($ 3.4 million USD as of April 27, 2025) for letters of credit, guarantees, and other financing arrangements secured by trade accounts receivable associated with the company’s operations located in China. The working capital loan and letters of credit expire on November 6, 2025 and July 31, 2025 , respectively. Interest is charged under the Agreement based on the LPR in C hina minus 50 basis points at the time of borrowing which represents 2.60 % as of April 27, 2025. As of April 27, 2025, the outstanding balance under the working capital loan was approximately $ 1.4 million USD and there were no outstanding letters of credit under the Agreement
Subsequent Events
Revolving Credit Agreement - United States
Effective June 12, 2025, we entered into the Third Amendment to our U.S. revolving credit agreement, the terms of which are described within this footnote.
Agricultural Bank of China - Working Capital Loans
During the first quarter of fiscal 2026 we entered into unsecured loan agreements that provided a total of 21.0 million RMB ($ 2.9 million USD as of borrowing dates ranging from May 12, 2025 through May 28, 2025 ), and which expire on dates ranging from May 7, 2026 through May 28, 2026. Interest charged under these agreements is based on the LPR in China at the time of borrowing minus 50 basis points ( 2.60 % as of borrowing dates ranging from May 12, 2025 through May 28, 2025).
Other
Our loan agreements require, among other things, that we maintain compliance with certain financial covenants. As of April 27, 2025, we were in compliance with our financial covenants.
Interest paid during fiscal years 2025, 2024, and 2023 was $ 258,000 , $ 11,000 , and $ 8,000 , respectively.
12. INCOME TAXES
Income Tax Expense and Effective Income Tax Rate
The entire amount of income tax expense of $ 392,000 , $ 3.0 million, and $ 3.1 million during fiscal 2025, 2024, and 2023, respectively, was allocated to loss from continuing operations.
Income tax expense consists of:
(dollars in thousands)
2025
2024
2023
current
federal
$
—
—
—
state
4
—
1
foreign
2,199
2,584
3,053
uncertain income tax positions
( 468
)
78
78
1,735
2,662
3,132
deferred
federal
( 161
)
1,342
( 1,591
)
state
( 9
)
63
( 66
)
undistributed earnings – foreign subsidiaries
316
627
628
U.S. federal & state carryforwards and credits
( 4,130
)
( 4,734
)
( 5,162
)
foreign
( 1,658
)
( 240
)
( 629
)
valuation allowance
4,299
3,329
6,818
( 1,343
)
387
( 2
)
$
392
3,049
3,130
75
Loss before income taxes related to our foreign and U.S. operations consists of:
(dollars in thousands)
2025
2024
2023
Foreign
China
$
6,424
9,091
7,062
Canada
( 5,098
)
902
1,516
Haiti
( 1,553
)
( 2,127
)
( 3,483
)
Vietnam
( 89
)
( 22
)
—
Total Foreign
( 316
)
7,844
5,095
United States
( 18,395
)
( 18,614
)
( 33,485
)
$
( 18,711
)
( 10,770
)
( 28,390
)
The following schedule summarizes the principal differences between the income tax expense at the federal income tax rate and the effective income tax rate reflected in the consolidated financial statements:
2025
2024
2023
U.S. federal income tax rate
21.0
%
21.0
%
21.0
%
valuation allowance
( 23.0
)
( 30.9
)
( 24.0
)
foreign tax rate differential
( 1.4
)
( 4.7
)
( 4.0
)
income tax effects of Chinese foreign exchange gains
( 0.5
)
( 3.6
)
( 0.9
)
withholding taxes associated with foreign tax jurisdictions
( 1.7
)
( 6.5
)
( 2.4
)
uncertain income tax positions
2.5
( 0.7
)
( 0.3
)
U.S. state income taxes
1.1
0.8
0.6
stock-based compensation
( 0.3
)
( 1.8
)
( 0.3
)
other (1)
0.2
( 1.9
)
( 0.7
)
consolidated effective income tax rate (2) (3)
( 2.1
)%
( 28.3
)%
( 11.0
)%
(1) “Other” for all periods presented represents miscellaneous adjustments that pertain to U.S. permanent differences such as meals and entertainment, income tax provision to return adjustments, and other and miscellaneous items.
(2) Our negative consolidated effective income tax rates during fiscal 2025, 2024, and 2023, were caused by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stemmed from our operations located in China during fiscal 2025 and both our operations located in China and Canada during fiscal 2024 and 2023, which jurisdictions 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 2025, 2024, and 2023, respectively. Consequently, an income tax benefit was not recognized for the pre-tax losses associated with our U.S. operations totaling $( 18.4 ) million, $( 18.6 ) million, and $( 33.5 ) million that were incurred during fiscal 2025, 2024, and 2023, respectively.
(3) Our negative consolidated effective income tax rates during fiscal 2025, 2024, and 2023 were further caused by pre-tax losses associated with our Haitian operations, which are not subject to income tax. Our Haitian operations are located in an economic zone that permits a 0 % income tax rate for the first fifteen years of operations, for which we have seven years remaining. As a result of the 0 % income tax rate, an income tax benefit was not recognized for the pre-tax losses associated with our Haitian operations totaling $( 1.6 ) million, $( 2.1 ) million, and $( 3.5 ) million that were incurred during fiscal 2025, 2024, and 2023, respectively.
76
Deferred Income Taxes - Overall
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities consist of the following:
(dollars in thousands)
April 27,
2025
April 28,
2024
deferred tax assets:
accounts receivable
$
305
195
inventories
2,128
1,972
compensation
1,767
2,152
liabilities and other
56
8
intangible assets and goodwill
455
349
property, plant, and equipment
178
171
operating lease liability
744
693
foreign income tax credits - U.S.
783
783
loss carryforwards – U.S.
22,521
18,344
valuation allowance - U.S.
( 26,303
)
( 22,004
)
total deferred tax assets
2,634
2,663
deferred tax liabilities:
undistributed earnings on foreign subsidiaries
( 5,155
)
( 4,840
)
property, plant and equipment
( 1,010
)
( 2,694
)
right of use assets
( 920
)
( 851
)
other
( 67
)
( 139
)
total deferred tax liabilities
( 7,152
)
( 8,524
)
Net deferred liabilities
$
( 4,518
)
( 5,861
)
As of April 27, 2025, our U.S. federal net operating loss carryforward totaled $ 88.1 million, with related future income tax benefits of $ 18.5 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. As of April 27, 2025, all of our unused U.S. federal net operating loss carryforwards were generated during fiscal 2019 and after, and therefore, do not expire in accordance with the TCJA. As of April 27, 2025, our U.S. state net operating loss carryforwards totaled $ 37.6 million, with related future income tax benefits of $ 1.5 million, and have expiration dates ranging from fiscal year 2026 through fiscal 2045 , along with certain U.S. state net operating loss carryforwards that do not expire due to conformity with U.S. federal income tax regulations. Our U.S. 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.
Deferred Income Taxes – Valuation Allowance
Assessment
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 of April 27, 2025, we evaluated the realizability of our U.S. net deferred income tax assets to determine if a full valuation allowance was still required. Based on our assessment, we determined we still have a recent history of significant cumulative U.S. pre-tax losses, in that we experienced U.S. pre-tax losses during each of the last three fiscal years. In addition, we are currently expecting a U.S. pre-tax loss during fiscal 2026. As a result of the significant weight of this negative evidence, we believe it is more-likely-than-not that our U.S net deferred income tax assets will not be fully realizable, and therefore we provided for a full valuation allowance against our U.S. net deferred income tax assets.
77
Based on our assessments as of April 27, 2025, and April 28, 2024, valuation allowances against our U.S. net deferred income tax assets pertain to the following:
(dollars in thousands)
April 27,
2025
April 28,
2024
U.S. federal and state net deferred income tax assets
$
23,973
$
19,674
U.S. capital loss carryforward
2,330
2,330
$
26,303
$
22,004
A summary of the change in the valuation allowances against our U.S. net deferred income tax assets follows:
(dollars in thousands)
2025
2024
2023
beginning balance
$
22,004
18,675
11,857
change in valuation allowance associated with current year earnings
4,162
3,318
7,252
change in estimate during current year (1)
137
11
( 434
)
ending balance
$
26,303
22,004
18,675
(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) expiration of certain U.S. state loss carryforwards; and (iv) 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. parent company and whether we are required to record a deferred income tax liability for those undistributed earnings from our foreign subsidiaries that will not be reinvested indefinitely. As of April 27, 2025, we assessed the liquidity requirements of our U.S. parent company and determined that our undistributed earnings and profits from our foreign subsidiaries would not be reinvested indefinitely and would be eventually distributed to our U.S. parent company. The conclusion reached from this assessment has been consistent with prior years.
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. parent company. As a result, we recorded a deferred income tax liability of $ 5.2 million and $ 4.8 million as of April 27, 2025, and April 28, 2024, respectively.
Uncertainty in Income Taxes
An unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the end of the reporting period, or is effectively settled through examination, negotiation, or litigation, or if the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. 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)
2025
2024
2023
beginning balance
$
1,258
1,179
1,101
increases from prior period tax positions
224
197
175
decreases from prior period tax positions
( 76
)
( 118
)
( 97
)
lapse of applicable statute of limitations
( 616
)
—
—
ending balance
$
790
1,258
1,179
As of April 27, 2025, and April 28, 2024, we had $ 790,000 and $ 1.3 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 $ 790,000 and $ 1.3 million as of April 27, 2025, and April 28, 2024, respectively.
We elected to classify interest and penalties as part of income tax expense. As of April 27, 2025, and April 28, 2024, the gross amount of interest and penalties due to unrecognized tax benefits was $ 191,000 and $ 281,000 , respectively.
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Our gross unrecognized income tax benefit of $ 790,000 as of April 27, 2025, relates to income tax positions for which significant change is currently not expected within the next year. This amount primarily relates to taxation under applicable income tax treaties with foreign tax jurisdictions. United States federal and state income tax returns filed by us remain subject to examination for income tax years 2019 and subsequent. Canadian federal income tax returns filed by us remain subject to examination for income tax years 2021 and subsequent. Canadian provincial (Quebec) income tax returns filed by us remain subject to examination for income tax years 2021 and subsequent. Income tax returns associated with our operations located in China are subject to examination for income tax year 2020 and subsequent.
Income Taxes Paid
The following table sets forth income taxes paid (refunded) by jurisdiction:
(dollars in thousands)
2025
2024
2023
United States federal - Transition Tax
$
665
$
499
$
265
China - Income Taxes
1,785
2,317
1,831
Canada - Income Taxes
( 146
)
468
228
$
2,304
$
3,284
$
2,324
13. LEASES
Leases
Overview
As of April 27, 2025, we leased manufacturing facilities, showroom and office space, distribution centers, and equipment under operating leases. Our operating leases have remaining lease terms of one to seven years , with renewal options for additional periods ranging up to nine years .
Balance Sheet
The right of use assets and lease liabilities associated with our operating leases as of April 27, 2025, and April 28, 2024, are as follows:
(dollars in thousands)
April 27,
2025
April 28,
2024
Right of use assets
$
5,908
$
6,203
Operating lease liability - current
2,394
2,061
Operating lease liability – noncurrent
2,535
2,422
Supplemental Cash Flow Information
(dollars in thousands)
2025
2024
2023
Operating lease liability payments
$
2,391
$
2,663
$
2,497
Right of use assets exchanged for lease liabilities
2,837
978
731
Operating lease costs were $ 2.9 million, $ 3.1 million, and $ 3.6 million during fiscal 2025, 2024, and 2023, respectively. Short-term lease costs were $ 13,000 , $ 34,000 , and $ 44,000 during fiscal 2025, 2024, and 2023, respectively. Variable lease expense was immaterial for each of fiscal 2025, 2024, and 2023.
As of April 27, 2025, the weighted average remaining lease term and discount rate for our operating leases follows:
Weighted average lease term
2.92 years
Weighted average discount rate
5.55
%
As of April 28, 2024, the weighted average remaining lease term and discount rate for our operating leases follows:
Weighted average lease term
3.77 years
Weighted average discount rate
3.71
%
79
Other Information
Maturity of our operating lease liabilities for the next five fiscal years and thereafter follows:
(dollars in thousands)
Amount
2026
$
2,593
2027
1,554
2028
388
2029
227
2030
229
Thereafter
348
5,339
Less: interest
( 410
)
Present value of lease liabilities
$
4,929
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 during fiscal 2023. In accordance with the termination of the lease agreement, we were reimbursed $ 67,000 during fiscal 2023 for leasehold improvements we made to the leased property.
14. COMMITMENTS AND CONTINGENCIES
Accounts Payable – Capital Expenditures
As of April 27, 2025, and April 28, 2024, we had total amounts due regarding capital expenditures totaling $ 23,000 and $ 343,000 , respectively, which pertained to outstanding vendor invoices, none of which were financed.
Purchase Commitments - Capital Expenditures
As of April 27 2025, we had open purchase commitments to acquire equipment for our mattress fabrics operations totaling $ 117,000 .
Litigation
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 or settled, will not have a material adverse effect on our financial position, results of operations, or cash flows.
15. STOCK-BASED COMPENSATION
Equity Incentive Plan Description
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, time-based restricted stock units, performance-based restricted stock 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. 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 27, 2025, there were 668,353 shares available for future equity-based grants under the company’s Amended and Restated Plan.
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Time-Based Restricted Stock Awards
The following table summarizes the time-based restricted stock unit activity during fiscal years 2025, 2024, and 2023:
2025
2024
2023
Shares
Shares
Shares
outstanding at beginning of year
308,927
285,826
210,284
granted
91,629
174,753
119,687
vested (1)
( 103,320
)
( 151,652
)
( 32,799
)
forfeited
( 35,088
)
—
( 11,346
)
outstanding at end of year
262,148
308,927
285,826
(1) During fiscal 2025, time-based restricted stock units totaling 103,320 vested at a fair value of $ 581,000 , or $ 5.63 per share. D uring 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 2025, 2024, and 2023:
Time-Based
(1)
Restricted Stock
Price
Vesting
Date of Grant
Units Awarded
Per Share
Period
January 6, 2025 (2)
21,506
$
5.69
3 years
September 26, 2024 (3)
46,823
$
5.98
1 year
August 8, 2024 (2)
23,300
$
4.65
3 years
January 8, 2024 (2)
14,758
$
5.61
31 months
September 28, 2023 (2)
100,067
$
5.59
34 months
September 28, 2023 (3)
59,928
$
5.59
1 year
September 6, 2022 (2)
37,671
$
4.58
1 to 3 years
August 10, 2022 (2)
82,016
$
5.06
35 months
(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.
Overall
We recorded compensation expense of $ 644,000 , $ 823,000 , and $ 808,000 within selling, general, and administrative expense for time-based restricted stock units in fiscal 2025, 2024, and 2023, respectively.
As of April 27, 2025, the remaining unrecognized compensation cost related to our time-based restricted stock units was $ 561,000 which is expected to be recognized over a weighted average vesting period of 1.4 years. As of April 27, 2025, our time-based restricted stock unit awards that were expected to vest had a fair value totaling $ 1.0 million.
Performance-Based Restricted Stock Units
We grant performance-based restricted stock units to senior executives which could earn up to a certain number of shares of common stock if certain performance targets are met over a three-fiscal year performance period, as defined in the related restricted stock unit award agreements. The number of shares of common stock that are earned based on the performance targets that have been achieved may be adjusted based on a market-based total shareholder return component, as defined in the related restricted stock unit award agreements.
Our performance-based restricted stock units granted to senior executives were measured based on their fair market value on the date of grant. 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.
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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 8, 2024, January 8, 2024, September 28, 2023, and August 10, 2022:
August 8,
January 8,
September 28,
August 10,
2024
2024
2023
2022
Closing price of our common stock
$
4.65
$
5.61
$
5.59
$
5.06
Expected volatility of our common stock
35.0
%
33.5
%
37.3
%
48.2
%
Expected volatility of peer companies
22.6 % - 104.0
%
33.7 % - 102.6
%
35.7 % - 91.5
%
41.6 % - 105.1
%
Risk-free interest rate
3.90
%
4.30
%
4.90
%
3.13
%
Dividend yield
0.00
%
0.00
%
0.00
%
0.00
%
Correlation coefficient of peer companies
( 0.01 ) - 0.17
0.01 - 0.21
0.01 - 0.21
0.05 - 0.23
Overall
The following table summarizes information related to our grants of performance-based restricted stock units to our senior executives that were unvested as of April 27, 2025:
(1)
(2)
Performance-Based
Restricted Stock
Restricted Stock
Units Expected
Date of Grant
Units Awarded
to Vest
Price Per Share
Vesting Period
August 8, 2024
505,003
—
$
5.35
(3)
3 years
January 8, 2024
16,399
4,238
$
6.23
(4)
31 months
September 28, 2023
62,569
—
$
6.43
(5)
34 months
August 10, 2022
146,048
—
$
5.77
(6)
3 years
(1) 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.
(2) 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 27, 2025.
(3) Price per share represents the fair market value per share ($ 1.15 per $1, or an increase of $ 0.70 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 ($ 4.65 ) for the performance-based component of the performance-based restricted stock units granted to senior executives on August 8, 2024.
82
(4) 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.
(5) 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.
(6) 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.
There were no performance-based restricted stock units that vested during fiscal 2025 or 2024. The following table summarizes information related to our performance-based restricted stock units that vested during fiscal 2023.
(3)
(4)
Common
Weighted
Weighted
Stock Shares
Average
Average Price
Fiscal Year
Vested
Fair Value
Per Share
Fiscal 2023 (1)
545
$
3
$
5.10
Fiscal 2023 (2)
437
$
2
$
5.10
(1) Performance-based restricted stock units vested for senior executives.
(2) Performance-based restricted stock units vested for key employees.
(3) Dollar amounts are in thousands.
(4) Price per share is derived from the closing prices of our common stock on the dates the respective performance-based restricted stock units vested.
We recorded a charge to compensation expense totaling $ 6,000 , $ 8,000 , and $ 2,000 , within selling, general, and administrative expense associated with our performance-based restricted stock units for fiscal years 2025, 2024, and 2023, respectively. As of April 27, 2025, the remaining unrecognized compensation expense related to our performance-based restricted stock units was $ 13,000 which is expected to be recognized over a weighted average vesting period of 1.2 years. As of April 27, 2025, performance-based restricted stock units that are expected to vest had a fair value of $ 16,000 .
Common Stock Awards - Board of Directors
The following table summarizes information related to our grants of common stock to our outside directors during fiscal 2024 and 2023:
Common
(1)
Stock
Price Per
Vesting
Date of Grant
Awarded
Share
Period
July 3, 2023 - Fiscal 2024
16,616
$
5.04
Immediate
April 3, 2023 - Fiscal 2023
15,832
$
5.29
Immediate
January 3, 2023 - Fiscal 2023
17,819
$
4.70
Immediate
October 3, 2022 - Fiscal 2023
18,326
$
4.57
Immediate
July 1, 2022 - Fiscal 2023
19,753
$
4.24
Immediate
(1) Price per share represents closing price of our common stock on the date of grant.
We recorded a charge to compensation expense totaling $ 84,000 and $ 335,000 , within selling, general, and administrative expense for these common stock awards during fiscal 2024 and 2023, respectively.
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16. FAIR VALUE
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. An adjustment to the pricing method used within either level 1 or level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy.
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.
The determination of where an asset or liability falls in the hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter based on various factors, and it is possible that an asset or liability may be classified differently from quarter to quarter. However, we expect that changes in classifications between different levels will be rare.
Recurring Basis
The following tables present information about assets measured at fair value on a recurring basis:
Fair value measurements as of April 27, 2025, using:
Quoted
prices in
active markets
for identical
assets
Significant
other
observable
inputs
Significant
unobservable
inputs
(amounts in thousands)
Level 1
Level 2
Level 3
Total
Assets:
U.S. Government Money Market Fund
$
5,682
N/A
N/A
$
5,682
Growth Allocation Mutual Funds
808
N/A
N/A
808
S&P 500 Index Fund
275
N/A
N/A
275
Other
282
N/A
N/A
282
Fair value measurements as of April 28, 2024, using:
Quoted
prices in
active markets
for identical
assets
Significant
other
observable
inputs
Significant
unobservable
inputs
(amounts in thousands)
Level 1
Level 2
Level 3
Total
Assets:
U.S. Government Money Market Fund
$
6,910
N/A
N/A
$
6,910
Growth Allocation Mutual Funds
691
N/A
N/A
691
S&P 500 Index Fund
176
N/A
N/A
176
Other
228
N/A
N/A
228
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17. 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 number of shares used in the computation of both basic and diluted net loss per share were 12,525,000 , 12,432,000 , and 12,283,000 for fiscal years 2025, 2024, and 2023, respectively.
Shares of unvested common stock that were not included in the computation of diluted net loss per share consist of the following:
(in thousands)
2025
2024
2023
antidilutive effect from decrease in the price per share of our
common stock
—
—
25
antidilutive effect from net loss incurred during the fiscal year
145
144
88
total unvested shares of common stock not included in
computation of diluted net loss per share
145
144
113
18. BENEFIT PLANS
Defined Contribution Plans
We have defined contribution plans that cover substantially all employees and allow participants to contribute on a pre-tax basis, along with matching contributions by the company for its U.S. and Canadian operations. Our contributions to these plans were $ 1.1 million, $ 1.2 million, and $ 1.2 million during fiscal years 2025, 2024, and 2023, respectively.
Deferred Compensation Plan
We have a non-qualified 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 $ 206,000 , $ 229,000 , and $ 215,000 during fiscal years 2025, 2024, and 2023, respectively. Our non-qualified deferred compensation plan liability was $ 7.0 million and $ 7.8 million as of April 27, 2025, and April 28, 2024, 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 $ 7.0 million and $ 8.0 million as of April 27, 2025, and April 28, 2024, 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.
19. SEGMENT INFORMATION
Overall
Our operations are classified into two reportable segments: mattress fabrics and upholstery fabrics. 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, commercial, and hospitality furniture manufacturers. In addition, the upholstery fabrics segment includes Read, a wholly-owned subsidiary with operations located in Knoxville, Tennessee and our facility located in Burlington, North Carolina, which provide window treatments and sourcing of upholstery fabrics and other products, as well as related measuring and installation to customers in the hospitality and commercial markets. Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.
Our Chief Operating Decision Maker ("CODM") is our Chief Executive Officer ("CEO"), who regularly reviews the financial results of the company on a consolidated and business segment basis for the purpose of evaluating financial and operating performance, allocation of resources to the individual segments noted above, and determining executive compensation. Accordingly, our CODM reviews certain
85
financial metrics that include net sales and (loss) income from operations before unallocated corporate expenses and other items that are not expected to occur on a regular basis (i.e., restructuring activities), as well as: (i) cost of sales, (ii) gross profit, (iii) selling, general, and administrative expenses, including unallocated corporate expenses, (iv) assets used in operations, which generally include accounts receivable, inventory, property, plant, and equipment, right of use assets, and assets held for sale; and (v) capital spending.
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. Intangible assets are not included in segment assets, as these assets are not used by the Chief Operating Decision Maker to evaluate the respective segment’s operating performance, allocate resources to individual segments, or determine executive compensation.
Net Sales Geographic Concentration
Net sales denominated in U.S. dollars accounted for 92 %, 92 %, and 91 % of total consolidated net sales in fiscal 2025, 2024, and 2023, respectively. International sales accounted for 33 %, 32 %, and 29 % of net sales during fiscal 2025, 2024, and 2023, respectively, and are summarized by geographic area as follows:
(dollars in thousands)
2025
2024
2023
north america (excluding USA) (1)
$
32,912
$
29,357
$
29,756
far east and asia (2)
30,586
36,334
31,339
all other areas
6,026
6,011
8,032
$
69,524
$
71,702
$
69,127
(1) Of this amount, $ 28.8 million, $ 25.1 million, and $ 24.9 million are attributable to shipments to Mexico in fiscal 2025, 2024, and 2023, respectively.
(2) Of this amount $ 16.0 million, $ 18.3 million, and $ 20.0 million are attributable to shipments within China in fiscal 2025, 2024, and 2023, respectively.
Sales attributed to individual countries are based upon the location to which the company ships its products for delivery to customers.
Customer Concentration
One customer within the upholstery fabrics segment represented 11 %, 12 %, and 15 % of consolidated net sales during fiscal 2025, 2024, and 2023, respectively. No customers within the upholstery fabrics segment accounted for greater than 10% of consolidated accounts receivable, net as of April 27, 2025, and April 28, 2024.
One customer within the mattress fabrics segment represented 11 % of consolidated net sales during fiscal 2025. No customers within the mattress fabrics segment represented greater than 10% of consolidated net sales during fiscal 2024 or 2023. No customers within the mattress fabrics segment accounted for greater than 10% of consolidated accounts receivable, net as of April 27, 2025, and April 28, 2024.
Employee Workforce Concentration
Hourly employees associated with the mattress fabrics operation located in Quebec, Canada were represented by a local unaffiliated union with a collective bargaining agreement that was set to expire on February 1, 2026. On April 29, 2024 (first quarter of fiscal 2025), our board of directors made a decision to gradually discontinue this operation with the intention to ultimately sell the related building and land. As a result, as of April 27, 2025, there were only six hourly employees remaining to ready the building and land for sale, which such sale to a third party occurred during the first quarter of fiscal 2026. As a result of this sale , the remaining hourly employees were terminated. All hourly employees were provided compensation and benefits in accordance with the collective bargaining agreement noted above.
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Financial Information
Statements of operations for our business segments are as follows:
(dollars in thousands)
2025
2024
2023
net sales by segment:
mattress fabrics
$
113,906
$
116,370
$
110,995
upholstery fabrics
99,331
108,963
123,939
net sales
$
213,237
$
225,333
$
234,934
cost of sales by segment:
mattress fabrics
$
105,970
$
110,081
$
117,734
upholstery fabrics
80,579
87,273
106,206
total segment cost of sales
186,549
197,354
223,940
restructuring related charge (1) (3) (5)
1,621
40
98
cost of sales
$
188,170
$
197,394
$
224,038
gross profit:
mattress fabrics
$
7,936
$
6,289
$
( 6,739
)
upholstery fabrics
18,752
21,690
17,733
total segment gross profit
26,688
27,979
10,994
restructuring related charge (1) (3) (5)
( 1,621
)
( 40
)
( 98
)
gross profit
$
25,067
$
27,939
$
10,896
selling, general, and administrative expenses by segment:
mattress fabrics
$
13,171
$
13,134
$
11,942
upholstery fabrics
14,695
15,903
15,739
unallocated corporate
7,839
9,574
10,297
selling, general, and administrative expenses
$
35,705
$
38,611
$
37,978
(loss) income from operations by segment:
mattress fabrics
$
( 5,235
)
$
( 6,845
)
$
( 18,681
)
upholstery fabrics
4,057
5,787
1,994
unallocated corporate expenses
( 7,839
)
( 9,574
)
( 10,297
)
total segment loss from operations
( 9,017
)
( 10,632
)
( 26,984
)
restructuring related charge (1) (3) (5)
( 1,621
)
( 40
)
( 98
)
restructuring expense (2) (4) (6)
( 7,739
)
( 636
)
( 1,396
)
loss from operations
$
( 18,377
)
$
( 11,308
)
$
( 28,478
)
interest expense
( 231
)
( 11
)
—
interest income
915
1,174
531
other expense
( 1,018
)
( 625
)
( 443
)
loss before income taxes
$
( 18,711
)
$
( 10,770
)
$
( 28,390
)
(1) During fiscal 2025, we incurred a restructuring related charge totaling $ 1.6 million, which pertained to losses on the disposal, valuation, and markdowns of inventory related to the closure of our manufacturing facility located in Quebec, Canada.
(2) For fiscal 2025, restructuring expense of $ 7.7 million mostly relates to the mattress fabrics segment. The $ 7.7 million restructuring expense represents costs associated with: (i) consolidating the company's North American mattress fabrics operations, including the closure of the company's Property located in Quebec, Canada; (ii) consolidating two leased facilities related to the sewn mattress cover operation located in Ouanaminthe, Haiti, into one facility and reducing other operating expenses at this location; (iii) initial costs related to consolidating production and distribution activities from the upholstery fabrics distribution center located in Burlington, North Carolina to the mattress fabrics manufacturing and distribution center located in Stokesdale, North Carolina; and (v) other expenses incurred as part of the company's strategic plan to transform it's operating model as announced on April 24, 2025. See Note 10 located in the consolidated financial statements for further details regarding the restructuring activities announced on May 1, 2024 (first quarter of fiscal 2025) and April 24, 2025 (fourth quarter of fiscal 2025).
(3) During fiscal 2024, we incurred a restructuring related charge of $ 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.
87
(4) For fiscal 2024, restructuring expense of $ 636,000 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.
(5) During fiscal 2023, we incurred a restructuring related charge totaling $ 98,000 , which pertained to loss on disposal and markdowns of inventory related to the exit of our cut and sewn upholstery fabrics operation located in Shanghai, China.
(6) For fiscal 2023, restructuring expense of $ 1.4 million relates to both our restructuring activities for our cut and sewn upholstery fabrics operations located in Shanghai, China, which occurred during the second quarter of fiscal 2023, and those 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.
Balance sheet information for our business segments follow:
(dollars in thousands)
April 27,
2025
April 28,
2024
segment assets
mattress fabrics
accounts receivable
$
10,576
$
10,003
inventory
33,293
27,671
property, plant, and equipment (1) (2)
23,259
31,472
assets held for sale (3)
2,177
—
right of use assets (4) (5)
125
1,627
total mattress fabrics assets
69,430
70,773
upholstery fabrics
accounts receivable
11,268
11,135
inventory
16,016
17,172
property, plant, and equipment (6) (7)
1,010
1,125
right of use assets (8) (9)
2,678
1,952
total upholstery fabrics assets
30,972
31,384
total segment assets
100,402
102,157
non-segment assets
cash and cash equivalents
5,629
10,012
short-term investments – rabbi trust
1,325
903
short-term note receivable
280
264
current income taxes receivable
—
350
other current assets
2,970
3,371
long-term note receivable
1,182
1,462
deferred income taxes
637
518
property, plant, and equipment (10)
567
585
right of use assets (11)
3,105
2,624
intangible assets
960
1,876
long-term investments - rabbi trust
5,722
7,102
other assets
591
830
total assets
$
123,370
$
132,054
(1) The $ 23.3 million as of April 27, 2025, represents property, plant, and equipment of $ 22.3 million, and $ 955,000 located in the U.S. and Haiti, respectively.
(2) 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.
(3) The $ 2.2 million as of April 27, 2025, represents assets held for sale located in Canada.
88
(4) The $ 125,000 as of April 27, 2025, represents right of use assets located in Haiti.
(5) 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.
(6) The $ 1.0 million as of April 27, 2025, represents property, plant, and equipment of $ 940,000 and $ 70,000 located in the U.S. and China, respectively.
(7) 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.
(8) The $ 2.7 million as of April 27, 2025, represents right of use assets of $ 1.7 million and $ 1.0 million located in China and the U.S., respectively.
(9) 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
(10) The $ 567,000 as of April 27, 2025, and $ 585,000 as of April 28, 2024, 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.
(11) The $ 3.1 million as of April 27, 2025, and $ 2.6 million as of April 28, 2024, 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:
(dollars in thousands)
2025
2024
2023
capital expenditures (1):
mattress fabrics
$
1,550
$
3,474
$
1,125
upholstery fabrics
285
271
467
unallocated corporate
792
255
97
total capital expenditures
$
2,627
$
4,000
$
1,689
depreciation expense
mattress fabrics (2)
$
6,178
$
5,883
$
6,050
upholstery fabrics
601
638
795
total depreciation expense
$
6,779
$
6,521
$
6,845
(1) Capital expenditure amounts are stated on an accrual basis. See Consolidated Statement of Cash Flows for capital expenditure amounts on a cash basis.
(2) During fiscal 2025, depreciation expense for the mattress fabrics segment included additional depreciation expense related to the shortening of useful lives of equipment associated with the closure of operations at our manufacturing facility located in Quebec, Canada. The amount of additional depreciation expense totaling $ 1.3 million was classified as restructuring expense in our fiscal 2025 Consolidated Statement of Net Loss.
20. 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 27, 2025, 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 27, 2025, 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
89
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 $ 4.0 million, to assist with debt repayment, capital expenditures, and other expenses of the company’s business.
21. COMMON STOCK REPURCHASE PROGRAM
In March 2020, our board of directors approved an authorization for us to acquire up to $ 5.0 million of our common stock. Under the common stock repurchase program, shares may be purchased from time to time in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise. The number of shares purchased and the timing of such purchases are based on working capital requirements, market and general business conditions, and other factors.
During fiscal 2025, 2024, and 2023, we did no t repurchase any shares of our common stock. As of April 27, 2025, $ 3.2 million was available for additional repurchases of our common stock.
22. DIVIDEND PROGRAM
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 2025, fiscal 2024, or fiscal 2023, respectively.
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ITEM 9. CHANGES IN AND DISA GREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the three years ended April 27, 2025, there were no disagreements on any matters of accounting principles or practices or financial statement disclosures.
ITEM 9A. CONTROL S AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have conducted an evaluation of the effectiveness of our disclosure controls and procedures as of April 27, 2025. 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. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes: (1) maintaining records that in reasonable detail accurately and fairly reflect the transactions and disposition of assets; (2) providing reasonable assurance that the transactions are recorded as necessary for preparation of financial statements, and that receipts and expenditures are made in accordance with authorizations of management and directors; and (3) providing reasonable assurance that unauthorized acquisition, use, of disposition of assets that could have a material effect on financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of financial statements would be prevented or detected. 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 27, 2025.
Grant Thornton LLP, an independent registered public accounting firm, has audited the consolidated financial statements as of and for the years ended April 27, 2025, April 28, 2024, and April 30, 2023, 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 27, 2025, 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.
ITEM 9B. OTHE R INFORMATION
During the three months ended April 27, 2025, 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).
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OF FICERS, AND CORPORATE GOVERNANCE
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,” “Corporate Governance – Insider Trading Policy,” and “Board Committees and Attendance – Audit Committee,” which information is herein incorporated by reference.
ITEM 11. EXECUT IVE COMPENSATION
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.
ITEM 12. 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 “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 2025 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
Number of
securities to be
issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights (2)
Number of securities
remaining available
for future issuance
under equity
compensation plan
(excluding securities
reflected in
column (a))
Plan Category
(a)
(b)
(c)
Equity compensation plans approved by security holders
846,119 (1)
$
—
668,353
Equity compensation plans not approved by security holders
—
—
—
Total
846,119 (1)
$
—
668,353
(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 583,971, of which 4,238 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 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).
92
ITEM 13. 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.
ITEM 14. 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.
93
PART IV
ITEM 15. EXHIBITS AND FIN ANCIAL STATEMENT SCHEDULES
a) DOCUMENTS FILED AS PART OF THIS REPORT:
1. Consolidated Financial Statements
The following consolidated financial statements of Culp, Inc. and its subsidiaries are filed as part of this report.
Item
Page of Annual
Report on
Form 10-K
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 )
50
Consolidated Balance Sheets – April 27, 2025, and April 28, 2024
51
Consolidated Statements of Net Loss - for the years ended April 27, 2025, April 28, 2024, and April 30, 2023
52
Consolidated Statements of Comprehensive Loss - for the years ended April 27, 2025, April 28, 2024, and April 30, 2023
53
Consolidated Statements of Shareholders’ Equity – for the years ended April 27, 2025, April 28, 2024, and April 30, 2023
54
Consolidated Statements of Cash Flows – for the years ended April 27, 2025, April 28, 2024, and April 30, 2023
55
Notes to Consolidated Financial Statements
56
2. Financial Statement Schedules
All financial statement schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto.
94
3. Exhi bits
The following exhibits are attached at the end of this report or incorporated by reference herein.
3(i)
Articles of Incorporation of the company, as amended, were filed as Exhibit 3(i) to the company’s Form 10-Q for the quarter ended July 28, 2002, filed September 11, 2002 (Commission File No. 001-12597), and are incorporated herein by reference.
3(ii)
Amended and Restated Bylaws of the company, amended effective September 26, 2024, were filed as Exhibit 3.1 to the company's Form 8-K dated September 27, 2024, and is incorporated herein by reference.
4.1
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. 001-12597), and is incorporated herein by reference.
10.1
Second Amended and Restated Credit Agreement dated as of January 19, 2023, by and among Culp, Inc., as Borrower, Read Window Products, LLC, as Guarantor, and Wells Fargo Bank, National Association, as Lender, was filed as exhibit 10.1 to the company’s Form 8-K filed January 23, 2023 (Commission File No. 001-12597), and is incorporated herein by reference.
10.2
First Amendment to Second Amended and Restated Credit Agreement dated as of February 21, 2023, by and among Culp, Inc., as Borrower, Read Window Products, LLC, as Guarantor, and Wells Fargo Bank, National Association, as Lender, was filed as exhibit 10.1 to the company's Form 10-Q filed March 9, 2023 (Commission File No. 001-12597), and is incorporated herein by reference.
10.3
Second Amendment to Second Amended and Restated Credit Agreement dated as of April 8, 2024, by and among Culp, Inc., as Borrower, Read Window Products, LLC and Culp Fabrics Global, LLC, as Guarantors, and Wells Fargo Bank, National Association, as Lender, was filed as exhibit 10.3 to the company's Form 10-K filed July 12, 2024, and is incorporated herein by reference.
10.4
Third Amendment to Second Amended and Restated Credit Agreement, dated as of June 12, 2025, by and among Culp, Inc., as Borrower, Read Window Products, LLC and Culp Fabrics Global, LLC, as Guarantors, and Wells Fargo Bank, National Association, as Lender, was filed as Exhibit 10.1 to the company's Form 8-K filed June 16, 2025, and is incorporated by reference.
10.5+
Form of annual incentive award agreement was filed as Exhibit 10.1 to the company’s Form 10-Q dated December 8, 2023 (Commission File No. 001-12597), and is incorporated herein by reference.
10.6+
Form of restricted stock unit agreement for restricted stock units granted to executive officers pursuant to the Culp, Inc., Amended and Restated Equity Incentive Plan (revised 2023) was filed as Exhibit 10.2 to the company’s Form 10-Q dated December 8, 2023 (Commission File No. 001-12597), and is incorporated herein by reference.
10.7+
Form of restricted stock unit agreement for restricted stock units granted to executive officers pursuant to the 2015 Equity Incentive Plan was filed as Exhibit 10.2 to the company’s Form 10-Q dated September 9, 2021 (Commission File No. 001-12597), and is incorporated herein by reference. (*)
10.8+
Form of restricted stock unit agreement for restricted stock units granted to outside directors pursuant to the Culp, Inc., Amended and Restated Equity Incentive Plan was filed as Exhibit 10.4 to the company's Form 10-Q dated December 8, 2023 (Commission File No. 001-12597), and is incorporated herein by reference.
10.9
Written description of Non-Employee Director Compensation was filed as Exhibit 10.2 to the company’s Form 10-Q dated December 8, 2023 (Commission File No. 001-12597), and incorporated herein by reference.
10.10+
Culp, Inc. Amended and Restated Equity Incentive Plan, filed as Appendix B to the company's 2023 Proxy Statement, filed on August 24, 2023 (Commission File No. 001-12597), and incorporated herein by reference.
10.11+
Culp, Inc. 2015 Equity Incentive Plan, filed as Annex A to the company's 2015 Proxy Statement, filed on August 12, 2015 (Commission File No. 001-12597), and incorporated herein by reference.
10.12+
Culp, Inc. Deferred Compensation Plan For Certain Key Employees Amendment No. 1, was filed as Exhibit 10.2 to the company’s Form 10-K for the year ended May 3, 2015, dated July 17, 2015, and incorporated herein by reference.
10.13+
Form of change in control and noncompetition agreement. This agreement was filed as Exhibit 10.3 to the company’s Form 10-Q dated December 12, 2007 (Commission File No. 001-12597) and incorporated herein by reference.
10.14+
Amended and Restated Deferred Compensation Plan for Certain Key Employees was filed as Exhibit 10.1 to the company’s Form 10-Q dated March 7, 2014, and is incorporated herein by reference.
10.15
Cooperation Agreement, effective as of June 17, 2024, between Culp, Inc. and certain investors specified therein was filed as Exhibit 10.1 to the company's Form 8-K dated June 17, 2024, and is incorporated herein by reference.
10.16+
Form of Director and Officer Indemnification Agreement. This agreement was filed as Exhibit 10.1 to the company's Form 8-K dated August 14, 2024, and is incorporated herein by reference.
10.17
Cooperation Agreement, effective as of June 6, 2025, between Culp, Inc. and certain investors specified therein was filed as Exhibit 10.1 to the company's Form 8-K dated June 10, 2025, and is incorporated herein by reference.
10.18+
Form of Annual Incentive Award Agreement. This agreement was filed as Exhibit 10.1 to the company's Form 10-Q dated December 6, 2024, and is incorporated herein by reference.
95
10.19+
Form of Restricted Stock Unit Award Agreement for restricted stock units granted to executive officers pursuant to the Amended and Restated Equity Incentive Plan. This agreement was filed as Exhibit 10.2 to the company's Form 10-Q dated December 6, 2024, and is incorporated herein by reference.
19*
Culp, Inc. Policy on Confidential Information and Trading of Securities
21*
List of subsidiaries of the company
23 *
Consent of Independent Registered Public Accounting Firm in connection with the registration statements of Culp, Inc. on Form S-8 (File Nos. 33-13310, 333-207195 and 333-274720).
24(a) *
Power of Attorney of John A. Baugh, dated July 4, 2025
24(b) *
Power of Attorney of William L. Tyson, dated July 7, 2025
24(c) *
Power of Attorney of Sharon A. Decker, dated July 3, 2025
24(d) *
Power of Attorney of Kimberly B. Gatling, dated July 6, 2025
24(e) *
Power of Attorney of Fred A. Jackson, dated July 3, 2025
24(f) *
Power of Attorney of Alexander B. Jones, dated July 3, 2025
24(g) *
Power of Attorney of Franklin N. Saxon, dated July 5, 2025
31(a)
Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31(b)
Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32(a)
Certification of Principal Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
32(b)
Certification of Principal Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
97
Culp, Inc. Dodd-Frank Clawback Policy, was filed as exhibit 97 to the company's Form 10-K filed July 12, 2024, and is incorporated herein by reference.
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).
* Items marked with an asterisk are filed herewith.
+ Management contract or compensatory plan required to be filed under Item 15(c) of this report and Item 601 of Regulation S-K of the Securities and Exchange Commission.
ITEM 16. FORM 10-K SUMMARY
None.
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SIGNA TURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, CULP, INC. has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 11 th day of July 2025.
CULP, INC.
By
/s/
Robert G. Culp, IV
Robert G. Culp, IV
Chief Executive Officer
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 11 th day of July 2025.
/s/
Robert G. Culp, IV _________________________________
Sharon A. Decker* __________________________________
Robert G. Culp, IV
Sharon A. Decker
Chief Executive Officer and Director
(Director)
(principal executive officer)
Franklin N. Saxon*
Kimberly B. Gatling *
Franklin N. Saxon
Kimberly B. Gatling
(Chairman of the Board of Directors)
(Director)
Fred A. Jackson*
Alexander B. Jones*
Fred A. Jackson
Alexander B. Jones
(Lead Independent Director)
(Director)
John A. Baugh *
William L. Tyson*
John A. Baugh
William L. Tyson
(Director)
(Director)
/s/
Ronald S. Chandler
/s/
Kenneth R. Bowling
Ronald S. Chandler
Kenneth R. Bowling
Vice President and Corporate Controller
Chief Financial Officer
(principal accounting officer)
(principal financial officer)
* By /s/ Kenneth R. Bowling
Kenneth R. Bowling, Attorney-in-Fact, pursuant to Powers of Attorney filed with the Securities and Exchange Commission.
97