CULP INC 10-Q

Item 1. Legal Proceedings There have not been any material changes to our legal proceedings during the three months ended February 1, 2026. Our legal proceedings are disclosed in the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on July 11, 2025, for the fiscal year ended April 27, 2025. Item 1A. Ri sk Factors Except as set forth below, there have not been any material changes to our risk factors during the three months ended February 1, 2026, from the risk factors disclosed in Item 1A “Risk Factors” of the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on July 11, 2025, for the fiscal year ended April 27, 2025. Our business may be adversely affected by increased tariffs or other changes in U.S. trade policy related to imported products. Many of our products are manufactured or sourced outside of the U.S. Since early 2025, the U.S. government has imposed tariffs on imports from various countries, including China, where a significant amount of our products is manufactured. Many of these tariffs were imposed pursuant to the International Emergency Economic Powers Act (IEEPA). In February 2026, the U.S. Supreme Court ruled these tariffs unlawful, but did not address potential refunds for tariffs paid under IEEPA. The U.S. government immediately imposed new global tariffs pursuant to different statutory authority. These tariff actions compelled us to raise prices on our products and, as a result, our sales and gross margins on certain products are likely to be impacted. Moreover, the current tariff and trade regulatory environment is unpredictable, making it difficult to for us, and for our customers, to manage enterprise cost structure and supply chain planning. Any tariffs that result in increased costs of imported products and materials could require us to further increase prices to our domestic customers. If we are unable to pass along these additional costs, our sales and gross margins may be adversely affected. Further, while a significant portion of our products produced in China are not sold directly into the U.S., and therefore may not be directly impacted by certain U.S. imposed tariffs, most of our products are sold to manufacturers for end use in the U.S. If our customers’ sales are adversely affected by tariffs, our sales may also be adversely impacted. As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” tariffs have had an adverse impact on our business, and may have a material adverse effect on our results of operations in the future. Following the U.S. Supreme Court’s decision finding tariffs under IEEPA to be unlawful, we filed a claim with U.S. Court of International Trade seeking a refund for the amounts we paid pursuant to IEEPA tariffs. However, the availability, timing, and amount of any related refunds associated with payments of these duties remain uncertain and subject to further legal, regulatory, and administrative action. We can offer no assurance as to when, or if, we will receive any payments with respect to these claims. In addition to tariffs, the U.S. government has considered, and is expected to continue to consider, other proposals for substantial changes to its trade and tax policies, which could include import restrictions, changes to or withdrawal from existing trade agreements, and border-adjustment taxes, among other possible measures. Material changes in these policies could increase our tax obligations, require us to source materials from different regions, or increase prices to customers, which could adversely affect sales. Any significant change in U.S. trade or tax policy related to imported products could have a material adverse effect on our business and financial results. II- 1