What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-07-15 compared with 2021-07-16 · 119 added, 119 removed, 359 unchanged (40% of the section changed)

8 unchanged sentences

and upholstery fabrics, including cut and sewn kits, primarily used in the production of upholstered furniture.

The company competes in a fashion-driven business, and we strive to differentiate ourselves by placing a sustained focus on product innovation and creativity.

The company competes in a business driven by fashion and product performance, and we strive to differentiate ourselves by placing a sustained focus on product innovation and creativity.

In addition, we place great emphasis on providing excellent and dependable service to our customers.

1 unchanged sentence

We believe Culp is the largest producer of mattress fabrics in North America and one of the largest marketers of upholstery fabrics for furniture in North America, measured by total sales.

Our continuing operations are classified into two operating segments — mattress fabrics and upholstery fabrics.

Our operations are classified into two operating segments — mattress fabrics and upholstery fabrics.

The mattress fabrics business markets primarily knitted and woven fabrics, as well as sewn covers made from those fabrics, which are used in the production of bedding products, including mattresses, foundations, and mattress sets.

4 unchanged sentences

Shanghai, China;

and, following our recent acquisition of the remaining fifty percent ownership interest in our existing unconsolidated joint venture, a wholly-owned mattress cover operation located in Ouanaminthe, Haiti.

and Ouanaminthe, Haiti.

We also source fabrics and cut and sewn kits from other manufacturers, located primarily in China, Vietnam, and Turkey, with substantially all of these products made specifically for Culp and created by Culp designers.

We also operate distribution centers in North Carolina, Canada, China, and Haiti to facilitate distribution of our fabric products, with additional distribution capabilities through strategic relationships in Vietnam.

In addition, we operate distribution centers in North Carolina, Canada, China, and Haiti to facilitate distribution of our fabric products, with additional distribution capabilities through strategic relationships in China and Vietnam.

Over the past decade, the portion of total company sales represented by fabrics produced outside of the U.S.

1 unchanged sentence

have decreased.

This trend is related primarily to the upholstery fabrics segment, where, following the closure of our manufacturing facility in Anderson, South Carolina, during the second quarter of fiscal 2019, substantially all of our sales now consist of fabrics produced in Asia.

This trend is related primarily to the upholstery fabrics segment, where substantially all of our sales now consist of fabrics produced in Asia.

The mattress fabrics business remains primarily based in North America.

1 unchanged sentence

The mattress fabrics segment had net sales of $152.2 million (52% of total net sales), and the upholstery fabrics segment had net sales of $142.6 million (48% of total net sales).

Sales increased significantly in our mattress fabrics business and our residential upholstery fabrics business during fiscal 2021 as compared to the prior year, which was materially affected by disruption from the COVID-19 pandemic.

This growth was driven primarily by the increased consumer focus on the at-home experience and overall comfort due to the pandemic, combined with our ability to meet this surge in demand and respond quickly to meet the needs of new and existing customers through our flexible, global platform.

Overall, Culp faced a difficult business environment during fiscal 2021, particularly with the ongoing disruption from the COVID-19 pandemic during the first quarter, as well as additional headwinds throughout the year relating to customer capacity limitations, primarily due to supply chain disruption for non-fabric components and labor shortages, as well as ongoing foreign currency fluctuations in China.

Despite these challenges, both the mattress fabrics segment and upholstery fabrics segment have continued to execute our product-driven strategy and focus on innovation and design creativity.

Our company’s diversified manufacturing and sourcing capabilities, stable supply chain, and focus on innovation have helped us successfully weather the initial pandemic-related downturn in our business, as well as the ongoing headwinds throughout fiscal 2021, to finish the year as a stronger company both operationally and financially.

We have also continued building upon strategic initiatives and structural changes that were implemented over the last

several years to consolidate and streamline operations, while adding capacity where necessary , including our investment in additional knit machines for our mattress fabrics business, our fourth-quarter acquisition of the remaining fifty percent ownership interest in our Haiti cut and sew operation, and our recently-commenced expansion of our Haiti operations to add a new facility dedicated to production of cut and sewn upholstery kits .

Our overall sales declined 1.6% during fiscal 2022, as compared to the prior year, with mattress fabric sales decreasing 3.5% and upholstery fabric sales increasing 0.4%.

This decline was driven primarily by the significant drop in sales for both businesses during the fourth quarter of fiscal 2022, which was mostly due to COVID-related shutdowns that affected our China operations, weakness in domestic mattress industry sales, and, to a lesser extent, a slowdown in new business for the residential home furnishings industry.

The decline in overall sales for the year was partially offset by certain pricing and freight surcharge actions that were implemented at differing times during the year.

Overall, Culp faced a difficult business environment during fiscal 2022.

Despite these challenges, our associates around the world continued to persevere and deliver exceptional services to our customers.

Both the mattress fabrics segment and upholstery fabrics segment have continued to execute our product-driven strategy, and our company’s global manufacturing and sourcing capabilities, flexible supply chain, and focus on innovation have helped us meet the evolving needs of our customers.

We have also continued to diversify our platform and expand our capacity with our new upholstery cut and sew operation in Haiti, which commenced operations during the third quarter of fiscal 2022.

In addition, we enhanced our focus on design creativity and innovation with the launch of our new innovation campus in High Point, North Carolina, during the first quarter of fiscal 2022.

Additional information about trends and developments in each of our business segments is provided in the “Segments” discussion below, as well as in our “Management’s Discussion and Analysis” in Part II, Section 7 of this report.

3 unchanged sentences

Due to government-mandated closure requirements near the end of March 2020, we shut down our facilities in Canada and Haiti for several weeks, and most of our customers, as well as retail stores in the United States and around the globe, were similarly shut down or operating at significantly reduced capacity.

In response to the COVID-19 pandemic, we took steps to help safeguard the health of our employees, customers, and the communities we serve, including implementing detailed cleaning and disinfecting processes at our facilities, instituting temperature checks, adhering to social distancing and mask protocols, suspending non-essential travel, restricting visitors, providing remote work opportunities where possible, and offering on-site vaccination clinics to our employees, their families, and the general public.

We have continued to monitor and update these procedures, in accordance with CDC recommendations and other local laws and regulatory authorities, throughout the pandemic.

During the fourth quarter of fiscal 2020, we also implemented several measures to preserve liquidity and reduce costs in response to the significant disruption and economic uncertainty, including:

Selling our majority ownership interest in eLuxury to increase liquidity and focus on our core mattress and upholstery fabrics business segments, while also maintaining a strong working relationship with eLuxury going forward through supply and royalty arrangements designed to preserve an additional sales channel for our core products;

Repurposing some of our operations to manufacture critical products for healthcare and other essential industries;

Amending our existing domestic revolving credit facility to increase the borrowing limit to $30 million, decrease the minimum liquidity level, and extend the expiration date to August 15, 2022;

Proactively drawing down a total of $31 million under our domestic and China credit facilities as a precautionary measure to increase financial flexibility;

Reducing operating costs by implementing temporary salary reductions, making workforce adjustments to align with demand, suspending merit pay increases, and eliminating cash compensation paid to our board of directors;

Postponing non-essential capital expenditures and aggressively reducing expenses and discretionary spending;

Working with our vendors and landlords to negotiate temporary terms;

Temporarily suspending our share repurchase program.

In response to the initial outbreak of the COVID-19 pandemic, we took steps to help safeguard the health of our employees, customers, and the communities we serve, including implementing detailed cleaning and disinfecting processes at our facilities, instituting temperature checks, adhering to social distancing and mask protocols, suspending non-essential travel, restricting visitors, providing remote work opportunities where possible, and offering on-site vaccination clinics to our employees, their families, and the general public.

We have continued to monitor and update these procedures, in accordance with Centers for Disease Control (“CDC”) recommendations and other local laws and regulatory authorities, throughout the pandemic.

During the fourth quarter of fiscal 2020, we also implemented several measures to preserve liquidity and reduce costs in response to the significant disruption and economic uncertainty, including making workforce adjustments to align with demand, implementing temporary salary reductions, eliminating the cash compensation paid to our board of directors, and proactively drawing down funds under our credit facilities to increase financial flexibility, among other measures.

During the first quarter of fiscal 2021, following a better-than-expected increase in demand as customers and retail stores began to reopen, we returned substantially all of our previously furloughed workers to meet this surge in demand.

We also repaid all outstanding borrowings we had previously drawn down under our credit facilities during the fourth quarter of fiscal 2020, and we ended temporary salary reductions by reinstating full base salaries for all employees and restoring the cash compensation paid to our board of directors.

We also announced a $4 million investment in additional knit machines to increase capacity for our mattress fabrics segment.

During the first quarter, our board of directors maintained our regular quarterly dividend by declaring a quarterly cash dividend of 10.5 cents per share.

During the second quarter of fiscal 2021, we expanded the capacity of our Haiti mattress cover operation with the completion of construction on a second building.

In addition, our board of directors declared a quarterly cash dividend of 11 cents per share, an increase of five percent, and this quarterly dividend rate was continued during the third and fourth quarters of fiscal 2021.

During the fourth quarter of fiscal 2021, we completed the acquisition of the remaining fifty percent ownership interest in our Haiti sewn mattress cover platform from our joint venture partner, allowing us to gain sole control of this near-shore operation and increase our flexibility and capacity to meet customer demand.

We also announced an additional expansion of our Haiti facilities to include a third building, expected to be available in the second quarter of fiscal 2022, that will be dedicated to producing cut and sewn upholstery kits primarily to support demand for an existing customer of the upholstery fabrics division.

Together, the actions taken during the fourth quarter of fiscal 2020 and beyond helped us mitigate the financial impact of lower industry demand and shutdowns as a result of the COVID-19 pandemic and ensure that we were well-positioned to meet the needs of our customers as retail stores reopened and consumer demand for residential home furnishings surged during fiscal 2021 .

We continue to monitor and actively manage the impact of the COVID-19 crisis on our operations, including pandemic-related constraints on customer capacity due to supply chain disruption for non-fabric components and labor shortages, as well as the availability and pricing of freight containers and raw material costs.

The ongoing duration of the disruption and the affect it will have on our financial operations in the near and long term remain unknown and depend on factors beyond our knowledge or control.

The need for any future actions in response to the COVID- 19 pandemic largely depends on the spread of the virus , including new variants, in the jurisdictions in which our business, our suppliers, and our customers operate, along with the adoption , effectiveness , and availability of vaccines ;

We also repaid all outstanding borrowings previously drawn under our credit facilities, ended temporary salary reductions, and restored the cash compensation paid to our board of directors.

For the remainder of fiscal 2021, our sales recovered from the COVID-19 disruption with strong growth, driven by increased demand in the bedding industry and the residential home furnishings industry, combined with our ability to service this surge in demand through our global platform.

We made several investments during the year that provided expanded capacity in our mattress fabrics business, including purchasing additional knit machines, completing construction of a second building for our Haiti sewn mattress cover operation, and acquiring the remaining fifty percent ownership interest in our Haiti sewn mattress cover platform from our joint venture partner.

We also announced an additional expansion of our Haiti facilities to include a third building that would produce cut and sewn upholstery kits, primarily to support demand for an existing customer of the upholstery fabrics segment.

Together, the actions taken during the fourth quarter of fiscal 2020 and beyond helped us mitigate the initial financial impact of lower industry demand and shutdowns as a result of the COVID-19 pandemic and ensure that we were well-positioned to meet the needs of our customers as retail stores reopened and consumer demand for residential home furnishings surged during fiscal 2021.

While the COVID-19 pandemic continued to spread throughout the world during fiscal 2021, we did not experience additional shutdowns of our operations, or any material shutdowns of the operations of our suppliers, during the remainder of the year, following the initial shutdowns from the fourth quarter of fiscal 2020.

However, during fiscal 2022, our upholstery fabrics business was materially affected by COVID-19 related shutdowns of our sourcing partners and customers in Vietnam throughout most of the second quarter, and our operations in China were shut down during the last month of the fourth quarter of fiscal 2022, which prevented us from shipping goods in both our residential upholstery fabrics business and our sewn mattress cover business.

In addition to these shutdowns, COVID-19 disruption affected our business during fiscal 2022, as well as the business of our customers and suppliers, due to employee absenteeism and labor shortages, pandemic-related effects on the availability and pricing of freight and raw material costs, and pandemic-related constraints on our customers’ capacity due to supply chain disruption for non-fabric components.

We continue to monitor and actively manage the impact of the COVID-19 crisis on our operations.

The ongoing duration of the disruption and the effect it will have on our financial operations in the near and long term remain unknown and depend on factors beyond our knowledge or control.

The need for any future actions in response to the COVID-19 pandemic largely depends on the spread of the virus, including new variants, in the jurisdictions in which our business, our suppliers, and our customers operate, along with the effectiveness and availability of vaccines;

the status of government restrictions, directives and guidelines;

7 unchanged sentences

was organized as a North Carolina corporation in 1972 and made its initial public offering in 1983.

Since 1997, our stock has been listed on the New York Stock Exchange and traded under the symbol “CFI” until July 13, 2017, at which time the Company’s ticker symbol changed to “CULP.” Our fiscal year is the 52- or 53-week period ending on the Sunday closest to April 30.

Since 1997, our stock has been listed on the New York Stock Exchange and traded under the symbol “CFI” until July 13, 2017, at which time the

Company’s ticker symbol changed to “CULP.” Our fiscal year is the 52- or 53-week period ending on the Sunday closest to April 30.

Our executive offices are located in High Point, North Carolina.

23 unchanged sentences

Jerome facilities, while jacquard (damask) fabric is produced solely at the St.

Jerome facility following consolidation of our weaving operations during the fourth quarter of fiscal 2019.

Jerome facility.

The majority of our finishing and inspection processes for mattress fabrics are conducted at the Stokesdale plant, while the St.

Jerome plant provides

additional capacity and a second location for these processes.

Both of these facilities offer finished goods distribution capabilities, and t he Stokesdale plant house s the division offices.

Culp Home Fashions had capital expenditures totaling $71 million during the past ten years, with especially high spending levels during fiscal 2015 through fiscal 2018.

These expenditures provided for increased knit machine capacity, faster and more efficient weaving machines, and the initial capital required for our sewn cover business, while also allowing us to maintain our leading-edge technology through modernization and expansion projects.

These capital expenditures also provided high technology finishing equipment for woven and knitted fabric and a much-improved U.S.

platform for warehousing and distribution, along with a new distribution facility in Canada.

Jerome plant provides additional capacity and a second location for these processes.

Both of these facilities offer finished goods distribution capabilities, and the Stokesdale plant houses the division offices.

Culp Home Fashions had capital expenditures totaling $69 million during the past ten years, with especially high spending levels from fiscal 2015 through fiscal 2018.

These expenditures provided for increased knit machine capacity, faster and more efficient weaving machines, and the capital required for commencement of our Haiti sewn mattress cover operation, while also allowing us to maintain our leading-edge technology through modernization and expansion projects.

These capital expenditures also provided high technology finishing equipment for woven and knitted fabric and an enhanced U.S.

platform for warehousing and distribution, along with a Canadian platform that now provides completely finished woven and knitted fabric.

Our sewn mattress cover operation, established during fiscal 2013, has a manufacturing plant in High Point, North Carolina.

4 unchanged sentences

As noted above, we also utilize our Culp China platform, operated by our upholstery fabrics division, to manufacture sewn mattress covers and to source additional sewn covers from third-party suppliers in Asia.

These three manufacturing locations in North Carolina, Haiti, and China give us an on-shore, near-shore, and off-shore supply chain strategy that allows us greater agility in meeting demand for mattress covers from bedding producers.

Fiscal 2018 marked the completion of several multi-year capital projects for the mattress fabrics business, including consolidating certain operations, expanding capacity, improving efficiency and customer service, and maintaining our flexible approach to fabric sourcing.

These three manufacturing locations in North Carolina, Haiti, and

China give us an on-shore, near-shore, and off-shore supply chain strategy that allow s us greater flexibility in meeting demand for mattress covers from bedding producers.

During the past five years, we completed several multi-year capital projects for the mattress fabrics business, including consolidating certain operations, expanding capacity, improving efficiency and customer service, and maintaining our flexible approach to fabric sourcing.

In fiscal 2019, we continued these initiatives by consolidating our weaving operations to one facility, our plant in Quebec, Canada, and expanding production of our sewn mattress covers in Haiti and China to meet customer demand in the growing boxed bedding market.

1 unchanged sentence

In fiscal 2020, we further enhanced our design and innovation platform by establishing a dedicated innovation team to develop and offer the latest technologies and forward-looking products, expanding our creative team to complement our innovation strategy, and releasing a new digital library, design simulations, and 3D image rendering capabilities to showcase our designs and marketing tools.

We were able to leverage these new technologies during the fourth quarter of fiscal 2020 and throughout fiscal 2021, in the face of COVID-19-related travel restrictions and cancelled tradeshows, to continue showcasing our products and support our customers through virtual design collaboration.

We were able to leverage these new technologies during the COVID-19 pandemic, in the face of travel restrictions and cancelled tradeshows, to continue showcasing our products and support our customers through virtual design collaboration.

In fiscal 2021, we invested in additional knit machines and other equipment to expand fabric capacity in North America.

We also enhanced our digital project management platform, which allows us to work with customers from concept ideation and 3D mapping to product life cycle management and final merchandising.

In fiscal 2022, we expanded our leading-edge technology at our Canadian manufacturing facility with the addition of a sectional warper and lamination line.

After eight consecutive years of growth, sales declined in fiscal 2019 and fiscal 2020.

7 unchanged sentences

This increase in sales was driven by the consumer focus on the home environment and overall comfort, combined with our ability to service this demand through our global platform.

We also benefitted from market share gains across a diversified group of new and existing customers, including further growth in our sewn mattress cover business.

Our fabric-to-cover model, as well as our on-shore, near-shore, and off-shore supply chain strategy, provided a preferred platform for our mattress cover customers.

Throughout fiscal 2021, the strength and flexibility of our global manufacturing and sourcing operations in the U.S., Canada, Haiti, Asia, and Turkey enabled us to support current demand and serve the needs of our fabric and cover customers.

In addition, beginning in the third quarter, we believe the domestic mattress industry and, in turn, our business, began to realize some benefits from the preliminary antidumping duties imposed in October 2020 by the U.S.

Department of Commerce on mattress imports from seven countries, and we are cautiously optimistic that this tailwind will continue in fiscal 2022.

Despite the challenging market conditions during fiscal 2019 and 2020, as well as the ongoing impact of COVID-19 during fiscal 2021, we believe our success over the longer term is due to our focus on product innovation and creative design s , service and delivery performance, and our flexible, global platform and long-term supplier relationships that allow us to meet changing customer demands.

For fiscal 2022, sales declined compared to the prior year primarily due to industry weakness in domestic mattress industry sales, especially during the fourth quarter, along with some disruption from COVID-related shutdowns.

This industry softness was driven by slowing retail demand, which we believe was mostly caused by inflationary pressures affecting consumer spending.

Despite the challenging macro-economic conditions during fiscal 2022, we maintained a continued focus on our product-driven strategy, with an emphasis on innovation, design creativity, quality, and personalized customer service.

The strength and flexibility of our global manufacturing and sourcing operations in the U.S., Canada, Haiti, Asia, and Turkey enabled us to support the evolving needs of our mattress fabric and cover customers throughout the year.

While we experienced lower demand in our mattress cover business, particularly during the second half of the year, we believe our on-shore, near-shore, and off-shore supply chain strategy, as well as our fabric-to-cover model, remains a preferred platform for sewn mattress cover customers.

We believe the success of our mattress fabrics segment over the long term is due to our focus on these foundational values and strategic initiatives that allow us to meet changing customer demands.

Upholstery Fabrics.

1 unchanged sentence

With the acquisition of Read Window Products at the end of fiscal 2018, this segment also markets window treatment products and installation services, including roller shades, drapery, hardware, and top-of-mattress soft goods, for customers in the hospitality and commercial industries.

Following the closure of our manufacturing facility in Anderson, South Carolina, during the second quarter of fiscal 2019, this segment currently operates two manufacturing facilities in Shanghai, China.

The upholstery fabrics segment currently operates two manufacturing facilities in Shanghai, China.

We market cut and sewn fabric kits produced in these locations, as well as a variety of upholstery fabrics and cut and sewn kits sourced from third party producers, mostly in China and Vietnam.

Following the closure of our South Carolina facility, sales of non-U.S.

produced upholstery accounted for substantially all of our upholstery fabric sales.

Our China facilities in Shanghai include production of cut and sewn kits made to specifications of furniture manufacturing customers using sourced fabrics, as well as design, finishing, warehousing, quality control, and inspection operations.

During the fourth quarter of fiscal 2021, we also commenced construction of a new facility in Haiti that will be dedicated to the production of cut and sewn fabric kits.

This new facility is expected to be completed during the second quarter of fiscal 2022 and will primarily support demand for an existing upholstery fabrics customer.

During the third quarter of fiscal 2022, we also commenced operation of a new facility in Haiti dedicated to the production of cut and sewn fabric kits, and we continued to ramp up production at this facility during the fourth quarter.

This facility primarily supports demand for an existing upholstery fabrics customer.

We continue to expand our marketing efforts to sell our upholstery fabrics products in countries other than the U.S., including the Chinese local market.

1 unchanged sentence

Our upholstery fabrics business has moved from one that relied on a large fixed capital base that is difficult to adjust to a more flexible and scalable marketer of upholstery fabrics that meets changing levels of customer demand and tastes.

At the same time, we have maintained control of the most important “value added” aspects of our business, such as design, finishing, quality control, and logistics.

At the same time, we have

maintained control of the most important “value added” aspects of our business, such as design, finishing, quality control, and logistics.

This strategic approach has allowed us to limit our investment of capital in fixed assets and control the costs of our products, while continuing to leverage our design and finishing expertise, industry knowledge, and important relationships.

After six consecutive years of sales growth, sales declined in fiscal 2016 and 2017, mainly as a result of a weaker demand environment for upholstered furniture, before increasing by 10% in fiscal 2018 and 3.5% in fiscal 2019.

However, sales declined in fiscal 2020 due to the severe disruption from the COVID-19 pandemic during the fourth quarter.

Prior to this disruption, we were experiencing a solid year of annual sales, despite the soft retail environment for residential furniture and ongoing issues surrounding international trade agreements and associated tariffs during the first half of the year.

In fiscal 2021, our sales recovered from the COVID-19 disruption with strong growth, driven by increased industry demand in our residential business, as well as the benefits of product innovation and opportunities with new and existing customers.

After increasing in the two prior years, sales declined in fiscal 2020 due to the severe disruption from the COVID-19 pandemic during the fourth quarter.

In fiscal 2021, our sales recovered with strong growth, driven by increased industry demand in our residential business, as well as the benefits of product innovation and opportunities with new and existing customers.

This growth was partially offset by lower sales for our hospitality business, which remained under pressure due to pandemic-related disruptions affecting the travel and leisure industries.

With the strong demand in our residential business, driven by an increased consumer focus on the home environment, our highly durable, stain resistant LiveSmart® performance fabrics, as well as our LiveSmart Evolve™ performance plus sustainability fabrics, remained popular with both existing and new residential furniture customers.

These product lines continued to experience growth amidst consumer desire for cleanability, ease of maintenance, and environmentally-conscious products.

We believe our success over the longer term is due largely to a business strategy that has included:

During fiscal 2022, sales increased slightly by 0.4%, reflecting generally solid demand for residential upholstery products for the first nine months of the year, offset by a significant drop in residential sales during the fourth quarter due to COVID-related shutdowns of our facilities in China throughout the month of April and, to a lesser extent, a slowdown in new business for the residential home furnishings industry during the fourth quarter.

The increase in net sales during fiscal 2022 also reflects the impact of certain pricing and freight surcharge actions that were implemented at varying time during the year.

Throughout fiscal 2022, we maintained our sustained focus on product innovation, and our highly durable, stain resistant LiveSmart® performance fabrics, as well as our LiveSmart Evolve® performance plus sustainability fabrics, remained popular with both existing and new residential furniture customers.

Our hospitality business continued to recover from pandemic-related impacts, with higher sales in our hospitality/contract fabric business and our Read business during the second half of the year.

We believe the success of our upholstery fabrics segment over the longer term is due largely to a business strategy that has included:

1) innovation in a low-cost environment, 2) speed-to-market execution, 3) consistent quality, 4) reliable service and lead times, and 5) increased recognition of and reliance on the Culp brand.

Our progress has been achieved through a unique business model that has enabled the upholstery fabrics segment to execute a strategy that we believe is clearly differentiated from our competitors.

In this way, we have maintained our ability to provide furniture manufacturers with products from every category of fabric for upholstered furniture and meet continually changing demand levels and consumer preferences.

In this way, we have maintained our ability to provide furniture manufacturers with products from nearly every category of fabric for upholstered furniture and meet continually changing demand levels and consumer preferences.

In recent years, we have implemented additional steps to grow net sales, including an emphasis on markets beyond residential furniture, such as the hospitality market.

6 unchanged sentences

The commercial furniture, fabrics, and window treatments market includes fabrics and window treatment products used in the hospitality industry (primarily hotels and motels);

fabrics used for upholstered office

seating and modular office systems sold primarily for use in offices and other institutional settings, as well as commercial textile wall coverings;

fabrics used for upholstered office seating and modular office systems sold primarily for use in offices and other institutional settings, as well as commercial textile wall coverings;

and window treatments for commercial application.

4 unchanged sentences

This is due in part to the fact that a majority of bedding industry sales are replacement purchases, which are less volatile than sales based on economic growth and new household formations.

During fiscal 2022, the bedding industry experienced weakness in domestic mattress industry sales, particularly during the second half of the year, due primarily to inflationary pressures affecting consumer spending, especially for mattress products in the low to mid-range price points.

These pressures are expected to continue affecting the bedding industry during fiscal 2023.

Until recently, the U.S.

2 unchanged sentences

Imports of bedding into the U.S.

had been increasing gradually in recent years, but this trend significantly accelerated in fiscal 2018 and 2019, especially for lower-priced bedding.

had been increasing gradually, but this trend significantly accelerated in fiscal 2018 and 2019, especially for lower-priced bedding.

China accounted for the largest share of the imported units during these years, but the level of mattress imports entering the U.S.

2 unchanged sentences

However, the level of mattress imports from other countries, including Vietnam, Cambodia, Indonesia, Thailand, and Turkey, among others, significantly increased during fiscal 2020 as imports from China declined.

The result of the increase in imports during this period, and continuing into fiscal 2021, has been a decline in sales for the major U.S.

bedding manufacturers, which has affected major suppliers to those manufacturers, including Culp.

As a result of the continued significant influx of low-priced imports that moved from China to other countries, anti-dumping duty petitions were filed with the U.S.

International Trade Commission (ITC) and U.S.

Department of Commerce in March of 2020 against seven countries, including Cambodia, Indonesia, Malaysia, Serbia, Thailand, Turkey, and Vietnam, for engaging in unfair trade practices relating to low-priced mattress imports.

A countervailing duty petition was also filed against mattresses imported from China.

In May of 2020, the ITC issued a preliminary determination finding a reasonable indication that the U.S.

mattress industry had been materially injured by unfairly traded mattress imports from these countries, and in October of 2020, the U.S.

Department of commerce imposed preliminary antidumping duties on mattress imports from these countries.

We believe the domestic mattress industry and, in turn, our business, began to realize some benefits from these duties during the third and fourth quarters of fiscal 2021, and we are cautiously optimistic that this tailwind will continue during fiscal 2022.

The result of the increase in imports during this period, and continuing into fiscal 2021, was a decline in sales for the major U.S.

bedding manufacturers, which affected major suppliers to those manufacturers, including Culp.

As a result of the continued significant influx of low-priced imports that moved from China to other countries, the U.S.

Department of Commerce imposed anti-dumping dut ies against seven countries , including Cambodia, Indonesia, Malaysia, Serbia, Thailand, Turkey, and Vietnam, during fiscal 2021 .

We believe the domestic mattress industry and, in turn, our business, began to realize some benefits from these duties during the second half of fiscal 2021 and continuing into fiscal 2022.

A key trend driving the bedding industry is the increased demand for roll-packed/compressed mattresses in both online and traditional sales channels, as consumer acceptance of boxed beds as a delivery mechanism continues to drive growth and increase market share for this product, increasing potential demand for sewn mattress covers.

6 unchanged sentences

Overview of Residential and Commercial Furniture Industry

Overall demand for our products depends upon consumer demand for furniture and bedding products, which is subject to variations in the general economy, including the current and evolving negative economic impact of the COVID-19 pandemic.

Overall demand for our products depends upon consumer demand for furniture and bedding products, which is subject to variations in the general economy, including current inflationary pressures affecting consumer spending, the continued economic impact of the COVID-19 pandemic, and other geopolitical events.

Because purchases of furniture and bedding products are discretionary purchases for most individuals and businesses, demand for these products may be more easily influenced by economic trends than demand for other products.

3 unchanged sentences

In general, sales of residential furniture are influenced significantly by the housing industry and by trends in home sales and household formations, while demand for commercial furniture generally reflects economic trends affecting businesses.

During fiscal 2021, disruption relating to the COVID-19 pandemic also affected sales trends, with the increased consumer focus on the home and travel restrictions shifting discretionary spending away from travel and leisure activities towards home furnishings and enhancing comfort within the home environment.

During fiscal 2021, disruption relating to the COVID-19 pandemic positively affected sales trends, with the increased consumer focus on the home and travel restrictions shifting discretionary spending away from travel and leisure activities towards home furnishings and enhancing comfort within the home environment.

This sales trend began to reverse during fiscal 2022, particularly during the second half of the year, as COVID-related travel and mask restrictions were lifted and consumers began to resume travel and leisure activities.

Inflationary pressures also began to affect consumer spending during the second half of fiscal 2022.

Together, these trends have caused a slowdown in new business for the residential home furnishings industry that is expected to continue during fiscal 2023.

The sourcing of components and fully assembled furniture from overseas continues to play a major role in the furniture industry.

8 unchanged sentences

and China, including the imposition of tariffs during fiscal 2019 and the possibility for additional tariffs on China imports, some of our customers began altering their supply chains away from China in late fiscal 2019.

While this trend continued in fiscal 2020 and fiscal 2021, we believe Asia remains a preferred location for sourcing of components, including fabric.

While this trend continued in fiscal 2020, fiscal 2021, and fiscal 2022, we believe Asia remains a preferred location for sourcing of components, including fabric.

As described above, our products include mattress fabrics and upholstery fabrics, which are our two identified operating segments.

43 unchanged sentences

Jerome, Quebec, Canada, and one in Ouanaminthe, Haiti.

Over the past ten fiscal years, we made capital expenditures of approximately $71 million to consolidate our production facilities and to modernize both knit and weaving equipment, enhance and provide knit and woven finishing capabilities, and expand capacity.

Over the past ten fiscal years, we made capital expenditures of approximately $69 million to consolidate our production facilities and to modernize both knit and weaving equipment, enhance and

provide knit and woven finishing capabilities, and expand capacity.

The result has been an increase in manufacturing efficiency and reductions in operating costs, as well as expanded product offerings and capacity.

17 unchanged sentences

The upholstery fabrics segment currently operates two manufacturing facilities in China.

During the second quarter of fiscal 2019, we closed our U.S.

plant located in Anderson, South Carolina, which mainly produced velvet upholstery fabrics with some production of certain decorative fabrics.

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

Additionally, we fabricate a variety of window treatments, using mostly customer-supplied fabrics and materials, at our Read Window Products facility in Knoxville, Tennessee.

2 unchanged sentences

In addition, the Shanghai operations include facilities where sourced fabric is cut and sewn to provide kits that are designed to be placed on specific furniture frames designated by our customers.

During the fourth quarter of fiscal 2021, we also commenced construction of a new facility in Haiti that will be dedicated to the production of cut and sewn upholstery fabric kits.

This new facility is expected to be completed during the second quarter of fiscal 2022 and will primarily support demand for an existing upholstery fabrics customer.

Our new upholstery fabrics operation in Haiti primarily supports demand for an existing upholstery fabrics customer.

This facility uses sourced fabrics to produce cut and sewn kits designed to be placed on specific furniture frames designated by the customer.

A large portion of our upholstery fabric products, as well as certain elements of our production processes, are being sourced from outside suppliers.

10 unchanged sentences

The process of developing new designs and innovative finishes involves maintaining an awareness of broad fashion and color trends, as well as wellness and other consumer trends, both in the United States and internationally.

In order to enhance our design and innovation creativity, we are launching a new innovation campus in downtown High Point, North Carolina, during fiscal 2022 that will advance the synergies between our mattress fabrics and upholstery fabrics segments.

This space will combine our design, innovation, and sales teams for both businesses into a shared location to support collaboration across divisions and pull our top creative talent together to develop new products and technologies based on the latest consumer trends.

In order to enhance our design and innovation creativity and advance the synergies between our mattress fabrics and upholstery fabrics segments , we launch ed a new innovation campus in downtown High Point, North Carolina, during fiscal 2022 .

This space combin e s our design, innovation, and sales teams for both businesses into a shared location to support collaboration across divisions and pull our top creative talent together to develop new products and technologies based on the latest consumer trends.

Mattress Fabrics Segment

13 unchanged sentences

Our design staff travels regularly to international trade and design shows to maintain familiarity with current design and fashion trends.

The team searches continually for new ideas and for the best sources of raw materials, yarns, and fabrics, utilizing a supply network located mostly

The team searches continually for new ideas and for the best sources of raw materials, yarns, and fabrics, utilizing a supply network located mostly in China.

Using these design elements, they develop product offerings using ideas and materials that take both fashion trends and cost considerations into account to offer products designed to meet the needs of furniture manufacturers and ultimately the desires of consumers.

5 unchanged sentences

Upholstery Fabrics Segment

Most of our upholstery fabrics are marketed on a “make to order” basis and are shipped directly from our distribution facilities in Burlington, North Carolina, and Shanghai, China, and we have additional distribution capabilities in Vietnam.

In addition to “make to order” distribution, an inventory of a limited number of fabric patterns is held at our distribution facilities in Burlington and Shanghai from which our customers can obtain quick delivery of sourced fabrics through a program known as “Culp Express.” We also have distribution capabilities for our “Culp Express” program to local customers in Canada through our mattress fabrics distribution facility in Quebec, Canada.

A majority of our upholstery fabrics are marketed on a “make to order” basis and are shipped directly from our distribution facilities in Burlington, North Carolina, and Shanghai, China.

We also have distribution capabilities in Vietnam.

In addition to “make to order” distribution, an inventory of select fabric patterns is held at our distribution facilities in Burlington and Shanghai from which our customers can obtain quick delivery of sourced fabrics through a program known as “Culp Express.” We also have distribution capabilities for our “Culp Express” program to local customers in Canada through our mattress fabrics distribution facility in Quebec, Canada.

Window treatment products sold through our Read Window Products business are done on a “job order” basis, with manufactured products shipped directly from our manufacturing facility in Knoxville, Tennessee to the job installation site.

2 unchanged sentences

Raw materials account for approximately 60%-70% of mattress fabric production costs.

The mattress fabrics segment purchases primarily synthetic yarns (polyester, polypropylene, and rayon), certain greige (unfinished) goods, latex adhesives, laminates, dyes, and other chemicals.

The mattress fabrics segment purchases primarily synthetic yarns (polyester, polypropylene, and rayon), certain greige (unfinished) goods, glue adhesives, laminates, dyes, and other chemicals.

Most of these materials are available from several suppliers, and prices fluctuate based on supply and demand, the general rate of inflation, and particularly on the price of petrochemical products.

The mattress fabrics segment has generally not had significant difficulty in obtaining raw materials .

During fiscal 2022, some of our outside suppliers faced extended delays and increased costs for raw materials, as well as COVID-19-related disruption that affected production.

Our use of outside suppliers to source materials to produce mattress fabric and sewn covers makes the mattress fabrics segment vulnerable to price increases, delays, or production interruptions caused by problems within businesses that we do not control.

Upholstery Fabrics Segment

The upholstery fabrics segment generally does not purchase raw materials directly, but raw materials, particularly synthetic yarns (polyester, acrylic, rayon, and polypropylene) and dyes, are important to our suppliers of finished and unfinished fabrics.

Raw materials account for approximately 60%-70% of upholstery fabric manufacturing costs for products the company manufactures.

Prior to closure of the Anderson, South Carolina, facility during the second quarter of fiscal 2019, this segment purchased synthetic yarns (polyester, acrylic, rayon, and polypropylene), latex adhesives, dyes, and other chemicals from various suppliers.

Following the closure, we ceased purchases of synthetic yarns and dyes, although these raw materials remain important to our suppliers of finished and unfinished fabrics.

Increased reliance by both our U.S.

3 unchanged sentences

For this reason, our raw material costs can be sensitive to changes in prices for petrochemicals and the underlying price of oil.

From fiscal 2015 and continuing into fiscal 2018, our profitability was aided by lower raw material prices due to lower oil prices, among other factors.

Later in fiscal 2018, we began to experience higher raw material prices.

We had a significant escalation of polyester prices due to a global shortage of certain components during the second and third quarters of fiscal 2019, after which these prices stabilized and returned to pre-escalation levels.

Our raw material costs were lower in fiscal 2020 compared to the prior year.

During fiscal 2021, our raw material costs were mostly flat or slightly down during the first three quarters, as compared to the prior year, but began to escalate during the fourth quarter primarily due to rising oil prices, a higher demand environment, and labor shortages.

We expect these pressures will continue in the short term, resulting in higher raw material prices during fiscal 2022, but prices may gradually flatten as market conditions normalize.

During fiscal 2021, our raw material costs were mostly flat or slightly down during the first three quarters, as compared to the prior year, but they began to escalate during the fourth quarter primarily due to rising oil prices, a higher demand environment, and labor shortages.

These pressures continued during fiscal 2022, with further increases in raw material costs, particularly during the second half of the year, due to the continued rise in oil prices and a higher demand environment.

Overall, demand for our products generally depends upon consumer demand for furniture and bedding products, which reflects sensitivity to overall economic conditions, including consumer confidence, unemployment rates, and housing market conditions.

During the fourth quarter of fiscal 2020 and continuing into the first quarter of fiscal 2021, the bedding and furniture industries, including manufacturers and retail stores, were adversely affected by closures/restricted operations, supply chain disruption, and economic uncertainty due to the COVID-19 global pandemic.

Additionally, disruption relating to the COVID-19 pandemic also affected sales trends in fiscal 2021, with the increased consumer focus on the home and travel restrictions shifting discretionary spending away from travel and leisure activities towards home furnishings and enhancing overall comfort within the home environment.

For the remainder of fiscal 2021, disruption relating to the COVID-19 pandemic positively affected sales trends, with the increased consumer focus on the home and travel restrictions shifting discretionary spending away from travel and leisure activities towards home furnishings and enhancing overall comfort within the home environment.

However, this sales trend began to reverse during fiscal 2022, particularly during the second half of the year, as COVID-related travel and mask restrictions were lifted and consumers began to resume travel and leisure activities.

Inflationary pressures also affected consumer spending during the second half of fiscal 2022.

These impacts are not reflective of any seasonal trends in the bedding or furniture industries and are not an indicator that seasonal trends are changing for our business segments.

1 unchanged sentence

The mattress fabrics business and the bedding industry in general are slightly seasonal, with sales being the highest in early spring and late summer, with another peak in mid-winter.

However, these seasonality trends relate more to in-store retail sales, whereas the growth in online sales, which began prior to the COVID-19 pandemic and increased during the pandemic, appear to be somewhat less seasonal.

Upholstery Fabrics Segment

5 unchanged sentences

holiday periods, often causing sales to be higher in advance of these Chinese holiday periods and sometimes lower during or immediately following the same periods.

Competition for our products is high and is based primarily on price, design, quality, timing of delivery, and service.

Competition for our products is high and is based primarily on price, design, quality, product performance, timing of delivery, and service.

Mattress Fabrics Segment

The mattress fabrics market is concentrated in a few relatively large suppliers, as well as some niche producers focusing mainly on knitted products.

We believe our principal mattress fabric and mattress cover competitors are BekaertDeslee Textiles (fabric and mattress cover producer), Global Textile Alliance (fabric and mattress cover producer), and several smaller companies producing knitted fabrics, sewn covers, and other fabric.

In addition, our bedding customers continue to face increasing competition from imports of finished beds, which indirectly compete with our mattress fabrics by replacing potential sales of our products to those customers.

6 unchanged sentences

Environmental and Other Regulations

We are subject to various federal and state laws and regulations, including the Occupational Safety and Health Act (“OSHA”) and federal and state environmental laws, as well as similar laws governing our manufacturing facilities in China and Canada.

We periodically review our compliance with these laws and regulations in an attempt to minimize the risk of violations.

18 unchanged sentences

As of the end of fiscal 2022, we employed 1,582 people, an increase of 152 employees as compared to the end of the prior fiscal year.

The mattress fabrics segments employed 993 people at fiscal year-end, an increase of 46 employees, while the upholstery segment employed 401 people, a decrease of 18 employees from the prior year.

The decrease in the number of employees in the upholstery fabrics segment in fiscal 2021, as compared to the prior year, was associated with the continued transition of some of our China cut and sew production to our strategic supplier in Vietnam.

The mattress fabrics segments employed 945 people at fiscal year-end, a decrease of 48 employees, while the upholstery segment employed 603 people, an increase of 202 employees from the prior year.

The increase in the number of employees in the upholstery fabrics segment in fiscal 2022, as compared to the prior year, was associated with opening of our new upholstery cut and sew facility in Haiti.

The remaining employees comprise the company’s shared services functions.

10 unchanged sentences

We strive to maintain a welcoming and inclusive workplace.

Discrimination on the basis of race, ethnicity, sex, age, religion, national origin, sexual orientation, genetic information, disability, veteran status, or other status protected by law, as well as sexual harassment or harassment of any kind, are not tolerated in our workplaces.

Discrimination on the basis of race, ethnicity, sex, age, religion, national origin, sexual orientation, gender, gender identity, genetic information, disability, veteran status, or other status protected by law, as well as sexual harassment or harassment of any kind, are not tolerated in our workplaces.

Employees have multiple avenues available to report inappropriate behavior, including a dedicated “HR Connection” phone line.

2 unchanged sentences

Along with our mission statement and values, we act in accordance with our Code of Business Conduct and Ethics (“Code of Conduct”), which sets forth expectations and guidance for employees to make appropriate decisions.

Our Code of Conduct covers topics such as conflicts of interest, fair dealing, protecting confidential information, appropriate use of company assets, compliance with laws (including, without limitation, anti-corruption and anti-trust laws), workplace safety and environmental stewardship, and reporting Code of Conduct violations.

Our Code of Conduct covers topics such as conflicts of interest, fair dealing, protecting confidential information, appropriate use of company assets, compliance with laws (including, without limitation, anti-corruption and antitrust laws), workplace safety and environmental stewardship, and reporting Code of Conduct violations.

The Code of Conduct reflects our commitment to operating in a fair, honest, ethical, and responsible manner, and also provides direction for reporting complaints in the event of alleged violations of our policies.

Our executive officers and supervisors maintain “open door” policies and any form of retaliation is strictly prohibited.

We also conduct regular training programs with our management and employee leaders to inform and refresh their knowledge about company policies and procedures pertaining to employment and human capital.

Employee Recruitment, Development, Engagement, and Wellness

2 unchanged sentences

We believe these efforts support all of our personnel in the workplace and elsewhere in their lives, which in turn aids in our employee satisfaction and retention.

Examples include:

The Culp-grow program, providing employees with skills assessment and education assistance, such as GED, ESOL, and computer literacy programs

Employee participation in community outreach programs, such as a recent lunch delivery program to healthcare workers during the Covid-19 pandemic and a clothing drive and collection of other critical supplies for our neighbors in Haiti

Monthly wellness sessions on various health-related topics

For example, the “CULPgrow” program was launched in 2021 to provide employees with skills assessment and education assistance, such as GED, ESOL (English to Speakers of Other Languages), and computer literacy programs.

The purpose of CULPgrow is to provide a workplace where every employee has the key resources they need to grow, develop, and reach their career goals.

The program focuses on identifying the skills and goals of each employee, as well as ways the company can invest in their future and provide tools and resources that support their career advancement.

It also provides resources such as financial educational assistance, as well as mentorship opportunities where employees can be matched with a company mentor and guided through pathways for success within the company.

Additionally, in fiscal 2022, the company held its first company-wide global giving initiative, with a program called “Share the Love.” The program involved employees in each of our geographic locations choosing a charitable endeavor to support, based on their knowledge of local cultural considerations and areas of need.

For example, our U.S.

and Canadian locations held food drives for donations to local food banks, while Culp China’s facilities contributed to help cancer patients.

Employees in Haiti made blankets in-house using Culp fabric and then donated them to a local orphanage and the local fire department.

Other examples of employee engagement initiatives include:

Monthly wellness sessions on various health-related topics , including a week of programs devoted to mental health during fiscal 2022

Meetings and video chats with senior management

7 unchanged sentences

Early in the COVID-19 pandemic, comprehensive protocols were developed and followed to allow our manufacturing plants to reopen safely after mandatory shutdowns.

Part of our manufacturing capacity was retooled and adapted to produce personal protective equipment (PPE) such as face masks and other medical supplies.

When COVID-19 vaccines became available, we hosted vaccination clinics at several of our manufacturing facilities, providing access to vaccines not only for our employees, but also for their families and members of the local communities.

Additional safety and health programs are planned for the future.

Customers and Sales

Mattress Fabrics Segment

Major customers for our mattress fabrics include the leading bedding manufacturers:

Serta-Simmons Bedding (SSB), Tempur + Sealy International (TSI), Nectar, Casper, and Corsicana.

Major customers for our mattress fabrics include leading bedding manufacturers such as Serta-Simmons Bedding (SSB), Tempur + Sealy International (TSI), Casper, Corsicana, Nectar, and Ashley Furniture.

Our largest customer in the mattress fabrics segment is Serta Simmons Holdings, LLC, accounting for approximately 11% of the company’s overall sales in fiscal 2022.

2 unchanged sentences

Upholstery Fabrics Segment

Our major customers for upholstery fabrics are leading manufacturers of upholstered furniture, including Ashley, Flexsteel, Franklin, Fusion, Kuka, La-Z-Boy (La-Z-Boy Residential and England), and Southern Motion.

Major customers for the company’s fabrics for commercial furniture include HNI Corporation and Wyndham Destinations.

Our major customers for upholstery fabrics are leading manufacturers of upholstered furniture, including Ashley, Flexsteel, Kuka, La-Z-Boy (La-Z-Boy Residential and England), Southern Furniture Industries (Fusion and Southern Motion), Sudair, and Violino.

Major customers for the company’s fabrics for commercial furniture include HNI Corporation and Travel + Lesiure Co.

(f/k/a Wyndham Destinations).

Our largest customer in the upholstery fabrics segment is La-Z-Boy Incorporated, which accounted for approximately 13% of the company’s consolidated sales in fiscal 2022.

16 unchanged sentences

On May 1, 2022, the portion of the upholstery fabric backlog with confirmed shipping dates prior to June 6, 2022, was $15.7 million, compared with $17.2 million as of the end of fiscal 2021 (for confirmed shipping dates prior to June 7, 2021).

Due to the disruption relating to the COVID-19 pandemic during the fourth quarter of fiscal 2020, many customers delayed shipments that were included in the backlog for the fiscal 2020 year, but there were only minimal cancellations of orders.

Intellectual Property

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business