UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended April 28, 2024

Commission File No. 1-12597

CULP, INC.

(Exact name of registrant as specified in its charter)

 

NORTH CAROLINA (State or other jurisdiction of incorporation or other organization)	56-1001967 (I.R.S. Employer Identification No.)
1823 Eastchester Drive, High Point, North Carolina (Address of principal executive offices)	27265 (zip code)

 

(336) 889-5161

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class	Trading Symbol(s)	Name of Each Exchange On Which Registered
Common Stock, par value $.05/ Share	CULP	New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. YES ☐ NO ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to the filing requirements for at least the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer	☐		Accelerated Filer	☐	Non-Accelerated Filer	☒
Smaller Reporting Company	☒		Emerging Growth Company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

As of July 10, 2024, 12,469,903 shares of common stock were outstanding. As of October 29, 2023, the aggregate market value of the voting stock held by non-affiliates of the registrant on that date was $64,332,059 based on the closing sales price of such stock as quoted on the New York Stock Exchange (NYSE), assuming, for purposes of this report, that all executive officers and directors of the registrant are affiliates.

 

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CULP, INC.

FORM 10-K REPORT

TABLE OF CONTENTS

 

Item No.			Page
		PART I
1.		Business	2
		Overview
		General Information	2
		Segments	3
		Overview of Industry and Markets	4
		Overview of Bedding Industry	5
		Overview of Residential, Commercial, and Hospitality Furnishing Industries	5
		Products	6
		Manufacturing and Sourcing	7
		Product Design and Innovation	8
		Distribution	9
		Sources and Availability of Raw Materials	9
		Seasonality	9
		Competition	10
		Environmental and Other Regulations	10
		Human Capital	11
		Customers and Sales	12
		Net Sales by Geographic Area	13
		Backlog	13
		Intellectual Property	13
1A.		Risk Factors	14
1B.		Unresolved Staff Comments	21
1C.		Cybersecurity	21
2.		Properties	23
3.		Legal Proceedings	24
4.		Mine Safety Disclosure	24
		PART II
5.		Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	25
6.		Reserved	27
7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
7A.		Quantitative and Qualitative Disclosures about Market Risk	43
8.		Consolidated Financial Statements and Supplementary Data	44
9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	84
9A.		Controls and Procedures	84
9B.		Other Information	84
9C.		Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	84

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		PART III
10.		Directors, Executive Officers, and Corporate Governance	85
11.		Executive Compensation	85
12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	85
13.		Certain Relationships, Related Transactions, and Director Independence	86
14.		Principal Accountant Fees and Services	86
		PART IV
15.		Exhibits and Financial Statement Schedules	87
		Documents Filed as Part of this Report	87
		Exhibits	88
		Financial Statement Schedules	87
16.		Form 10-K Summary	89
		Signatures	90

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

Parts I and II of this report contain “forward-looking statements” within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934). Such statements are inherently subject to risks and uncertainties that may cause actual events and results to differ materially from such statements. Further, forward-looking statements are intended to speak only as of the date on which they are made, and we disclaim any duty to update or alter such statements to reflect any changes in management’s expectations or any change in the assumptions or circumstances on which such statements are based, whether due to new information, future events, or otherwise. Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often but not always characterized by qualifying words such as “expect,” “believe,” “will,” “may,” “should,” “could,” “potential,” “continue,” “target,” “predict”, “seek,” “anticipate,” “estimate,” “intend,” “plan,” “project,” and their derivatives, and include but are not limited to statements about expectations, projections, or trends for our future operations, strategic initiatives and plans, restructuring actions, production levels, new project launches, sales, profit margins, profitability, operating (loss) income, capital expenditures, working capital levels, cost savings (including, without limitation, anticipated cost savings from restructuring actions), income taxes, SG&A or other expenses, pre-tax (loss) income, earnings, cash flow, and other performance or liquidity measures, as well as any statements regarding dividends, share repurchases, liquidity, use of cash and cash requirements, borrowing capacity, investments, potential acquisitions, restructuring and restructuring-related charges, expenses, and/or credits, future economic or industry trends, public health epidemics, or future developments. There can be no assurance that we will realize these expectations or meet our guidance, or that these beliefs will prove correct.

Factors that could influence the matters discussed in such statements include the level of housing starts and sales of existing homes, consumer confidence, trends in disposable income, and general economic conditions. Decreases in these economic indicators could have a negative effect on our business and prospects. Likewise, increases in interest rates, particularly home mortgage rates, and increases in consumer debt or the general rate of inflation, could affect us adversely. The future performance of our business depends in part on our success in conducting and finalizing acquisition negotiations and integrating acquired businesses into our existing operations. Changes in consumer tastes or preferences toward products not produced by us could erode demand for our products. Changes in tariffs or trade policy, including changes in U.S. trade enforcement priorities, or changes in the value of the U.S. dollar versus other currencies, could affect our financial results because a significant portion of our operations are located outside the United States. Strengthening of the U.S. dollar against other currencies could make our products less competitive on the basis of price in markets outside the United States, and strengthening of currencies in Canada and China can have a negative impact on our sales of products produced in those places. In addition, because our foreign operations use the U.S. dollar as their functional currency, changes in the exchange rate between the local currency of those operations and the U.S dollar can affect our reported profits from those foreign operations. Also, economic or political instability in international areas could affect our operations or sources of goods in those areas, as well as demand for our products in international markets. The impact of public health epidemics on employees, customers, suppliers, and the global economy, such as the recent coronavirus pandemic, could also adversely affect our operations and financial performance. In addition, the impact of potential asset impairments, including impairments of property, plant, and equipment, inventory, or intangible assets, as well as the impact of valuation allowances applied against our net deferred income tax assets, could affect our financial results. Increases in freight costs, labor costs, and raw material prices, including increases in market prices for petrochemical products, can also significantly affect the prices we pay for shipping, labor, and raw materials, respectively, and in turn, increase our operating costs and decrease our profitability. Also, our success in diversifying our supply chain with reliable partners to effectively service our global platform could affect our operations and adversely affect our financial results. Finally, the future performance of our business also depends on our ability to successfully restructure our mattress fabric operations and return the segment to profitability. Further information about these factors, as well as other factors that could affect our future operations or financial results and the matters discussed in forward-looking statements, is included in Item 1A “Risk Factors” of this annual report on Form 10-K.

Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this Annual Report on Form 10-K as anticipated, believed, estimated, expected, intended, planned or projected. The forward-looking statements included in this Annual Report on Form 10-K are made only as of the date of this report. Unless required by United States federal securities laws, we neither intend nor assume any obligation to update these forward-looking statements for any reason after the date of this Annual Report on Form 10-K to conform these statements to actual results or to changes in our expectations. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations or financial results.

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PART 1

ITEM 1. BUSINESS

As used in this document, the terms “Culp,” the “company,” “we,” “our,” and “us” refer to Culp, Inc. and its consolidated subsidiaries (unless the context indicates another meaning). The term “common stock” means the common stock of Culp, Inc., par value $.05 per share. The terms “Read Window Products” and “Read” refer to our wholly-owned subsidiary, Read Window Products, LLC.

Overview

Culp is one of the largest marketers of mattress fabrics for bedding and upholstery fabrics for residential, commercial, and hospitality furniture in North America. The company markets a variety of fabrics to its global customer base of leading bedding and furniture companies, including fabrics produced at Culp's manufacturing facilities and fabrics sourced through other suppliers. The company competes in a business driven by fashion and product performance, and we strive to differentiate ourselves by placing a sustained focus on creativity and product innovation. In addition, we place great emphasis on providing excellent and dependable service to our customers. Our focused efforts to protect our financial strength have allowed us to maintain our position as a financially stable and trusted supplier of innovative fabrics to bedding and furniture manufacturers.

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. The upholstery fabrics business markets a variety of fabric products that are used in the production of residential and commercial upholstered furniture, including sofas, recliners, chairs, loveseats, sectionals, sofa-beds, and seating for offices, healthcare facilities, and other institutional uses, as well as fabric products that are used in the production of upholstered furniture for the hospitality industry, including seating for restaurants, hotels, and theaters. The upholstery fabrics business also markets window treatment products and installation services for customers in the hospitality and commercial industries.

Culp markets a variety of fabrics and other products in different categories to a global customer base, including fabrics produced at our manufacturing facilities and fabrics produced by other suppliers. In fiscal 2024, we had active production facilities located in North Carolina; Tennessee; Quebec, Canada; Shanghai, China; and Ouanaminthe, Haiti. Culp also sources 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.

In May 2024, Culp announced a restructuring plan (the “Fiscal 2025 restructuring”), primarily focused on its mattress fabrics segment, in which Culp will consolidate certain of its operations. Under this plan, Culp is engaging in a phased wind-down and closure of its manufacturing plant in Quebec, Canada, moving a portion of this plant's knitting operations to its manufacturing facility in Stokesdale, North Carolina, and transitioning this plant's weaving operations to a strategic sourcing model. In addition, Culp is consolidating its sewn mattress cover operation in Haiti, reducing the expenses at that location. It is also rationalizing the company’s internal upholstery fabrics finishing operation in China to align with current demand and further leverage strategic supply relationships. See “—Fiscal 2025 Restructuring” below for further details regarding the restructuring.

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.

General Information

Culp, Inc. 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 trades under ticker symbol “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.

Culp maintains a corporate website at www.culp.com. We will make this annual report and our other annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports available free of charge on our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”). Copies of any materials we file or furnish with the SEC can also be obtained free of charge through the SEC’s website at www.sec.gov. The information included on our website is not incorporated by reference into this annual report or any other reports we file with, or furnish to, the SEC.

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Fiscal 2025 Restructuring

 

On May 1, 2024 (the company's fiscal 2025 year), Culp announced the Fiscal 2025 restructuring, which was designed to reduce costs, improve asset utilization, and drive performance and profitable growth. The plan, which is being implemented primarily in the company’s mattress fabrics segment and, to a lesser extent, in its upholstery fabrics segment, includes the following strategic actions:

 

The implementation of these restructuring actions began in May 2024. The restructuring actions are expected to be mostly completed by the end calendar year 2024. The company expects to incur restructuring and restructuring-related costs and charges of approximately $8.0 million, of which $2.5 million are anticipated to be incurred in the first half of fiscal 2025, and the remainder are expected to be incurred over the course of fiscal 2025. This includes approximately $2.5 million in cash costs, the majority of which are anticipated to be incurred in the first half of fiscal 2025. The company expects to fund these cash costs with the sale of manufacturing equipment. For further information about the Fiscal 2025 restructuring, see Note 8 of the consolidated financial statements.

Segments

Our operations are classified into two business segments: mattress fabrics and upholstery fabrics. The following table sets forth certain information for each of our segments.

 

		Sales by Fiscal Year ($ in Millions) and Percentage of Total Company Sales
Segment		Fiscal 2024								Fiscal 2023								Fiscal 2022
Mattress Fabrics		$	116.4				52	%		$	111.0				47	%		$	152.2				52	%
Upholstery Fabrics
Non-U.S.-Produced			98.4				44	%			114.5				49	%			133.2				45	%
U.S.-Produced			10.5				4	%			9.4				4	%			9.4				3	%
Total Upholstery			108.9				48	%			123.9				53	%			142.6				48	%
Total company		$	225.3				100	%		$	234.9				100	%		$	294.8				100	%

 

Additional financial information about our operating segments can be found in Note 17 of the consolidated financial statements included in Item 8 of this report.

Mattress Fabrics. The mattress fabrics segment, also known as Culp Home Fashions, manufactures and markets mattress fabrics and sewn mattress covers to bedding manufacturers. These products include woven jacquard fabrics, knitted fabrics, and some converted fabrics. Culp Home Fashions has fabric manufacturing facilities located in Stokesdale, North Carolina, and St. Jerome, Quebec, Canada. As part of the Fiscal 2025 restructuring, Culp is relocating some of its knitting and finishing operations from its Quebec, Canada facility to Stokesdale, North Carolina, and transitioning its woven jacquard fabric operations to a strategic sourcing model. See “—Manufacturing and Sourcing—Mattress Fabrics Segment,” below, for information on our mattress fabrics manufacturing.

During fiscal 2023, we completed a restructuring and rationalization of our U.S.-based cut and sewn cover platform, moving our research and development ("R&D") and prototyping capabilities from our location in High Point, North Carolina, to our owned facility in Stokesdale, North Carolina. The result of this move was the discontinuation of our higher-cost on shore production capabilities, with the closure of two leased facilities in High Point during the third quarter of fiscal 2023. This platform adjustment has allowed us to generate cost savings by utilizing our lower-cost mattress cover production and sourcing capabilities in Haiti and Asia.

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Also, as part of the Fiscal 2025 restructuring, we are consolidating our Haiti sewn mattress cover operation into one building and reducing operating expenses at that location.

During the past few 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 expanded our design capabilities with the launch of a new software and a library system for cataloging our products to drive marketing and enhance innovation. 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. In fiscal 2021, we invested in additional knit machines and other equipment to expand fabric capacity in North America, and 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 by investing in robust hot melt lamination finishing equipment. In fiscal 2024, we invested in knitting software to monitor machine efficiency and output, and we invested in a chemical dosing system designed to enhance our finishing capabilities and provide immediate cost saving benefits.

We believe the success of our mattress fabrics business over the longer term is due largely to a business strategy that has included a focus on creative design and product innovation; a strong global manufacturing and sourcing platform; solid long-term customer and vendor relationships; and reliable service. Our business model has allowed us to provide bedding manufacturers with innovative products developed from consumer-based research and trend analysis, and we have been able to meet continually changing demand trends with the support of our flexible global platform.

Upholstery Fabrics. The upholstery fabrics segment markets fabrics for residential, commercial, and hospitality furniture, described below. This segment also includes window treatment products and installation services through our Read Window Products business, including roller shades, drapery, hardware, and top-of-mattress soft goods, for customers in the hospitality and commercial industries.

During fiscal 2024, the upholstery fabrics segment operated four facilities in Shanghai, China, including one manufacturing facility. From these locations, we market a variety of upholstery fabrics and cut and sewn kits sourced from third-party producers, mostly in China and Vietnam. We utilize these facilities for design, prototyping, finishing, warehousing, quality control, and inspection operations related to these products. As part of the Fiscal 2025 restructuring, we are rationalizing our internal upholstery fabrics finishing operation in China to align with current demand and further leverage strategic supply relationships. See “—Manufacturing and Sourcing—Upholstery Fabrics Segment,” below, for information on our upholstery fabrics manufacturing.

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. During the fourth quarter of fiscal 2024, we also established an administrative office located in Ho Chi Minh City, Vietnam, for the purpose of enhancing our sourcing and to further diversify our supply chain in Asia.

Additionally, we market a variety of window treatments, using mostly customer-supplied fabrics and materials, fabricated at our Read Window Products facility in Knoxville, Tennessee, as well as by third-party suppliers.

Our upholstery fabrics business has moved from one that relied on a large fixed capital base that was 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 or oversight 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.

We believe the success of our upholstery fabrics segment over the longer term is due largely to a business strategy that has included: innovation in a low-cost environment, speed-to-market execution, consistent quality, reliable service and lead times, and 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 nearly every category of fabric for upholstered furniture and meet continually changing demand levels and consumer preferences.

Overview of Industry and Markets

Culp markets products primarily to manufacturers and hospitality customers in four principal markets. The mattress fabrics segment supplies the bedding industry, which produces mattress sets (mattresses, box springs, foundations and top of bed components) and bedding accessory products. The upholstery fabrics segment primarily supplies the residential furniture industry and, to a lesser extent, the commercial and hospitality furniture industries. The residential furniture market includes upholstered furniture sold to consumers for household use, including sofas, sofa-beds, chairs, recliners, and sectionals.

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The commercial furniture, fabrics, and window treatments market includes fabrics and window treatment products used for upholstered office seating sold primarily for use in offices, healthcare facilities, and other institutional settings; and window treatments for commercial application. The hospitality furniture, fabrics, and window treatments market includes fabrics and window treatment products for use in the hospitality industry (primarily hotels and motels, restaurants, and theater seating) The principal industries into which the company sells products – the bedding industry and residential, commercial, and hospitality furniture industries – are described in more detail below. The great majority of our products are sold to manufacturers for end use in the U.S., and thus the discussions below are focused on that market.

Overview of Bedding Industry

The bedding industry has contracted and expanded in recent years in accordance with the general economy, although traditionally the industry has been relatively mature and stable. This is due in part to the fact that a larger share of bedding industry sales are replacement purchases, which are generally less volatile than sales based on economic growth and new household formations. During the second half of fiscal 2022 and throughout fiscal 2023 and fiscal 2024, the bedding industry experienced weakness in domestic mattress sales, with industry reports reflecting significant unit contraction. We believe this industry softness was mostly driven by inflationary pressures affecting consumer spending, especially for mattress products in the low to mid-range price points, and a shift in demand from home goods to travel, leisure, and entertainment following a pulling forward of demand for home goods during the early years of the COVID-19 pandemic. These factors are expected to continue affecting the bedding industry into fiscal 2025.

Until the last few years, the U.S. bedding industry largely remained a North American-based business, with limited competition from imports. This dynamic has mainly been due to short lead times demanded by mattress manufacturers and retailers, the customized nature of product lines, the relatively low direct labor content in mattresses, and strong brand recognition. Imports of bedding into the U.S. had been increasing gradually, but this trend accelerated significantly in recent years, especially for lower-priced and roll packed, boxed bedding. Major importing countries in fiscal 2024 included Mexico, Vietnam, Indonesia, Taiwan, Spain, and Kosovo, among others. The result of the increase in imports has been a decline in sales for the major U.S. bedding manufacturers, which has affected major suppliers to those manufacturers, including Culp. While several rounds of actions by the U.S. Department of Commerce intended to promote domestic production have yielded some benefits to domestic manufacturers, imported products have retained solid market share. Additionally, many mattress producers have adjusted to an assembly model in the United States, still utilizing a mix of domestic and imported materials from suppliers like Culp.

We believe that key trends in the bedding industry include increased demand for roll-packed/compressed mattresses through both online and traditional sales channels, greater awareness among consumers about the health benefits of better sleep, and emphasis on the design knitted or woven into mattress fabric. Consumer acceptance of boxed beds as a delivery mechanism continues to drive growth and increase market share for this product, increasing potential demand for knitted fabrics and sewn mattress covers. Mattress fabric design efforts are based on current trends in home decor and fashion. Additionally, the growth in non-traditional sources for retail mattress sales, such as online e-commerce channels and wholesale warehouse clubs, has the potential to increase overall consumption of bedding products due to convenience and high traffic volume, which may result in higher turnover of product. Among fabric types, knitted fabrics have continued to increase in popularity. Knitted fabric was initially used primarily on premium mattresses, but these products are now being placed on more mattresses at mid-range to lower retail price points and nearly all roll-packed bedding. Because knit fabrics are viewed as more versatile in the current market, due to their design flexibility in both style and texture and their functionality with roll-packed bedding, knit fabrics offer higher gross margin potential.

Overview of Residential, Commercial, and Hospitality Furnishing Industries

We supply upholstery fabric products to customers in the residential, commercial, and hospitality industries, and we supply window treatment products to customers in the commercial and hospitality industries.

Overall demand for our residential and commercial upholstery fabrics depends upon consumer and business demand for furniture products, which is subject to variations in the general economy, including current inflationary pressures affecting consumer spending and declines in consumer confidence. Purchases of furniture products are discretionary purchases for most individuals and businesses, and economic downturns or periods of depressed consumer confidence reduce demand for our upholstery fabrics. In addition, sales of residential furniture are influenced significantly by the housing industry and by trends in home sales and household formations. Reduced home sales in recent years have adversely affected our sales.

Additionally, demand for our upholstery fabrics and window treatment products for the commercial and hospitality industries generally reflects economic trends affecting businesses; consumer spending on travel and experiences; demand for new and refurbished hotel and resort properties; and demand for new and refurbished commercial office space. Increased consumer spending on travel and experiences following the COVID-19 pandemic has driven increased demand for our products in the hospitality market, while significant challenges in the commercial real estate market following the pandemic have adversely affected our commercial sales to some extent.

The sourcing of components and fully assembled furniture from overseas continues to play a major role in the furniture industry. The largest source for imported upholstery fabrics continues to be China, while China and Vietnam now serve as the largest sources for fully assembled furniture.

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Imports of upholstery fabric, both in roll and in “kit” form, have also had a significant impact on the market for upholstery fabrics in recent years. Fabrics entering the U.S. from China and other low labor cost countries have resulted in increased price competition in the upholstery fabric and upholstered furniture markets.

In general, the residential furniture industry has been consolidating for several years. The result of this trend is fewer, but larger, customers for marketers of upholstery fabrics. Intense price competition continues to be an important consideration for both residential and commercial furniture.

Additionally, with the ongoing global trade dispute and other tensions between the U.S. and China, including the U.S. imposition of tariffs 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. This trend has continued in recent years, including in fiscal 2024. While we believe Asia remains a preferred location for sourcing of components, including fabric, we continue to diversify our sourcing strategies to develop additional geographic options to service our customers.

Products

As described above, our products include mattress fabrics and upholstery fabrics, which are our two identified operating segments. These fabrics are sold in roll form and as sewn mattress covers by the mattress fabrics segment, and in roll form and as cut and sewn kits by the upholstery fabrics segment. Our upholstery segment products also include window treatments and related products.

Mattress Fabrics Segment

Mattress fabrics segment sales constituted 52% of our total net sales for fiscal 2024, compared with 47% for fiscal 2023. The company has emphasized fabrics that have broad appeal at prices generally ranging from $1.60 to more than $10.00 per yard.

Upholstery Fabrics Segment

Upholstery fabrics segment sales totaled 48% of our sales for fiscal 2024, compared with 53% of for fiscal 2023. The company has emphasized fabrics that have broad appeal at “good” and “better” prices, generally ranging from $2.50 to $16.00 per yard.

Product Categories by Segment

We market products in most categories of fabric that manufacturers currently use for bedding and furniture. We also market window treatment products to customers in the hospitality and commercial industries. Our product lines include:

Mattress Fabrics

 

Upholstery Fabrics

 

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Through our Read Window Products business, the upholstery fabrics segment also markets a variety of window treatment products and installation services for customers in the hospitality and commercial industries. These products include roller & solar shades, drapery, roman shades and top treatments, hardware products, and soft goods such as duvet covers, bed skirts, bolsters and pillows.

Manufacturing and Sourcing

Mattress Fabrics Segment

Our mattress fabrics segment currently operates three manufacturing plants, with one located in North Carolina (Stokesdale), one in St. Jerome, Quebec, Canada, and one in Ouanaminthe, Haiti. Over the past ten fiscal years, we have made capital expenditures 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.

Knitted fabrics are currently produced at both the Stokesdale and St. Jerome facilities, while jacquard (damask) fabric is produced solely at the St. Jerome facility. The majority of our finishing and inspection processes for mattress fabrics is currently 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 the Stokesdale plant houses the division offices. Additionally, our mattress cover operation has a wholly owned manufacturing platform in Haiti for production of cut and sewn mattress covers. This platform includes currently two leased facilities.

Following the Fiscal 2025 restructuring expected to be completed during calendar year 2025, our St. Jerome plant will be eliminated and our Haiti production operations will be reduced to a single facility. In connection with the St. Jerome closure, we will relocate some of the knitting and finishing operation conducted at that facility to the Stokesdale facility, and we will also transition jacquard (damask) fabric production from the St. Jerome facility to a strategic sourcing model through the company’s long standing supply partners. See “—Fiscal 2025 Restructuring” for further details regarding the Fiscal 2025 restructuring.

In addition to the mattress fabrics and sewn covers manufactured by Culp, we have important supply arrangements in place that allow us to source mattress fabrics and sewn covers from strategic suppliers. We source some knitted fabrics, certain converted fabric products, and sewn mattress covers using our Culp China platform. We also source sewn mattress covers from a strategic supply relationship in Vietnam, and a portion of our woven jacquard fabric and knitted fabric from a supplier located in Turkey (and as part of the Fiscal 2025 restructuring, we will transition all of jacquard (damask) production to outside suppliers). Substantially all of our outsourced mattress fabrics products are made specifically for Culp and manufactured to our design specifications.

Upholstery Fabrics Segment

During fiscal 2024, the upholstery fabrics segment operated four facilities located in an industrial park in Shanghai, China, including one manufacturing facility. At these facilities, we inspect fabrics sourced from a limited number of suppliers, and during fiscal 2024, we also applied value-added finishing processes to sourced fabric. As part of the Fiscal 2025 restructuring, we are rationalizing internal upholstery fabrics finishing in China to align with current demand and further leverage strategic supply relationships. Additionally, we previously produced cut and sewn upholstery kits in Haiti, but we discontinued this production during the first quarter of fiscal 2024, based on reduced demand.

A large portion of our upholstery fabric products, as well as certain elements of our production processes, are being sourced from outside suppliers. Our facilities in China provide a base from which to access a variety of products, including certain fabrics (such as micro denier suedes and polyurethane fabrics) that are not produced anywhere within the U.S. We have found opportunities to develop significant relationships with key overseas suppliers in China that allow us to source products on a cost-effective basis, while limiting our investment of capital in manufacturing assets. During fiscal 2024, we sourced unfinished and finished fabrics, as well as cut and sewn kits, from a limited number of strategic suppliers in China who are willing to commit significant capacity to meet our needs and work with our product development team located in China to meet the demands of our customers. Beginning in late fiscal 2019, we also developed strategic supplier relationships in Vietnam for additional sourcing of our cut and sewn kits, which has allowed us to begin adjusting our supply chains to meet customer demands.

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We then established an administrative office located in Ho Chi Minh City, Vietnam, during the fourth quarter of fiscal 2024, for the purpose of enhancing our strategic sourcing and further diversifying our supply chain in Asia. Additionally, beginning in fiscal 2022, we developed strategic supplier relationships in Turkey for additional sourcing of fabric products, providing further diversification in our supply chain.

We fabricate a variety of window treatment products at our Read Window Products facility in Knoxville, Tennessee, and we also use a limited number of strategic suppliers in the United States and Mexico for window treatment fabrication. The majority of upholstery fabrics and materials used by our Read Window Products business to fabricate window treatments are customer-supplied. These materials are generally sourced by customers, and we also source a portion of other window treatment products such as hardware and roller shades, from outside suppliers in the U.S., Turkey, and China.

Product Design and Innovation

Consumer tastes and preferences related to bedding, upholstered furniture, and window treatment products change over time. The use of new fabrics, creative designs, and special production finishes and technologies remains an important consideration for manufacturers and marketers to distinguish their products at retail and to capitalize on changes in preferred colors, patterns, textures, and performance properties. Culp’s success is largely dependent on its ability to market fabrics and products with appealing designs and patterns, as well as performance properties such as cleanability, stain-resistance, cooling, sustainability, and health-related benefits. 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 and advance the synergies between our mattress fabrics and upholstery fabrics segments, we launched a new innovation campus in downtown High Point, North Carolina, during fiscal 2022. This space combines 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

Design innovation is a very important element of producing mattress fabrics. We invest significant resources to stay ahead of current design trends, including maintaining a trained and active design and innovation staff; investing in research and development activities, such as participation in international design shows; and implementing systems for creating, cataloging, and simulating new designs. Price point delineation for our fabrics and our customers’ finished mattress products is accomplished through fabric quality as well as variation in design. Consumers are often drawn to the mattress that is the most visually appealing when walking into a retail showroom or viewing mattress products online, so this design variation, together with price point delineation, helps our customers merchandise different looks at various price points. Fiber differentiation also plays an important part in design. For example, rayon, organic cotton, and other special fibers, including recycled fibers promoting sustainability and fibers with cooling properties, are incorporated into the design process to allow the retailer to offer consumers additional benefits related to their sleeping experience. Similarly, many fabrics contain special production finishes that enhance fabric performance.

Mattress fabric designs are not routinely introduced on a scheduled season. Designs are typically introduced upon the request of the customer as they plan introductions of new products. Additionally, we work closely with our customers on new design offerings around the major furniture markets such as Las Vegas, Nevada, and High Point, North Carolina.

Upholstery Fabrics Segment

The company has developed an upholstery fabrics design and product development team (with staff located in the U.S. and in China) with a primary focus on value in designing body cloths, while promoting style leadership with pillow fabrics and color. 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 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.

Upholstery fabric designs are introduced at major fabric trade conferences that occur twice a year in the United States. In recent years we have become more assertive in registering and defending copyrights for popular fabric patterns and taking steps to discourage the illegal copying of our proprietary designs.

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Distribution

Mattress Fabrics Segment

Most of our mattress fabrics shipments originate from our facilities in Stokesdale, North Carolina, and we currently have additional distribution capabilities in Canada, China, Haiti, and Turkey. Following the Fiscal 2025 restructuring, distribution from Canada will be eliminated.

Through arrangements with major customers and in accordance with industry practice, we maintain a significant inventory of mattress fabrics at our distribution facility in Stokesdale (“make to stock”), so that products may be shipped to customers with short lead times and on a “just in time” basis.

Upholstery Fabrics Segment

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 and Turkey. 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 currently have distribution capabilities for our “Culp Express” program to local customers in Canada through our mattress fabrics distribution facility in Quebec, Canada. However, following the Fiscal 2025 restructuring, distribution capabilities from Canada will be eliminated.

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

Sources and Availability of Raw Materials

Mattress Fabrics Segment

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, glue adhesives, laminates, dyes, and other chemicals. Most of these materials are available from several suppliers, and prices fluctuate based on supply and demand and the general rate of inflation. Additionally, because many of our basic raw materials are produced from petrochemical products, our costs are highly sensitive to the underlying price of oil.

The mattress fabrics segment has generally not had significant difficulty in obtaining raw materials, apart from some delays experienced during the COVID-19 pandemic, which have since subsided. However, our use of outside suppliers to source materials 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. As with our mattress fabrics, our costs fluctuate with the price of oil.

Increased reliance by both our U.S. and China upholstery operations on outside suppliers for basic production needs such as base fabrics, yarns, and finishing services has caused the upholstery fabrics segment to become more vulnerable to price increases, delays, or production interruptions caused by problems within businesses that we do not control.

Seasonality

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.

Mattress Fabrics Segment

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. In the U.S., customers often purchase mattresses during major U.S. holidays, in conjunction with retail store promotional events. However, these seasonality trends relate more to in-store retail sales. Online sales, which have grown in recent years, are less affected by in-store seasonality trends.

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Upholstery Fabrics Segment

The upholstery fabrics business has some seasonality, which is tied to the timing of holidays in our manufacturing facilities. Our manufacturing facilities in China close during Chinese National Holiday (in October) and the Chinese New Year (which occurs in January or February each year), often causing sales to be higher in advance of these Chinese holiday periods and sometimes lower during or immediately following the same periods.

Competition

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, including companies in China supplying fabric and cover products to sub-contract manufacturers in the U.S. In addition, our bedding customers continue to face increasing competition from imports of finished beds, which indirectly compete with our mattress fabrics as import producers generally do not purchase our fabrics.

Upholstery Fabrics Segment

In the upholstery fabrics market, we compete against a large number of companies, ranging from a few large manufacturers comparable in size to Culp to small producers and converters (companies who buy and re-sell fabrics, but have no manufacturing). We believe our principal upholstery fabric competitors are Dorell Fabrics Co., Morgan Fabrics, Richloom Fabrics, Specialty Textile, Inc. (or STI), and ZhongWang Fabrics, plus a large number of smaller competitors (both manufacturers and converters).

The trend in the upholstery fabrics industry to greater overseas competition and the entry of more converters has caused the upholstery fabrics industry to become substantially more fragmented in recent years, with lower barriers to entry. This has resulted in a larger number of competitors selling upholstery fabrics, with an increase in competition based on price.

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

Our operations involve a variety of materials and processes that are subject to environmental regulation. Under current law, environmental liability can arise from previously owned properties, leased properties, and properties owned by third parties, as well as from properties currently owned and leased by the company. Environmental liabilities can also be asserted by adjacent landowners or other third parties in toxic tort litigation.

In addition, under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”), and analogous state statutes, liability can be imposed for the disposal of waste at sites targeted for cleanup by federal and state regulatory authorities. Liability under CERCLA is strict as well as joint and several.

Domestic and foreign laws and regulations, as well as international agreements, may result in new regulations on greenhouse gas emissions. It is uncertain if, when, and in what form, a mandatory carbon dioxide emissions reduction program may be enacted either through legislation or regulation. However, if enacted, this type of program could materially increase our operating costs, including costs of raw materials, transportation, and electricity. It is difficult to predict the extent to which any new rules or regulations would affect our business, but we would expect the effect on our operations to be similar to that for other manufacturers, particularly those in our industry.

We are periodically involved in environmental claims or litigation and requests for information from environmental regulators. Each of these matters is carefully evaluated, and the company provides for environmental matters based on information presently available. Based on this information, we do not currently believe that environmental matters will have a material adverse effect on either the company’s financial condition or results of operations. However, there can be no assurance that the costs associated with environmental matters will not increase in the future.

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Human Capital

Our Employees

As of the end of fiscal 2024, we employed 1,000 people, a decrease of 333 employees as compared to the end of the prior fiscal year. The mattress fabrics segments employed 663 people at fiscal year-end, a decrease of 96 employees from the prior year, while the upholstery segment employed 305 people, a decrease of 238 employees from the prior year. The remaining employees comprise the company’s shared services functions.

The decrease in the number of employees in the mattress fabrics segment in fiscal 2024, as compared to the prior year, was associated with rationalization within our Haiti sewn cover operation to align capacity and costs with reduced demand. The decrease in the number of employees in the upholstery fabrics segment in fiscal 2024, as compared to the prior year, was primarily associated with the discontinuation of our Haiti cut and sew operation during the first quarter of fiscal 2024.

Approximately 486 employees work in the United States, and 514 are employed in international locations. We employ the vast majority of our employees on a full-time basis.

The hourly employees at our manufacturing facility in Canada (approximately 14% of our workforce) are represented by a local, unaffiliated union. The collective bargaining agreement for these employees expires on February 1, 2026. We are not aware of any efforts to organize any more of our employees, and we believe our employee relations are very good with both our unionized and non-unionized workforce. Our company-wide annual employee turnover rate was approximately 43.5% during the past fiscal year, compared to approximately 42% in the prior year. The annual employee turnover in fiscal 2024 and fiscal 2023 has been higher than recent historical trends, driven mostly by the rationalization and restructuring of our upholstery fabrics cut and sew operations in China and Haiti during fiscal 2023; the rationalization of our mattress fabrics cut and sew operation in the U.S. during fiscal 2023 and in Haiti during fiscal 2024; and the discontinuation of our upholstery fabrics cut and sew operation in Haiti during the first quarter of fiscal 2024.

In fiscal 2025, as part of the Fiscal 2025 restructuring, we plan to reduce the number of employees in our mattress fabrics segment by approximately 240 people, representing close to 35% of the segment's total workforce at the end of fiscal 2024. See “—Fiscal 2025 Restructuring” for further details regarding the Fiscal 2025 restructuring.

Mission Statement and Values

Our human resources department has adopted a mission statement that embodies our values and goals in the company’s relationships with our employees. The mission statement is as follows:

Culp HR Services is committed to providing outstanding employee support in a mutually respectful, safe, diverse, and collaborative environment through innovative programming that engages our associates and promotes the success of Culp, Inc.

We strive to maintain a welcoming and inclusive workplace. 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. All reports of inappropriate behavior are promptly investigated and appropriate action is taken to prevent their recurrence. We also prohibit retaliation against individuals who, in good faith, report any violation of company policies, including unlawful discrimination or harassment.

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 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

We strive to attract, recruit, and retain employees through competitive compensation and benefit programs that are aligned with those of comparable industries and in the geographic areas where our facilities are located, and in compliance with local regulatory requirements. We also provide development opportunities that support career growth and maintain a wide variety of programs to engage with our employees and promote overall wellness.

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

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, Culp began 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. In fiscal 2024, our U.S. locations held food drives for donations to local food banks, while Culp China’s facilities contributed to help a cancer patient and employees in Haiti donated toys to a local daycare facility.

Other examples of employee engagement initiatives include:

 

These engagement efforts and programs are continually refined and updated to meet the evolving needs of our workforce.

Safety and Health

The safety and health of our employees is a fundamental priority at Culp. We maintain comprehensive safety monitoring and training programs, with regular reports to senior management on these topics. Our Behavior Based Safety initiative combines awareness programs, observation, and training to enhance continued compliance with safe and healthy practices in our facilities.

 

Customers and Sales

Mattress Fabrics Segment

Major customers for our mattress fabrics include leading bedding manufacturers such as Serta-Simmons Bedding (SSB), Tempur + Sealy International (TSI), Casper, Corsicana, Sleep Number, and Ashley Furniture. Our largest customer in the mattress fabrics segment is Serta Simmons Holdings, LLC, accounting for approximately 13% of the company’s consolidated sales in fiscal 2024. These sales include sales to customers who are also subcontractors for Serta Simmons Holdings, LLC. Our mattress fabrics customers also include many small and medium-size bedding manufacturers.

Upholstery Fabrics Segment

Our major customers for upholstery fabrics are leading manufacturers of upholstered furniture, including Ashley Furniture, Flexsteel Home, Jonathan Louis, La-Z-Boy (La-Z-Boy Residential and England), Southern Furniture Industries (Fusion and Southern Motion), and Sudair Manufacturing. Major customers for the company’s fabrics for commercial furniture include Exemplis, HNI Corporation, Holiday Inn Club Vacations, and Marriott. Our largest customer in the upholstery fabrics segment is La-Z-Boy Incorporated, which accounted for approximately 12% of the company’s consolidated sales in fiscal 2024.

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The following table sets forth our net sales by geographic area by amount and percentage of total net sales for the three most recent fiscal years.

Net Sales by Geographic Area

(dollars in thousands)

 

		Fiscal 2024						Fiscal 2023						Fiscal 2022
United States		$	153,631			68.2%		$	165,807			70.6%		$	204,454			69.3%
North America (Excluding USA) (1)			29,357			13.0%			29,756			12.7%			39,256			13.3%
Far East and Asia(2)			36,334			16.1%			31,339			13.3%			43,015			14.6%
All other areas			6,011			2.7%			8,032			3.4%			8,114			2.8%
Subtotal (International)		$	71,702			31.8%		$	69,127			29.4%		$	90,385			30.7%
Total		$	225,333			100.0%		$	234,934			100.0%		$	294,839			100.0%

 

Sales attributed to individual countries are based upon the location that the company ships its products to for delivery to customers.

For additional segment information, including the geographic location of long-lived assets, see Note 17 in the consolidated financial statements.

Backlog

Mattress Fabrics Segment

The backlog for the mattress fabric segment is not a reliable predictor of future shipments because the majority of sales for the mattress fabrics segment are on a just in time basis.

Upholstery Fabrics Segment

Although it is difficult to predict the amount of backlog that is “firm,” we have reported the portion of the upholstery fabric backlog from customers with confirmed shipping dates within five weeks of the end of the fiscal year. On April 28, 2024, the portion of the upholstery fabric backlog with confirmed shipping dates prior to June 3, 2024, was $11.7 million, compared with $10.6 million as of the end of fiscal 2023 (for confirmed shipping dates prior to June 5, 2023).

Intellectual Property

We currently hold, or have registration applications pending for, numerous trademarks and copyrights for various product and trade names, logos, and fabric designs in the United States and certain foreign countries. We view such intellectual property, along with any unregistered copyrights, trademarks, service marks, trade names, domain names, trade dress, trade secrets, and proprietary technologies, as an important part of our business, and we seek to diligently protect, monitor, and defend, through appropriate action, against their unauthorized use.

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ITEM 1A. RISK FACTORS

Our business is subject to a variety of risks and uncertainties. In addition to the matters described above under “Cautionary Statement Concerning Forward-Looking Information,” set forth below are some of the risks and uncertainties that could cause a material adverse change in our results of operations, financial condition, or future prospects. The risks described below should be carefully considered, together with other information provided in this report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and our financial statements, including the related notes. The risks discussed below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us also may materially adversely affect our business, financial condition, or results of operations in future periods.

Macroeconomic, Market, and Strategic Risks

Continued economic and industry uncertainty could negatively affect our sales and earnings.

Overall demand for our products depends upon consumer demand for furniture and bedding products, which is subject to cyclical variations in the general economy, including current inflationary pressures affecting consumer spending, declines in overall consumer confidence, recession and fears of recession, and other geopolitical events, such as the ongoing Russia/Ukraine war and the armed conflict in the Middle East. Because purchases of furniture and bedding products may be considered discretionary purchases for most individuals and businesses, demand for these products are heavily influenced by economic trends. Economic downturns, increases in unemployment rates, persistent inflation, and uncertainty about future health and economic prospects can affect consumer spending habits and demand for discretionary items, including home furnishings, which reduces the demand for our products and therefore can cause a decline in our sales and earnings. In addition, the level of housing starts, sales of existing homes, declines in office occupancy rates, trends in disposable income, changes in interest rates (particularly home mortgage rates), and availability of consumer credit, can also affect our business.

While we saw an adverse impact from some of these factors due to the COVID-19 pandemic at the end of fiscal 2020 and the beginning of fiscal 2021, we experienced increased demand in our mattress fabrics segment and in the residential side of our upholstery fabrics segment for most of fiscal 2021, driven by greater consumer focus on the home environment and more discretionary spending being allocated to home furnishings in the face of travel restrictions and other pandemic-related factors. However, this 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. We believe the trend of increased consumer discretionary spending on travel, leisure, and entertainment, and away from home goods, continued throughout fiscal 2023 and 2024. Inflationary pressures also began to affect consumer spending during the second half of fiscal 2022 and continued throughout fiscal 2023 and 2024. In addition, declines in the U.S. housing and commercial real estate markets in fiscal 2024 negatively impacted demand for furniture and bedding, reducing demand for our upholstery and mattress fabric products. We are unable to predict how long these trends will last, or to what extent macroeconomic or other geopolitical events may affect the purchasing cycle for home furnishing products. Demand for our products—and our results of operations—may be materially and adversely affected by macroeconomic trends that are beyond our control.

Partly in response to certain of these trends, in May 2024, we announced the implementation of a restructuring of our business pursuant to which we intend to consolidate our North American mattress fabrics operations and our sewn cover operation in Haiti in an effort to align capacity and cost structure with demand. However, we can offer no assurance that these efforts will achieve their intended effect or that the cost savings and other benefits we anticipate will be realized on the expected timeframe or at all.

Loss of market share due to competition may result in declines in sales and could result in losses or decreases in earnings.

Our business is highly competitive and fragmented, and we face significant competition from many competitors, both foreign and domestic. We compete with many other manufacturers of fabric, as well as converters who source fabrics from various producers and market them to manufacturers of furniture and bedding. In many cases, these fabrics are sourced from foreign suppliers who have a lower cost structure than the company. The highly competitive nature of our business in each of our segments means we are constantly subject to the risk of losing market share, which would likely result in a decrease in our future sales and earnings. In particular, in recent years the U.S. bedding industry—on which the mattress fabrics segment relies—has seen significant increases in competition from low-cost foreign producers, which has adversely affected demand for our products.

As a result of increased competition, there have been deflationary pressures on the prices for many of our products, which make it more difficult to pass along increased operating costs such as raw materials, shipping, energy, foreign currency fluctuations, or labor in the form of price increases, which puts downward pressure on our profit margins. Also, the wide range of product offerings in our business can make it more difficult to differentiate our products through design, styling, finish, and other techniques.

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Our operations are subject to risks of unsettled political conditions, civil unrest or instability, public health concerns or pandemics, natural or man-made disasters, acts of war, terrorism, and the effects of climate change, any one of which could adversely affect our business and results of operations.

Our domestic and foreign operations are subject to risks of unsettled political conditions, civil unrest or instability in countries in which we operate, natural or man-made disasters, acts of war, and terrorism. As an example, we maintain an active production facility in Ouanaminthe, Haiti. Severe political instability in Haiti, along with recent natural disasters, has created a crisis in the country, subjecting our operations there to heightened risk. While operations at our production facility have not been directly affected, ongoing political and civil unrest in Haiti could cause manufacturing disruptions at our Haiti facility.

In addition, public health concerns and pandemics have in the past, and may again disrupt our business. For example, during the COVID-19 pandemic, we temporarily shut down certain of our facilities, as did certain of our sourcing partners and customers, which prevented us from shipping goods in both our residential upholstery fabrics business and our sewn mattress cover business.

Moreover, the effects of climate change and actions taken to combat climate change could exacerbate these risks, including by increasing the likelihood and severity of extreme weather events. Civil instability, public health concerns, natural disasters, acts of war, terrorism or other adverse events could cause disruption at our manufacturing or distribution facilities, or at the facilities of our suppliers and distribution channels. The materialization of any of these risks could result in additional expense to us, limit our supply of necessary goods and raw materials, and otherwise affect our ability to meet the needs of our customers, and our results of operations may be materially adversely affected as a result.

Our future success depends in part on our ability to successfully implement our strategic plan, including the Fiscal 2025 restructuring, and achieve our business strategies.

We continue to focus on strategic initiatives designed improve our business and our results of operations. On May 1, 2024, we announced a significant restructuring plan designed to reduce costs, improve asset utilization, and drive performance and profitable growth. This plan, which is being implemented primarily in the company’s mattress fabrics segment and, to a lesser extent, in its upholstery fabrics segment, includes consolidating operations, restructuring operations, and reducing expenses. See “Item 1. Business—Fiscal 2025 Restructuring.” There can be no assurance that these or other future strategic initiatives will be successful to the extent we expect, or at all. Additionally, we are investing resources in these initiatives and the costs of the initiatives may outweigh their benefits. If we miscalculate the resources we need to complete these strategic initiatives or fail to implement them effectively, our business and operating results could be adversely affected.

Operational Risks

Our business may be adversely affected by increased tariffs or other changes in U.S. trade policy related to imported products, as well as violations of existing trade policies.

Many of our products are manufactured or sourced outside of the United States. The U.S. government has imposed certain tariffs on imports from various countries, including China, where a significant amount of our products is produced. In the future, the U.S. Government may consider imposing additional tariffs or extending the timeline for continuation of existing tariffs. Any tariffs that result in increased costs of imported products and materials could require us to increase prices to our domestic customers. If we are unable to pass along these additional costs, our gross margins on products sold may be adversely affected. As a result, the tariffs could have a material adverse effect on our results of operations.

In addition to tariffs, the U.S. government considers 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.

There are also a number of trade regulations and duties currently in place to protect the U.S. textile industry against competition from low-priced foreign producers, such as those in China and Vietnam, but violations of these trade regulations and duties by foreign producers has had, and may in the future have, a material adverse effect on our operations. In May of 2019, the U.S. Department of Commerce imposed punitive anti-dumping measures against China mattress imports to address violations of trade regulations. Despite the imposition of these duties, if China producers move their production out of China, which we believe has already occurred, they may continue to engage in unfair competition in violation of trade regulations between the U.S. and other countries, or there may be a potential risk of illegal transshipments of mattress products into the United States, which involves circumventing the imposed duties by falsely claiming that mattresses are products of a particular country of origin to avoid paying higher duties. In response to low-priced mattress imports that moved out of China to other countries in an effort to circumvent U.S. duties, the U.S. Department of Commerce has imposed anti-dumping duties on mattress imports from countries other than China.

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While we believe the domestic mattress industry and, in turn, our business, began to realize some benefits from these duties starting in 2021, low-priced imports continue to adversely affect our sales. We can offer no assurance that such trends will abate, nor can we offer assurance that the U.S. Department of Commerce can effectively limit the dumping of low-priced imports into the U.S. market.

If supply chains are moved out of China to countries without anti-dumping duties and producers continue to supply low-priced imports in violation of U.S. trade laws, and if illegal transshipments are not monitored and enforcement is not effective to limit them, these shipments could have a material adverse effect on the company’s business, financial condition, results of operations or cash flows.

Greater reliance on offshore operations and foreign sources of products or raw materials increases the likelihood of disruptions to our supply chain or our ability to deliver products to our customers on a timely basis.

We rely significantly on operations in distant locations, especially China. In addition, we have been purchasing a significant share of our products and raw materials from offshore sources, particularly Asia and Turkey. At the same time, our domestic manufacturing capacity for the upholstery fabrics segment continues to decline. These changes have caused us to rely on an extended supply chain and on a larger number of suppliers that we do not control, subjecting us to greater risks of delay or disruption. In addition, operations and sourcing in foreign areas are subject to the risk of changing local governmental rules, taxes, changes in import rules or customs, import restrictions, tariffs, shipping rates, potential political unrest and instability, coronavirus or other pandemic-related closure rules, or other threats that could disrupt or increase the costs of operating in foreign areas or sourcing products overseas. Any of the risks associated with foreign operations and sources could cause unanticipated increases in operating costs or disruptions in business, which could have a negative impact on our ultimate financial results.

Recently, a confluence of factors has caused disruptions to international shipping, increasing costs and delaying shipments. Attacks on ships entering the Red Sea en route to the Suez Canal, an important waterway for vessels moving between Asia and the United States, by Houthi rebels in Yemen has forced ships to take longer routes. In addition, labor disputes at major ports and railways throughout the world, along with weather-related disruptions, such as droughts in Panama reducing capacity in the Panama Canal, have further impacted the global supply chain. These factors began to affect the availability of containers and space for shipments from our China operations beginning in the second half of fiscal 2024, and shipping costs have been rising since that time. Additionally, the change in global routes due to the Suez and Panama Canal disruptions has caused transit times to be extended by approximately two weeks. If any of these or other factors were to worsen, we may be unable to timely ship our products or receive the materials we need to produce our products, or our shipping costs may further increase. We may be unable to pass along such costs to our customers, or may have difficulty meeting our customers’ demands, each of which may materially and adversely affect our results of operations.

In addition, with respect to sourcing products and raw materials from third-party suppliers in China, our ability to timely or successfully import such products or those made with such raw materials may be adversely affected by changes in U.S. laws. For example, certain recently enacted laws and regulations impose a presumptive ban on the import of goods to the U.S. that are made, wholly or in part, in certain defined areas or by certain restricted persons or entities. These laws and regulations specifically target cotton and the apparel and textile industries as high-priority sectors for enforcement. None of our Chinese suppliers are located in the region targeted or are identified as restricted entities under these laws and regulations, and we prohibit our suppliers from doing business with or sourcing inputs from any company or entity that is in the region targeted or that restricted under U.S. or other applicable law. However, as a result of these laws and regulations, products we import into the U.S. could be held for inspection by U.S. customs and border patrol based on a suspicion of noncompliance. During fiscal 2023 and early in fiscal 2024, we were subjected to a limited number of such detentions and were successful in submitting satisfactory supply chain evidence to result in the release of all such detained goods. These detentions did not resulted in any material impact on our business, supply chain, customer relationships, or reputation, and we did not have any further detentions in fiscal 2024. However, future detentions could result in unexpected (i) delays or rejections of products scheduled for delivery to us, which could in turn affect the timing or our ability to deliver products to our customers; (ii) supply chain disruptions and increased operating costs; (iii) damage to our customer relationships; and/or (iv) negative publicity that harms our reputation, any of which could have a material impact on our business and negatively affect our ultimate financial results.

Our business faces several risks associated with doing business in China

We source a variety of fabrics, as well as cut and sewn upholstery kits and sewn mattress covers, from a limited number of strategic suppliers in China. We also operate four facilities in Shanghai, China. The Chinese economy is characterized by extensive state ownership, control, and regulation, and the political, legal, and economic climate in China is fluid and unpredictable. Therefore, our business is continually subject to the risk of changes in Chinese laws and regulations that could have an adverse effect on our suppliers and manufacturing operations. Any changes in policies governing tariffs, imports and exports, taxation, inflation, economic sanctions and export controls, environmental regulations, foreign currency exchange rates, the labor market, property, network security, intellectual property, and financial regulations could have an adverse effect on our business. Further, the Chinese legal system is continuing to develop and evolve, and the enforcement of rules and regulations is not always consistent or uniform. Moreover, any potential civil unrest, natural disasters, or other threats could disrupt or increase the costs of operating in China. The Chinese economy poses additional risks to our business, including fluctuating rates of inflation and currency exchange rates, a declining labor force participation rate, and rising employee wages.

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In addition, changes in the political climate or trade policy of the United States, such as increased duties, tariffs, or U.S. restrictions on Chinese imports, may adversely affect our business. Our ability to operate in China has also been adversely affected by the COVID-19 pandemic, and may in the future be negatively affected by additional surges in the coronavirus or other diseases. For example, during the COVID-19 pandemic, China from time to time enforced broad lock-downs which affected our ability to timely produce and ship products and affected the ability of our third-party suppliers and their supply chain to timely deliver products and materials. Any of the risks associated with our Chinese operations and sources could cause unanticipated increases in operating costs or disruptions in business, which could negatively affect our ultimate financial results.

Because a significant portion of our operations are located outside the U.S., we may be adversely affected by changes in the value of the U.S. dollar.

Changes in the value of the U.S. dollar versus other currencies can affect our financial results because a significant portion of our operations are located outside the United States. We manage various operating activities at the local level and net sales, costs, assets and liabilities are denominated in both the local currency and the U.S. dollar. Our results of operations and assets and liabilities are reported in U.S. dollars and thus will fluctuate with changes in applicable exchange rates, affecting our reported results and the comparability of our results of operations and cash flows between periods.

Further, strengthening of the U.S. dollar against other currencies could make our products less competitive on the basis of price in markets outside the United States, and strengthening of currencies in Canada and China could have a negative impact on our sales of products produced in those places.

We may have difficulty managing the outsourcing arrangements being used for products and services.

We rely on outside sources for various products and services, including yarn and other raw materials, greige (unfinished) fabrics, finished fabrics, cut and sewn upholstery kits, sewn mattress covers, and services such as weaving and finishing. Increased reliance on outsourcing lowers our capital investment and fixed costs, but it decreases the amount of control that we have over certain elements of our production capacity. Interruptions in our ability to obtain raw materials or other required products or services from our outside suppliers on a timely and cost-effective basis, especially if alternative suppliers cannot be immediately obtained, could disrupt our production and damage our financial results.

Write-offs or write-downs of assets would result in a decrease in our earnings and shareholders’ equity.

The company has assets, primarily consisting of property, plant and equipment, right of use assets, inventory, and intangible assets, that may be subject to write-offs or write-downs. ASC Topic 360 establishes an impairment accounting model for long-lived assets, including property, plant, and equipment, right of use assets, and finite-lived intangible assets such as customer relationships and our non-compete agreement. It requires the company to assess these assets for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recovered. In accordance with ASC Topic 330, management continuously examines inventory to determine if there are indicators that the carrying value exceeds its net realizable value. Experience has shown that the most significant of such indicators are the age of the inventory and planned discontinuances of certain patterns. ASC Topic 350 establishes an impairment model for indefinite-lived intangible assets, such as our tradename, which must be tested at least annually for impairment or whenever events or changes in circumstances indicate that the carrying value of the asset may not be recovered.

Identifying and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including market conditions, operating results, competition, and general economic conditions, requires significant judgment. Any of such future actions could result in charges that could have an adverse effect on our financial condition and results of operations, and there is no assurance that future write-downs of fixed assets or other intangible assets will not occur if business conditions were to deteriorate.

As a result of inventory assessments, we incurred non-cash inventory charges during fiscal years 2024, 2023, and 2022 totaling $40,000, $5.8 million, and $1.9 million, respectively. The $40,000 charge incurred during fiscal 2024 is related to markdowns of inventory in the upholstery fabrics segment associated with the discontinuation of production of cut and sewn upholstery kits at the company's facility in Ouanaminthe, Haiti. The $5.8 million charge incurred in fiscal 2023 represents a $2.9 million impairment charge associated with our mattress fabrics segment; a total of $2.8 million related to markdowns of inventory in both segments that were estimated based on our policy for aged inventory; and $98,000 for the loss on disposal and markdowns of inventory related to the exit of our cut and sewn upholstery fabrics operation located in Shanghai, China. The $1.9 million charge in fiscal 2022 represents inventory markdowns in both segments that were based on our policy of aged inventory. See Notes 4, 6, and 8 of the consolidated financial statements for further details of our assessments of impairment, conclusions reached, and the performance of our quantitative tests.

As part of the Fiscal 2025 restructuring, we expect to incur a non-cash charge of approximately $2.1 million associated with write-downs and other inventory related adjustments; a non-cash charge of approximately $650,000 associated with accelerated rent amortization for a leased building in Haiti; and a non-cash charge of approximately $2.3 million associated with accelerated depreciation and losses on the sale of equipment.

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Actual write-downs and non-cash charges may exceed these amounts.

Write-offs and write-downs of our assets, including inventory, result in an immediate charge to our earnings, and can have a material adverse effect on our operating results and financial condition.

Changes in the price, availability, and quality of raw materials could increase our costs or cause production delays and sales interruptions, which would result in decreased earnings.

We depend upon outside suppliers for most of our raw material needs, and we rely upon outside suppliers for component materials such as yarn, unfinished fabrics, and cut and sewn upholstery kits and mattress covers, as well as for certain services such as finishing and weaving. Fluctuations in the price, availability, and quality of these goods and services have had, and could continue to have, a negative effect on our production costs and ability to meet the demands of our customers, which can affect our ability to generate sales and earnings. In many cases, we are not able to pass through increased costs of raw materials or increased production costs to our customers through price increases. In particular, many of our basic raw materials are petrochemical products or are produced from such products. For this reason, our material costs are especially sensitive to changes in prices for petrochemicals and the underlying price of oil. Increases in prices for oil, petrochemical products or other raw materials and services provided by outside suppliers can significantly increase our costs and negatively affect our profit margins and earnings.

Rising oil prices, a higher demand environment, and labor shortages during fiscal 2022 caused raw material prices to increase, particularly during the second half of the year. During fiscal 2023 and fiscal 2024, the cost of raw materials declined due to lower oil prices and slowing global demand, but the higher costs and lower availability of labor remained challenging in both years. While the cost of raw materials and labor costs were relatively stable during fiscal 2024, the factors listed above, among other factors, may drive future increases in raw material prices, which may harm our results of operation.

Increases in energy costs increase our operating costs and could adversely affect earnings.

Higher prices for electricity, natural gas, and fuel increase our production and shipping costs. A significant shortage, increased prices, or interruptions in the availability of these energy sources would increase the costs of producing and delivering products to our customers and would be likely to adversely affect our earnings. In many cases, we are not able to pass along the full extent of increases in our production costs to customers through price increases. Energy costs have varied significantly during recent fiscal years and remain a volatile element of our costs. Increases in energy costs could have a negative effect on our earnings.

Business difficulties or failures of large customers could result in a decrease in our sales and earnings.

We currently have several customers that account for a substantial portion of our sales. In the mattress fabrics segment, several large bedding manufacturers have large market shares and comprise a significant portion of our mattress fabric sales, with Serta Simmons Holdings, LLC and its subcontractors accounting for approximately 13% of consolidated net sales in fiscal 2024. In the upholstery fabrics segment, La-Z-Boy Incorporated accounted for approximately 12% of consolidated net sales during fiscal 2024, and several other large furniture manufacturers comprised a significant portion of sales. A business failure or other significant financial difficulty by one or more of our major customers, or the loss of one or more of these customers, could cause a significant loss in sales, an adverse effect on our earnings, and difficulty in collection of our trade accounts receivable. For example, in recent years, two of our major customers associated with our mattress fabrics segment filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Although we did not record any credit losses and have received payment in full regarding all outstanding accounts receivable with respect to each of these customers, a business failure or loss of either such customer and its affiliates, or a business failure or loss of one or more other major customers, could cause a decrease in our sales and an adverse effect on our earnings.

Unforeseen events may adversely affect our customers, causing them to delay, or cease, payments to us. For example, during the onset of the COVID-19 pandemic, some customers experienced cash flow challenges and requested extended payment terms. While we perform credit evaluations of our customers, those evaluations may not prevent uncollectible trade accounts receivable. Credit evaluations involve significant management diligence and judgment, especially in the current environment. If more customers than we anticipate experience liquidity issues, if payments are not received on a timely basis, or if a customer declares bankruptcy, we may have difficulty collecting amounts owed to us by these customers, which could adversely affect our sales, earnings, financial condition, and liquidity.

If we fail to anticipate and respond to changes in consumer tastes and fashion trends, our sales and earnings may decline.

Demand for various types of upholstery fabrics and mattress coverings changes over time due to fashion trends and changing consumer tastes for furniture and bedding. Our success in marketing our fabrics depends upon our ability to anticipate and respond in a timely manner to fashion trends in home furnishings. If we fail to identify and respond to these changes, our sales of these products may decline.

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In addition, incorrect projections about the demand for certain products could cause the accumulation of excess raw material or finished goods inventory, which could lead to inventory mark-downs and decreases in earnings.

Increasing dependence on information technology systems comes with specific risks, including cybersecurity breaches and data leaks, which could have an adverse effect on our business.

We increasingly rely on technology systems and infrastructure. Additionally, we rely on third-party service providers in connection with the maintenance thereof and the execution of certain business processes. Greater dependence on technology systems heightens the risk of potential vulnerabilities from system failure and malfunction, breakdowns due to natural disasters, human error, unauthorized access, power loss, and other unforeseen events. Data privacy breaches by employees and others with or without authorized access to our systems poses risks that sensitive data may be permanently lost or leaked to the public or other unauthorized persons. With the growing use and rapid evolution of technology, including artificial intelligence and machine learning, cloud-based computing and mobile devices, there are additional risks of unintentional data leaks. There is also the risk of our exposure to theft of confidential information, intentional vandalism, industrial espionage, and a variety of cyber-attacks, including phishing attempts, covertly introducing malware to our computers and networks (or the computers and networks of our third-party providers), and impersonating authorized users, among other types of cyber-attacks, that could compromise our internal technology system, infrastructure, or result in data leakage in-house or at our third-party providers and business partners. Moreover, we may face increased exposure to these threats as a result of allowing certain of our employees to work remotely from time-to-time. Attempts to gain unauthorized access to our information technology systems have become increasingly more sophisticated over time, and while we seek to detect and investigate all security incidents and to prevent their recurrence, in some cases we might be unaware of an incident or its magnitude and effect. Failures of technology or related systems, cybersecurity incidents, or improper release of confidential information, could damage our business or subject us to unexpected liabilities, expenditures, and recovery time.

Additionally, the devotion of additional resources to the security of our information technology systems in the future could significantly increase our operating costs or otherwise adversely affect our financial results. We continue to balance the risk of an electronic security breach resulting in the unauthorized release of confidential information with the cost to protect us against such a breach, and we have taken steps to obtain insurance coverage for potential losses arising from a breach, although the costs, potential monetary damages, and operational consequences of responding to cyber incidents and implementing remediation measures may be in excess of our insurance coverage or not covered at all by our insurance. Losses in excess of our insurance coverage or outside the scope of our coverage could have a material adverse effect on our operations and financial results. In addition to direct financial losses, cybersecurity incidents may adversely impact our relationships with our customers or our business reputation, which may cause long term damage to our business. We have been a target of cybersecurity attacks in the past, and while such attacks have not resulted in a material impact on our operations, business, customer relationships, or reputation, we can provide no assurance that cybersecurity attacks or other cybersecurity related incidents will not have a material adverse impact on our business in the future.

 

Actions of activist shareholders could be disruptive and potentially costly and the possibility that activist shareholders may seek changes that conflict with our strategic direction could cause uncertainty about the strategic direction of our business.

 

In July 2024, we entered into an agreement with an activist investor, 22NW, LP, and various of its affiliates (collectively, “22NW”) that had filed a Schedule 13D with the SEC with respect to us, where we agreed to appoint a representative of 22NW to our board of directors and nominate that representative for election at our 2024 annual meeting in return for certain customary confidentiality and standstill provisions. 22NW remains a greater than 5% owner of Culp stock.

Activist investors may attempt to effect changes in our strategic direction and how we are governed, or to acquire control over us. Some investors seek to increase short-term shareholder value by advocating corporate actions, such as financial restructuring, increased borrowing, special dividends, stock repurchases, or even sales of assets or the entire company. While we welcome varying opinions from all shareholders, activist campaigns that contest or conflict with our strategic direction could have an adverse effect on our results of operations and financial condition, as responding to proxy contests and other actions by activist shareholders can disrupt our operations, be costly and time-consuming, and divert the attention of our board of directors and senior management from the pursuit of business strategies. In addition, perceived uncertainties as to our future direction as a result of changes to the composition of our board may lead to the perception of a change in the direction of the business, instability or lack of continuity, which may be exploited by our competitors, may cause concern to our current or potential customers, may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners. These types of actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

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We may not be able to recruit and retain key employees and skilled workers in a competitive labor market.

If we cannot successfully recruit and retain key employees and skilled workers or if we experience the unexpected loss of those employees, our operations may be negatively affected. A shortage of qualified personnel, along with cost inflation, may require us to enhance our compensation in order to compete effectively in the hiring and retention of qualified employees.

In addition, we are and will continue to be dependent upon our senior management team and other key personnel. Losing the services of one or more key members of our management team or other key personnel could adversely affect our operations.

Our intellectual property rights may not prevent others from using our copyrights or trademarks in connection with the sale of competitive products. We may be subject to claims that our products or trademarks infringe intellectual property rights of others.

We currently hold, or have registration applications pending for, numerous trademarks and copyrights for various product and trade names, logos, and fabric designs in the United States and certain foreign countries. We view such intellectual property, along with any unregistered copyrights, trademarks, service marks, trade names, domain names, trade dress, trade secrets, and proprietary technologies, as an important part of our business. These intellectual property rights may not provide adequate protection against infringement or piracy, may not prevent competitors from developing and marketing products that are similar or competitive with our fabric designs or other products, and may be costly and time-consuming to protect and enforce. In addition, the laws of some foreign countries may not protect our intellectual property rights and confidential information to the same extent as the laws of the United States. If we are unable to protect and enforce our intellectual property, we may be unable to prevent other companies from using our fabric designs or trademarks in connection with competitive products, which could adversely affect our sales, profitability, cash flows and financial condition.

We may be subject to claims that our products, advertising, or trademarks infringe the intellectual property rights of others. The defense of these claims, even if we are ultimately successful, may result in costly litigation, and if we are not successful in our defense, we could be subject to injunctions and liability for damages or royalty obligations, and our sales, profitability, cash flows and financial condition could be adversely affected.

We have made and expect to continue to make acquisitions, which could involve certain risks and uncertainties.

Acquisitions have been and may continue to be an important element of our business strategy. Acquisitions involve numerous inherent challenges, such as properly evaluating acquisition opportunities, properly evaluating risks and other diligence matters, ensuring adequate capital availability, and balancing other resource constraints. There are risks and uncertainties related to acquisitions, including difficulties integrating acquired operations, technology, personnel, and financial and other systems; unrealized sales expectations from the acquired business; unrealized synergies and cost-savings; unknown or underestimated liabilities; diversion of management attention from running our existing businesses; and potential loss of key management employees of the acquired business. In addition, internal control over financial reporting of acquired companies may not be up to required standards. Our integration activities may place substantial demand on our management, operational resources, and financial and internal control systems. Customer dissatisfaction or performance problems with an acquired business, technology, service, or product could also have a material adverse effect on our reputation and business.

Risks Related to Financing Our Operations

We may require funding from external sources, which may not be available at the levels we require or may cost more than we expect. As a result, our expenses and operating results could be negatively affected.

We regularly review and evaluate our liquidity and capital needs. Our available cash, cash equivalents, and cash flow from operations have been adequate to finance our operations and capital requirements in recent years. However, if we experience a sustained decline in revenue, there may be periods in which we may require additional external funding to support our operations. Also, market interest rates have increased significantly since the beginning of fiscal 2023. If we have a need to incur debt under our credit facilities, the cost of borrowing could increase substantially over debt costs that we have previously incurred.

As of April 28, 2024, we had approximately $32.5 million in combined total borrowing availability under our domestic credit facility and our China credit line. In January 2023, we entered into a Second Amended and Restated Credit Agreement with respect to our domestic credit facility, which provides for a revolving credit facility up to a maximum principal amount of $35.0 million, secured by a lien on the company's assets. The amount available under this facility is limited by a borrowing base consisting of certain eligible accounts receivable and inventory of the company. In the event we require additional liquidity from our lenders that exceeds the availability under our credit facilities at such time, such funds may not be available to us. In addition, in the event we draw on any of our credit facilities, outstanding amounts may become immediately due and payable upon certain events of default, including a failure to comply with the financial covenants or certain other affirmative and negative covenants in the credit agreements. If we are unable to access additional credit at the levels we require, or the cost of credit is greater than expected, it could adversely affect our operating results or financial condition.

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Legal and Regulatory Risks

We are subject to litigation and environmental regulations that could adversely affect our sales and earnings.

We have been, and in the future may be, a party to legal proceedings and claims, including environmental matters, product liability, and employment disputes, some of which claim significant damages. We face the continual business risk of exposure to claims that our operations have caused personal injury or property damage, including the related risk of damage to our brand and reputation in conjunction with such claims. We maintain insurance against product liability claims and, in some cases, have indemnification agreements with regard to environmental claims, but there can be no assurance that these arrangements will continue to be available on acceptable terms or that such arrangements will be adequate for liabilities actually incurred. Given the inherent uncertainty of litigation, there can be no assurance that claims against the company will not have a material adverse impact on our earnings or financial condition. We are also subject to various laws and regulations in our business, including those relating to environmental protection and the discharge of materials into the environment. We could incur substantial costs as a result of noncompliance with or liability for cleanup or other costs or damages under environmental laws or other regulations.

We must comply with many governmental regulations applicable to our business, and changes in those regulations could adversely affect our business.

Our products and raw materials are and will continue to be subject to regulation in the United States by various federal, state, and local regulatory authorities. In addition, other governments and agencies in other jurisdictions regulate the manufacture, sale, and distribution of our products and raw materials. Also, rules and restrictions regarding the importation of fabrics and other materials, including custom duties, tariffs, import restrictions (including, without limitation, the recent enactment of the UFLPA), quotas, banned substances, and other regulations, are continually changing. Environmental laws, labor laws, tax laws and regulations (including, without limitation, the Global Intangible Low Taxed Income (“GILTI”) tax provisions), data privacy laws, and other regulations continually affect our business. These rules and regulations can and do change from time to time, which can increase our costs and our taxes, or can require us to make changes in our manufacturing processes, product mix, sources of products and raw materials, or distribution. Changes in the rules and regulations applicable to our business may negatively affect our sales and earnings.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 1C. CYBERSECURITY

Our Board of Directors (the “Board”) recognizes the importance of cybersecurity and safeguarding our information systems and data assets. It is imperative that we maintain the trust and confidence of our customers, business partners and employees. Protecting our data and the data of our customers, business partners and employees is critical to maintaining that trust. As such, the Board is actively involved in overseeing our cybersecurity risk management program.

Risk Management and Strategy

We manage cybersecurity risks as part of our broader enterprise risk management framework, which allows us to leverage existing, robust processes for assessing the effectiveness and coverage of our controls.

Our cybersecurity policies, standards, processes and practices are based on recognized frameworks established by the National Institute of Standards and Technology, the International Organization for Standardization and other applicable industry standards. We seek to address cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, security, and availability of the information we collect and store, including information regarding our customers, suppliers and employees. As part of our enterprise risk management program, we actively work to identify, prevent, and mitigate cybersecurity threats, and take steps to be prepared to effectively respond to cybersecurity incidents when they occur. Our approach includes using select third-party resources, including external cybersecurity consultants, auditors, and technologies, along with our internal staff, to benchmark, measure, and improve our cybersecurity risk management systems and processes, and ensure alignment with industry best practices.

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We have established a robust cybersecurity governance framework to manage and mitigate risk. Our approach includes:

Through the aforementioned processes, we did not identify risks from current or past cybersecurity threats or cybersecurity incidents that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. However, we face ongoing risks from certain cybersecurity threats that, if realized, are reasonably likely to materially affect business strategy, results of operations, or financial condition. See “Risk Factors—Increasing dependence on information technology systems comes with specific risks, including cybersecurity breaches and data leaks, which could have an adverse effect on our business.”

Governance

Our Board of Directors has delegated to its Audit Committee primary responsibility for overseeing our management of risks arising from cybersecurity threats. The Audit Committee receives quarterly presentations on our cybersecurity program, including regular presentations regarding our cybersecurity risks; our efforts to address evolving standards; vulnerability assessments, including results of third-party penetration testing; and external audits of our cybersecurity IT controls. Management and the Board also receive prompt and timely information regarding any significant or potentially significant cybersecurity incident and our remediation efforts.

Our Vice President of Information Technology and our Director of Technical Infrastructure, in coordination with management, work to implement our program to protect the Company’s information systems from cybersecurity threats. These individuals work to promptly evaluate and address any cybersecurity incidents, and work with management to assess the impact and any necessary remediation efforts following a cybersecurity incident. In addition, the Vice President of Information Technology provides updates to the Audit Committee and the Board on a regular basis and as needed in response to specific incidents. To facilitate the success of our cybersecurity risk management program, we have assigned our Director of Technical Infrastructure and his team to monitor the prevention, detection, mitigation and remediation of cybersecurity threats and incidents in real time and provide reports to management.

Our Vice President of Information Technology and Director of Technical Infrastructure have a combined 65 years of experience designing, implementing, and supporting information technology systems with a security-first mindset. In particular, prior to joining Culp, our Director of Technical Infrastructure gained experience leading cybersecurity teams at a managed security service provider, where he provided cybersecurity support to outside organizations.

 

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ITEM 2. PROPERTIES

As of the end of fiscal 2024 (April 28, 2024), we leased our corporate headquarters and a design and innovation campus located in High Point, North Carolina. In addition, we owned or leased thirteen facilities associated with our mattress and upholstery fabrics operations. The following is a list of our administrative and production facilities. Our facilities listed below are organized by business segment.

 

Location		Principal Use		Approx. Total Area (Sq. Ft.)			Expiration of Lease (1)
● Administrative:
High Point, North Carolina		Upholstery fabric division offices and corporate headquarters		36,643	(3)		2034
High Point, North Carolina		Design and innovation campus, showrooms, and office space		21,261			2043
● Mattress Fabrics:
Stokesdale, North Carolina		Manufacturing and headquarters office		299,163			Owned
Stokesdale, North Carolina		Distribution center		220,222			Owned
St. Jerome, Quebec, Canada		Manufacturing		202,500	(4)		Owned
St. Jerome, Quebec, Canada		Warehouse		46,113	(4)		2026
Ouanaminthe, Haiti		Manufacturing		80,000			2025 (2)
Ouanaminthe, Haiti		Manufacturing		40,000	(5)		2028 (2)
● Upholstery Fabrics:
Burlington, North Carolina		Finished goods distribution		132,000			2028
Burlington, North Carolina		Design center		13,750			2026
Knoxville, Tennessee		Manufacturing and offices		37,770			2033
Shanghai, China		Manufacturing, warehouse and offices		68,677			2024
Shanghai, China		Warehouse and offices		89,857			2024
Shanghai, China		Warehouse and offices		89,861			2024
Shanghai, China		Warehouse		64,583	(6)		2024

 

 

 

We believe that our facilities are in good condition, well-maintained, suitable, and adequate for present utilization. In the upholstery fabrics segment, we have the ability to source upholstery fabric from outside suppliers to meet current and expected demand trends and further increase our output of finished goods. This ability to source upholstery fabric is part of our long-term strategy to have a low-cost platform that is scalable, but not capital intensive. In the mattress fabrics segment, we believe we have sufficient capacity to meet current and expected demand trends.

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We also have the ability to source additional mattress fabrics from outside suppliers to further increase our ultimate output of finished goods.

ITEM 3. LEGAL PROCEEDINGS

There are no legal proceedings to which the company, or its subsidiaries, is a party to or of which any of their property is the subject that are required to be disclosed under this item.

ITEM 4. MINE SAFETY DISCLOSURE ITEM 5.

Not applicable.

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PART II

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Registrar and Transfer Agent

Computershare Trust Company, N.A.

Correspondence should be mailed to:

Computershare

P.O. Box 43006

Providence, RI 02940-3078

Overnight correspondence should be sent to:

Computershare

150 Royall St.

Canton, MA 02021

(800) 254-5196

(781) 575-2879 (Foreign shareholders)

www.computershare.com/investor

Stock Listing

Culp, Inc. common stock is traded on the New York Stock Exchange (NYSE) under the symbol CULP. As of April 28, 2024, Culp, Inc. had approximately 2,682 shareholders based on the number of holders of record and an estimate of individual participants represented by security position listings.

Analyst Coverage

The following analyst covers Culp, Inc.:

Water Tower Research – Budd Bugatch, CFA

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Dividends and Share Repurchases; Sales of Unregistered Securities

Share Repurchases

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period		(a) Total Number of Shares Purchased				(b) Average Price Paid per Share				(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs				(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
January 29, 2024 to March 3, 2024			—			$	—				—			$	3,248,094
March 4, 2024 to March 31, 2024			—			$	—				—			$	3,248,094
April 1, 2024 to April 28, 2024			—			$	—				—			$	3,248,094
Total			—			$	—				—			$	3,248,094

 

Dividends

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 not make any dividend payments during fiscal 2024 or fiscal 2023.

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

Our board of directors has sole authority to determine if and when we will declare future dividends, and on what terms. We will continue to reassess our dividend policy each quarter. Future dividend payments will depend on earnings, capital requirements, financial condition, excess availability under our lines of credit, market and economic conditions, and other factors, including alternative investment opportunities.

Sales of Unregistered Securities

There were no sales of unregistered securities during fiscal 2024, 2023, or 2022.

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Performance Comparison

The following graph shows changes over the five fiscal years ending April 28, 2024, in the value of $100 invested in (1) the common stock of the company, (2) the Hemscott Textile Manufacturing Group Index reported by Standard and Poor’s, consisting of three companies in the textile industry, and (3) the Standard & Poor’s 500 Index.

The graph assumes an initial investment of $100 at the end of fiscal 2019 and the reinvestment of all dividends during the periods identified.

 

 

 

ITEM 6. [RESERVED]

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We have prepared this Management’s Discussion and Analysis as an aid to understanding our financial results. It should be read in conjunction with the consolidated financial statements and notes and other exhibits included elsewhere in this report. It also includes management’s analysis of past financial results and certain potential risk factors that may affect future results, as well as approaches that may be used to manage those risks. See “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report, together with the section of this report titled “Item 1A. RISK FACTORS,” for a discussion of factors that may cause results to differ materially.

General

Our fiscal year is the 52 or 53-week period ending on the Sunday closest to April 30. Fiscal 2024, 2023, and 2022 each included 52- weeks periods.

Our operations are classified into two business 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 mattress fabric manufacturing operations located in Stokesdale, North Carolina, and Quebec, Canada. We also have a mattress cover operation located in Ouanaminthe, Haiti. During the last half of fiscal 2023, we rationalized our domestic cut and sewn cover platform, which included the termination of agreements to lease two facilities located in High Point, North Carolina, and moving our R&D and prototyping capabilities from these facilities to our facility located in Stokesdale, North Carolina.

On April 29, 2024 (the first quarter of fiscal 2025), our board of directors made a decision to (1) consolidate the company's North American mattress fabrics operations, including a gradual discontinuation of operations and sale of the company's manufacturing facility located in Quebec, Canada; (2) move a portion of the knitting and finishing capacity from the company's manufacturing facility located in Quebec, Canada, to the company's manufacturing facility located in Stokesdale, North Carolina; (3) transition the mattress fabrics segment's weaving operation to a strategic sourcing model through the company's long standing supply partners; and (4) consolidate the company's sewn mattress cover operation located in Ouanaminthe, Haiti, from two leased facilities into one building and reduce other operation expenses at this location. See Note 8 to the consolidated statements regarding our restructuring activities.

Upholstery Fabrics

The upholstery fabrics segment develops, sources, manufactures, and sells fabrics primarily to residential, commercial, and hospitality furniture manufacturers. We have upholstery fabric operations located in Shanghai, China, and Burlington, North Carolina. During the fourth quarter of fiscal 2024, we also established a wholly owned subsidiary, Culp Fabrics Vietnam Limited, with an administrative office located in Ho Chi Minh City, Vietnam, for the purpose of enhancing our strategic sourcing opportunities and to further diversify our supply chain in Asia.

During the third quarter of fiscal 2022, we commenced operation of a new leased facility in Ouanaminthe, Haiti, dedicated to the production of cut and sewn upholstery kits. However, due to a significant decline in demand, we (i) terminated the agreement to lease this new facility during the third quarter of fiscal 2023, (ii) relocated a scaled down upholstery cut and sewn operation into our existing mattress cover facility located in Ouanaminthe, Haiti, during the fourth quarter of fiscal 2023, and (iii) thereafter discontinued the production of cut and sewn upholstery kits in Haiti during the first quarter of fiscal 2024 as a result of a further decline in demand. See Notes 8 and 9 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, provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation for Read’s products, to customers in the hospitality and commercial industries. Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.

Executive Summary

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

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Results of Operations

 

		Twelve Months Ended
(dollars in thousands)		April 28, 2024				April 30, 2023				Change
Net sales		$	225,333			$	234,934				(4.1	)%
Gross profit			27,939				10,896				156.4	%
Gross profit margin			12.4	%			4.6	%			780	bp
Selling, general, and administrative expenses			38,611				37,978				1.7	%
Restructuring expense			636				1,396				(54.4	)%
Loss from operations			(11,308	)			(28,478	)			(60.3	)%
Operating margin			(5.0	)%			(12.1	)%			(710	) bp
Loss before income taxes			(10,770	)			(28,390	)			(62.1	)%
Income tax expense			3,049				3,130				(2.6	)%
Net loss			(13,819	)			(31,520	)			(56.2	)%

 

Net Sales

Our consolidated net sales decreased 4.1% in fiscal 2024 compared with a year ago, with mattress fabric net sales increasing 4.8% and upholstery fabric net sales decreasing 12.1%.

The increase in net sales in our mattress fabrics segment was driven by higher sales for the first nine months of fiscal 2024, primarily due to new fabric and sewn cover placements priced in line with current costs, and, to a lesser extent, SKU rationalization and the re-pricing of some underperforming SKUs to reflect current costs, resulting in higher average selling prices overall. The higher sales in the first nine months of the year were partially offset by lower sales during the fourth quarter, as sales were pressured by weakness in the domestic mattress industry, driven by a challenging macroeconomic environment that affected consumer discretionary spending and housing markets.

The decrease in net sales for our upholstery fabrics segment for fiscal 2024 primarily reflects ongoing softness in the residential home furnishings industry, where demand was pressured throughout the year by a challenging macroeconomic environment that affected consumer discretionary spending and reduced home sales.

See the Segment Analysis located in the Results of Operations section below for further details.

Loss Before Income Taxes

Overall, our consolidated loss before income taxes was $(10.8) million for fiscal 2024, compared with loss before income taxes of $(28.4) for the prior year.

Operating performance for fiscal 2024, as compared to the prior year, was positively affected by a more profitable mix of sales and better inventory management for both the mattress fabrics and upholstery fabrics segment; a more favorable foreign exchange rate associated with our upholstery fabrics operation in China; and fixed cost savings in the upholstery fabrics segment. These factors were partially offset by lower sales during the year, as well as production inefficiencies mostly related to certain new product launches in the mattress fabrics segment. Notably, operating performance for fiscal 2023 was negatively affected by inventory impairment charges and inventory closeout sales for our mattress fabrics segment; higher than normal markdowns of inventory in our upholstery fabrics segment; and restructuring and related charges associated with our upholstery fabrics segment.

See the Segment Analysis located in the Results of Operations section below for further details.

Income Taxes

We recorded income tax expense of $3.0 million, or (28.3)% of loss before income taxes, for fiscal 2024, compared with income tax expense of $3.1 million, or (11.0)% of loss before income taxes, for fiscal 2023.

 

Our negative consolidated effective income tax rates during fiscal 2024 and fiscal 2023 were caused by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stems from our operations located in China and Canada, which have higher income tax rates than the U.S. In addition, we applied a full valuation allowance against our U.S. deferred income tax assets during both fiscal 2024 and fiscal 2023.

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Consequently, an income tax benefit was not recognized for the pre-tax losses associated with our U.S. operations totaling $(18.6) million and $(33.5) million that were incurred during fiscal 2024 and fiscal 2023, respectively.

 

During fiscal 2024, we incurred a significantly lower consolidated pre-tax loss of $(10.8) million, compared with a significantly higher pre-tax loss of $(28.4) million incurred during fiscal 2023. As a result, the principal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements were more pronounced during fiscal 2024 compared with fiscal 2023.

During fiscal 2024 and fiscal 2023, we had income tax payments totaling $3.3 million and $2.3 million, respectively, which primarily represented income tax payments associated with our foreign operations located in China and Canada.

Refer to Note 11 of the consolidated financial statements for further details regarding our provision for income taxes.

Liquidity

As of April 28, 2024, our cash and cash equivalents (“cash") totaled $10.0 million, a decrease of $11.0 million compared with cash of $21.0 million as of April 30, 2023. This decrease was mostly due to (i) net cash used in operating activities totaling $8.2 million; and (ii) capital expenditures of $3.7 million mostly related to our mattress fabrics segment; partially offset by (iii) proceeds from the sale of equipment and a note receivable totaling $715,000 (see Note 9 to the consolidated financial statements for further details).

Our net cash used in operating activities was $8.2 million during fiscal 2024, a decrease of $16.0 million compared with net cash provided by operating activities of $7.8 million during fiscal 2023. This trend primarily reflects (i) a significant decrease in inventory during fiscal 2023, which decrease did not recur during fiscal 2024 due to improved alignment of inventory purchases with customer demand trends and promotional programs to reduce aged raw materials and finished goods; (ii) a significant increase in accounts payable during fiscal 2023, related to an abnormally high decrease in accounts payable due to the COVID-19 related shutdowns that affected our operations located in China during the fourth quarter of fiscal 2022, that did not recur during fiscal 2023 or fiscal 2024; (iii) annual incentive payments made during the first quarter of fiscal 2024, which did not occur during the first quarter of fiscal 2023; and (iv) an increase in income tax payments (see Note 11 to the consolidated financial statements for tabular disclosure of income tax payments by jurisdiction); partially offset by (v) an increase in cash earnings during fiscal 2024 compared with fiscal 2023, and (vi) a decrease in accounts receivable during fiscal 2024, which reflects a 19.4% decrease in net sales during the fourth quarter of fiscal 2024, as compared to the fourth quarter of fiscal 2023.

As of April 28, 2024, there were no outstanding borrowings under our lines of credit.

Results of Operations

The following table sets forth certain items in our consolidated statements of net loss as a percentage of net sales.

 

		Fiscal				Fiscal
		2024				2023
Net sales			100.0	%			100.0	%
Cost of sales			(87.6	)			(95.4	)
Gross profit			12.4				4.6
Selling, general and administrative expenses			(17.1	)			(16.2	)
Restructuring expense			(0.3	)			(0.6	)
Loss from operations			(5.0	)			(12.1	)
Interest expense			—				—
Interest income			0.5				0.2
Other expense			(0.3	)			(0.2	)
Loss before income taxes			(4.8	)			(12.1	)
Income tax expense *			(28.3	)			(11.0	)
Net loss			(6.1	)			(13.4	)

 

* Calculated as a percentage of loss before income taxes.

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2024 compared with 2023

Segment Analysis

Mattress Fabrics Segment

 

		Twelve Months Ended
(dollars in thousands)		April 28, 2024				April 30, 2023				Change
Net sales		$	116,370			$	110,995				4.8	%
Gross profit (loss)			6,289				(6,739	)		N.M.
Gross margin			5.4	%			(6.1	)%		N.M.
Selling, general and administrative expenses			13,134				11,942				10.0	%
Loss from operations			(6,845	)			(18,681	)			(63.4	)%
Operating margin			(5.9	)%			(16.8	)%			1090	bp

 

Net Sales

Mattress fabrics sales increased 4.8% in fiscal 2024 compared to the prior year. This increase was driven by higher sales for the first nine months of fiscal 2024, primarily due to new fabric and sewn cover placements priced in line with current costs, and, to a lesser extent, SKU rationalization and the re-pricing of some underperforming SKUs to reflect current costs, resulting in higher average selling prices as compared to historical average selling prices. The increase in sales during the first nine months of the year was partially offset by lower sales during the fourth quarter, as sales were pressured by weakness in the domestic mattress industry, driven by a challenging macroeconomic environment that affected consumer discretionary spending and housing markets.

The decline in fourth quarter sales, along with ongoing macroeconomic challenges, caused us to take aggressive action to bring our manufacturing costs and capacity in line with current and expected demand. We announced a major restructuring plan primarily focused on the mattress fabrics segment in May 2024 (our fiscal 2025 year), and we are making steady progress on the execution of this restructuring, which is expected to be mostly completed by the end of the calendar year. See “—Restructuring Activities” below for further details.

 

Looking ahead, we are diligently focused on winning new placements to drive revenue and increase margins. However, with no ascertainable catalysts that might be expected to drive recovery in the near term, we expect the current macroeconomic environment will continue to pressure consumer spending and housing market trends (and our net sales) for some time. In the face of these macro headwinds, we are working to manage the aspects of our business we can control, including the execution of our restructuring plan. We believe the strategic actions we are taking will position us for profitable growth opportunities, but greater macro-industry and end-consumer support will be needed to drive recovery in the mattress industry and support our future sales growth. Additionally, the potential ongoing geopolitical disruptions related to wars in Ukraine and the Middle East, as well as possible economic and health effects from additional surges in the coronavirus, remain unknown and depend on factors beyond our knowledge or control. These situations could cause disruption to global markets that could adversely affect our operations and financial performance.

Gross Profit and Operating Income

The decrease in this segment’s operating loss during fiscal 2024, as compared to fiscal 2023, was primarily due to higher sales through the first nine months of the year as described above, along with better inventory management (i.e., in the prior fiscal year, operating performance was pressured by $2.9 million in inventory impairment charges, $2.6 million in losses from closeout sales of raw material and finished goods inventory, and $386,000 in markdowns of inventory based on our policy for aged inventory. These charges, losses from closeout sales, and markdowns did not recur, or were significantly less, in fiscal 2024). These factors were partially offset by production inefficiencies mostly relating to certain new product launches, as well as higher SG&A expense. Higher SG&A expense for fiscal 2024, as compared to fiscal 2023, was primarily due to an increase in trade show expense (in connection with the bi-annual ISPA bedding show); an increase in allowance for customer credit risk; and an increase in sampling expense due to a reorganization of this segment's U.S. cut and sew operation.

We expect the ongoing industry softness affecting sales volumes will affect profitability through at least the first half of fiscal 2025 as we work to implement our restructuring plan to align capacity with current and expected demand. However, we expect these restructuring initiatives, once fully implemented, will enable the mattress fabrics segment to grow more efficiently and profitably with a lower level of fixed costs. See “—Restructuring Activities” below for further details. Importantly, these strategic steps do not limit our ability to grow the mattress fabrics business, but instead allow us to better optimize our global mix of manufacturing capabilities and long-term sourcing partners. We will also consider further adjustments to right-size and restructure our operations as necessary to align with current demand levels, as well as additional reasonable pricing actions as competitive conditions permit to further mitigate and manage inflation.

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Restructuring Activities

On April 29, 2024 (first quarter of fiscal 2025), our board of directors made a decision to (1) consolidate the company's North American mattress fabrics operations, including a gradual discontinuation of operations and sale of the company's manufacturing facility located in Quebec, Canada; (2) move a portion of the knitting and finishing capacity from the company's manufacturing facility located in Quebec, Canada, to the company's manufacturing facility located in Stokesdale, North Carolina; (3) transition the mattress fabrics segment's weaving operation to a strategic sourcing model through the company's long standing supply partners; and (4) consolidate the company's sewn mattress cover operation located in Ouanaminthe, Haiti, from two leased facilities into one building and reduce other operating expenses at this location.

 

We expect the gradual discontinuance of operations and the closure of the facility located in Quebec, Canada, will be completed by December 31, 2024. We expect the consolidation activity associated with the sewn mattress cover operation located in Haiti will be completed during the first quarter of fiscal 2025. These actions are expected to result in estimated restructuring and restructuring related costs and charges of approximately $8.0 million, of which approximately $2.5 million is expected to be cash expenditures. The costs include cash charges of approximately $1.1 million associated with expected ongoing operating losses and other exit and disposal expenses related to the company's manufacturing plant in Quebec, Canada; cash charges of approximately $1.4 million for employee termination costs; a non-cash charge of approximately $2.3 million associated with accelerated depreciation and losses on the sale of equipment; a non-cash charge of approximately $2.1 million associated with write-downs and other inventory related adjustments; and a non-cash charge of approximately $650,000 associated with accelerated rent amortization for a leased building in Haiti. These restructuring charges and restructuring related costs and charges exclude any expected gain on the sale of real estate associated with the closure of the Canadian facility, the amount of which is currently undetermined but which will ultimately reduce the amount of the restructuring charges incurred (and based on management's internal analysis, we expect cash proceeds from the sale of real estate (net of all taxes and commissions) to exceed the amount of restructuring charges incurred). Also, management estimates that the realizable fair market value of the long-lived assets at the Canadian and Haitian facilities exceed their net book value, and for that reason, no charges for impairment of long-lived assets (other than the restructuring charges noted above) are expected to be recorded in the connection with this decision for either location.

 

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

Segment Assets

Segment assets consist of accounts receivable, inventory, property, plant, and equipment, and right of use assets.

 

(dollars in thousands)		April 28, 2024				April 30, 2023				% Change
Accounts receivable		$	10,003			$	12,396				(19.3	)%
Inventory			27,671				25,674				7.8	%
Property, plant & equipment			31,472				33,749				(6.7	)%
Right of use assets			1,627				2,308				(29.5	)%
Total mattress fabrics segment assets		$	70,773			$	74,127				(4.5	)%

 

Refer to Note 17 of the consolidated financial statements for disclosures regarding determination of our segment assets.

 

Accounts Receivable

The decrease in accounts receivable reflects the decrease in net sales during the fourth quarter of fiscal 2024, as compared with the fourth quarter of fiscal 2023. Net sales during the fourth quarter of fiscal 2024 were $25.8 million, a decrease of (16.1)% compared with net sales of $30.7 million during the fourth quarter of fiscal 2023. In addition, we experienced faster cash collections from a significant customer who utilized more cash discounts during the fourth quarter of fiscal 2024, as compared with the fourth quarter of fiscal 2023. This led to a decrease in days' sales outstanding from 37 days during the fourth quarter fiscal 2023, as compared with 35 days during the fourth quarter of fiscal 2024.

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Inventory

The increase in inventory primarily reflects lower than anticipated demand trends in relation to inventory purchases and production during the fourth quarter of fiscal 2024, as compared with the fourth quarter of fiscal 2023. Net sales during the fourth quarter of fiscal 2024 were $25.8 million, a decrease of 16.1% compared with net sales of $30.7 million during the fourth quarter of fiscal 2023.

Inventory turns were 3.6 for the fourth quarter of fiscal 2024, compared with 4.4 for the fourth quarter of fiscal 2023.

Property, Plant, & Equipment

The decrease in property, plant, and equipment represents a continued maintenance level of capital spending with a strategic focus on capital projects that will increase efficiencies and improve the quality of our products.

 

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

Right of Use Assets

The decrease in right of use assets stems from rent expense incurred over the terms of the respective lease agreements.

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

Upholstery Fabrics Segment

Net Sales

 

		Twelve Months Ended
(dollars in thousands)		April 28, 2024								April 30, 2023								% Change
Non-U.S. Produced		$	98,429				90	%		$	114,589				92	%			(14.1	)%
U.S. Produced			10,534				10	%			9,350				8	%			12.7	%
Total		$	108,963				100	%		$	123,939				100	%			(12.1	)%

 

Upholstery fabrics sales decreased 12.1% in fiscal 2024 compared to the prior year. This decrease primarily reflects ongoing softness in the residential home furnishings industry, where demand was pressured throughout the year by a challenging macroeconomic environment that affected consumer discretionary spending and reduced home sales. Sales during the prior year were also positively affected by receipt of a $1.0 million non-recurring payment (relating to newly negotiated terms with a Haiti cut and sew customer) that did not recur during fiscal 2024.

 

Looking ahead, we expect the soft industry demand backdrop for residential home furnishings may affect our residential business for some period of time. Despite this challenge, we believe our business is well positioned for the long term with our product-driven strategy and innovative product offerings, including our popular portfolio of LiveSmart® performance products, supported by our flexible Asian platform and our long-term supplier relationships. We also believe overall demand remains solid for our hospitality/contract business.

 

Notably, the potential ongoing geopolitical disruptions related to wars in Ukraine and the Middle East, as well as the economic and health effects from possible additional surges in the coronavirus, remain unknown and depend on factors beyond our control. At this time, we cannot reasonably estimate the impact on our upholstery fabrics segment, but we note that if conditions worsen in any of these situations, including additional COVID-related shutdowns of our China operations or shipping disruptions related to wars in the Middle East, the impact on our operations, and/or on our suppliers, customers, consumers, and the global economy, could adversely affect our financial performance.

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Gross Profit and Operating Income

 

 

		Twelve Months Ended
(dollars in thousands)		April 28, 2024				April 30, 2023				Change
Gross profit		$	21,690			$	17,733				22.3	%
Gross profit margin			19.9	%			14.3	%			560	bp
Selling, general and administrative expenses			15,903				15,739				1.0	%
Restructuring expense			636				1,396				(54.4	)%
Income from operations			5,787				1,994				190.2	%
Operating margin			5.3	%			1.6	%			370	bp

 

The increase in upholstery fabrics profitability for fiscal 2024, as compared to fiscal 2023, primarily reflects a more profitable mix of sales; better inventory management (i.e., in the prior fiscal year, operating performance was pressured by $2.5 million in markdowns of inventory based on our policy for aged inventory, while such markdowns were significantly lower in fiscal 2024); a more favorable foreign exchange rate in China; and lower fixed costs resulting from the previous restructuring of the upholstery fabrics cut and sew platform. These factors were partially offset by lower sales during the year.

 

Based on market dynamics, we took action during the fourth quarter of fiscal 2024 to restructure our upholstery fabrics finishing operation in China to align with current demand and further leverage our strategic supply relationships (see below). We believe this move will allow us to reduce our operating costs while maintaining our ability to support our customers.

 

Looking ahead, the residential home furnishings industry remains under pressure due to shifting consumer spending trends, inflation, reduced home sales, and other macroeconomic conditions affecting discretionary consumer spending. As a result, we expect lower sales volumes in our residential business will continue to affect our profitability. However, for fiscal 2025, we expect to benefit from continued solid demand in our hospitality/fabrics business; improvement in our Read Window business; and fixed cost savings from our strategic decision to rationalize our upholstery fabric finishing operation in China and further leverage our long-term supply relationships. We will also continue our ongoing cost reduction efforts and will consider further adjustments to rationalize our operations as necessary to align with current demand levels, while maintaining our ability to service our customers.

Restructuring Activities

 

Ouanaminthe, Haiti

 

During the third quarter of fiscal 2023, Culp Upholstery Fabrics Haiti, Ltd. ("CUF Haiti") entered into an agreement to terminate a lease associated with a facility, and in turn moved the production of upholstery cut and sewn kits to an existing facility leased by Culp Home Fashions Haiti, Ltd. ("CHF Haiti") during the fourth quarter of fiscal 2023. Both CUF Haiti and CHF Haiti are 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 was completed during the third quarter of fiscal 2024, and we incurred a cumulative restructuring and restructuring related charge of $1.3 million from the commencement of this restructuring activity during the third quarter of fiscal 2023 through the third quarter of fiscal 2024.

 

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

 

Shanghai, China

 

Cut and Sew Upholstery Fabrics Operation

 

During the second quarter of fiscal 2023, we closed our cut and sew upholstery fabrics operation located in Shanghai, China, which included the termination of an agreement to lease a building. This strategic action, along with the further use of our Asian supply chain, was taken in order to adjust our operating costs to better align with the declining demand for cut and sewn products. This restructuring activity was completed during the third quarter of fiscal 2023, and we incurred a cumulative restructuring and restructuring related charge of $713,000 during the second and third quarters of fiscal 2023.

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Upholstery Fabrics Finishing Operation

 

During the fourth quarter of fiscal 2024, we rationalized our upholstery fabrics finishing operation located in Shanghai, China, to align with current demand trends and further leverage our strategic supply relationships. This restructuring activity is expected to be completed by the end of the first quarter of fiscal 2025.

 

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

 

(dollars in thousands)			2024				2023
Employee termination benefits		$	307			$	507
Lease termination costs			—				481
Impairment loss - leasehold improvements and equipment			329				357
Loss on disposal and markdowns of inventory			40				98
Other associated costs			—				51
Restructuring expense and restructuring related charges (1)(2)		$	676			$	1,494

 

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

 

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

Segment Assets

Segment assets consist of accounts receivable, inventory, property, plant, and equipment, and right of use assets.

 

(dollars in thousands)		April 28, 2024				April 30, 2023				% Change
Accounts receivable		$	11,135			$	12,382				(10.1	)%
Inventory			17,172				19,406				(11.5	)%
Property, plant & equipment			1,125				1,671				(32.7	)%
Right of use assets			1,952				2,618				(25.4	)%
Total upholstery fabrics segment assets		$	31,384			$	36,077				(13.0	)%

 

Accounts Receivable

The decrease in accounts receivable reflects the decrease in net sales during the fourth quarter of fiscal 2024, as compared with the fourth quarter of fiscal 2023. Net sales during the fourth quarter of fiscal 2024 were $23.8 million, a decrease of 22.6% compared with net sales of $30.7 million during the fourth quarter of fiscal 2023. The decrease was partially offset by slower cash collections during the fourth quarter of fiscal 2024, as compared with the fourth quarter of fiscal 2023, due to an unfavorable sales mix with customers with longer credit terms. This led to an increase in days' sales outstanding to 37 days during the fourth quarter fiscal 2024, as compared with 33 days during the fourth quarter of fiscal 2023.

Inventory

The decrease in inventory reflects the decrease in net sales during the fourth quarter of fiscal 2024, as compared with the fourth quarter of fiscal 2023. Net sales during the fourth quarter of fiscal 2024 were $23.8 million, a decrease of 22.6% compared with net sales of $30.7 million during the fourth quarter of fiscal 2023.

Inventory turns were 4.4 during the fourth quarter of fiscal 2024, compared with 4.8 for the fourth quarter of fiscal 2023.

Property, Plant, & Equipment

The decrease in property, plant, and equipment represents an impairment charge related to equipment of $329,000 resulting from the discontinuation of production of cut and sewn upholstery kits at the company's facility located in Ouanaminthe, Haiti, and continued maintenance level of capital spending as a result of the current and expected unfavorable industry conditions.

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

Right of Use Assets

The decrease in right of use assets reflects rent expense incurred over the terms of our existing lease agreements, partially offset by the renewal of our agreement to lease a facility with Read and certain facilities associated with our operations located in China.

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

Other Income Statement Categories

 

		Twelve Months Ended
(dollars in thousands)		April 28, 2024				April 30, 2023				% Change
Selling, general, and administrative expenses		$	38,611			$	37,978				1.7	%
Interest expense			11				—				100.0	%
Interest income			1,174				531				121.1	%
Other expense			625				443				41.1	%

 

Selling, General, and Administrative Expenses

 

The modest increase in selling, general, and administrative expenses during fiscal 2024, as compared with fiscal 2023, is due to a variety of factors, including (i) wage inflation; (ii) an increase in travel, entertainment, and trade show expenses; (iii) an increase in allowance for customer credit risk; and (iv) an increase in sampling expense due to a reorganization of the mattress fabric segment's U.S. cut and sew operation; mostly offset by (v) $1.3 million in lower compensation expense, reflecting unfavorable financial results in relation to pre-established targets.

Interest Expense

Interest expense reflects our historically low level and short duration of borrowings outstanding.

Interest Income

The increase in interest income is due primarily to higher market interest rates earned during fiscal 2024, as compared with fiscal 2023.

Other Expense

The increase in other expense in fiscal 2024, as compared to fiscal 2023, is primarily due to the increase in fees and other costs associated with our ABL Credit agreement effective on January 19, 2023. See Note 10 located in the consolidated financial statements for further details regarding the terms and covenants associated with the ABL Credit Agreement.

Management is required to assess certain economic factors to determine the currency of the primary economic environment in which our foreign subsidiaries operate. Based on our assessments, the U.S. dollar was determined to be the functional currency of our operations located in China, Canada, and Vietnam.

During fiscal 2024, other expense included a foreign exchange rate gain of $545,000, compared with a foreign exchange rate gain of $500,000 during fiscal 2023. The $545,000 and $500,000 foreign exchange rate gains reported in fiscal 2024 and fiscal 2023 mostly relate to foreign currency exchange rates applied against our balance sheet accounts denominated in Chinese Renminbi to determine the corresponding U.S. dollar financial reporting amounts.

During fiscal 2024, we recorded a foreign exchange rate gain of $604,000 related to our operations located in China, which was mostly non-cash and was offset by $541,000 of income tax expense. This income tax expense of $541,000 was associated with taxable foreign exchange rate gains based on less favorable foreign currency exchange rates applied against balance sheet accounts denominated in U.S. dollars to determine the corresponding Chinese Renminbi local currency amounts. The foreign exchange rate gains incurred on our U.S. dollar denominated balance sheet accounts associated with our operations located in China are considered taxable income, as we incur income tax expense and pay income taxes in China’s local currency.

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Income Taxes

Effective Income Tax Rate & Income Tax Expense

We recorded income tax expense of $3.0 million, or (28.3)% of loss before income taxes, during fiscal 2024, compared with income tax expense of $3.1 million, or (11.0)% of loss before income taxes, during fiscal 2023.

The following schedule summarizes the principal differences between income tax expense at the federal income tax rate and the effective income tax rate reflected in the consolidated financial statements:

 

		2024				2023
U.S. federal income tax rate			21.0	%			21.0	%
valuation allowance			(30.9	)			(24.0	)
foreign tax rate differential			(4.7	)			(4.0	)
income tax effects of Chinese foreign exchange gains and losses			(3.6	)			(0.9	)
withholding taxes associated with foreign tax jurisdictions			(6.5	)			(2.4	)
uncertain income tax positions			(0.7	)			(0.3	)
U.S. state income taxes			0.8				0.6
stock-based compensation			(1.8	)			(0.3	)
other (1)			(1.9	)			(0.7	)
consolidated effective income tax rate (2) (3)			(28.3	)%			(11.0	)%

 

 

 

Deferred Income Taxes – Valuation Allowance

We evaluate the realizability of our deferred income taxes to determine if a valuation allowance is required. We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard, with significant weight being given to evidence that can be objectively verified. Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law.

As of April 28, 2024, 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 U.S. pre-tax losses to continue into fiscal 2025. 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 totaling $22.0 million as of April 28, 2024.

Refer to Note 11 of the consolidated financial statements for additional disclosures regarding the valuation allowance against our U.S. net deferred income taxes.

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 a record a deferred income tax liability for those undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely. As of April 28, 2024, we assessed the liquidity requirements of our U.S. parent company and determined that our undistributed earnings from our foreign subsidiaries would not be reinvested indefinitely and therefore, would be eventually distributed to our U.S. parent company. The conclusion reached from our assessment is consistent with prior years. Accordingly, as of April 28, 2024, we recorded a deferred income tax liability associated with our undistributed earnings from foreign subsidiaries of $4.8 million.

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Refer to Note 11 of the consolidated financial statements for additional disclosures regarding our deferred income tax liability associated with the undistributed earnings from our foreign subsidiaries.

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 if the position 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.

As of April 28, 2024, we had a $1.3 million total gross unrecognized income tax benefit that primarily relates to double taxation under applicable income tax treaties with foreign tax jurisdictions. At this time, a significant change associated with this income tax benefit is not expected within the next fiscal year.

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 2020 and subsequent. Canadian provincial (Quebec) income tax returns filed by us remain subject to examination for income tax years 2020 and subsequent. Income tax returns associated with our operations located in China are subject to examination for income tax year 2019 and subsequent.

Refer to Note 11 of the consolidated financial statements for disclosures and additional information regarding our uncertain income tax positions.

Income Taxes Paid

The following table sets forth income taxes paid by jurisdiction:

 

(dollars in thousands)		2024				2023
United States Federal - Transition Tax			499				265
China - Income Taxes			2,317				1,831
Canada - Income Taxes			468				228
		$	3,284			$	2,324

Future Liquidity

 

Based on the restructuring plan approved by our board of directors on April 29, 2024, the timing and success of the closure of our Canadian operation, along with the sale of associated real estate (the timing and amount of which sales price is currently undetermined), could have a significant effect on (i) the amount and timing of when and if fiscal 2025 income tax payments will be required (ii) the amount and timing of withholding tax payments to the Canadian government associated with the repatriation of earnings and profits to the U.S. parent, and (iii) the respective tax rates that will be applied based on the sale of real estate and equipment. Accordingly, we believe we cannot provide a reasonable estimate of our fiscal 2025 income tax payments associated with our Canadian operation at this time.

 

Currently, we are projecting annual cash income tax payments of approximately $1.9 million associated with our operations located in China. This estimate is management's current projection only and can be affected by actual earnings versus annual projections, changes in the foreign exchange rates in relation to the U.S. dollar, and the timing of when we will repatriate earnings and profits from China to our U.S. parent.

 

Currently do not expect to incur any income taxes in the U.S. on a cash basis during fiscal 2025 due to (i) the accelerated expensing of U.S. capital expenditures, and (ii) our existing U.S. federal net operating loss carryforwards. In accordance with the 2017 Tax Cuts and Jobs Act, we will be required to pay annual U.S. federal transition tax payments as follows: FY 2025- $665,000; and FY 2026 - $831,000.

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2023 compared with 2022

For a comparison of our results of operations for the fiscal years ended April 30, 2023, and May 1, 2022, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended April 30, 2023, filed with the SEC on July 14, 2023.

 

Liquidity and Capital Resources

Overall

Currently, our sources of liquidity include cash and cash equivalents ("cash"), cash flow from operations, and amounts available under our revolving credit lines. As of April 28, 2024, we believe our cash of $10.0 million, cash flow from operations, and the current availability under our revolving credit lines totaling $22.5 million (Refer to Note 10 of the consolidated financial statements for further details) will be sufficient to fund our foreseeable business needs, capital expenditures, commitments, and contractual obligations.

As of April 28, 2024, our cash totaled $10.0 million, a decrease of $11.0 million compared with cash of $21.0 million as of April 30, 2023. This decrease was mostly due to (i) net cash used in operating activities totaling $8.2 million; (ii) capital expenditures of $3.7 million mostly related to our mattress fabrics segment; partially offset by (iii) proceeds from the sale of equipment and a note receivable totaling $715,000 (see Note 9 to the consolidated financial statements for further details).

Our net cash used in operating activities was $8.2 million during fiscal 2024, a decrease of $16.0 million compared with net cash provided by operating activities of $7.8 million during fiscal 2023. This trend primarily reflects (i) a significant decrease in inventory during fiscal 2023, which decrease did not recur during fiscal 2024 due to improved alignment of inventory purchases with customer demand trends and promotional programs to reduce aged raw materials and finished goods; (ii) a significant increase in accounts payable during fiscal 2023, related to an abnormally high decrease in accounts payable due to the COVID-19 related shutdowns that affected our operations located in China during the fourth quarter of fiscal 2022, that did not recur during fiscal 2023 or fiscal 2024; (iii) annual incentive payments made during the first quarter of fiscal 2024, which payments did not occur during the first quarter of fiscal 2023; and (iv) an increase in income tax payments (see Note 11 to the consolidated financial statements for tabular disclosure of income tax payments by jurisdiction); partially offset by (v) an increase in cash earnings during fiscal 2024 compared with fiscal 2023, and (vi) a decrease in accounts receivable during fiscal 2024, which reflects a 19.4% decrease in net sales during the fourth quarter of fiscal 2024, as compared to the fourth quarter of fiscal 2023.

As of April 28, 2024, there were no outstanding borrowings under our lines of credit.

The income taxes we pay also affect our liquidity. See the above section titled “Income Taxes Paid” of this Item 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION for further details.

Our cash balance may be adversely affected by factors beyond our control, such as (i) recent customer demand trends affecting sales, (ii) supply chain disruptions, (iii) rising interest rates and inflation, (iv) world events (including wars in Ukraine and the Middle East), and (v) the continuing uncertainty associated with COVID-19. These factors could cause delays in receipt of payment on accounts receivable and could increase cash disbursements due to rising prices.

By Geographic Area

A summary of our cash by geographic area follows:

 

		April 28,				April 30,
(dollars in thousands)		2024				2023
United States		$	2,912			$	9,769
China			6,554				10,669
Canada			371				281
Haiti			86				236
Vietnam			81				—
Cayman Islands			8				9
		$	10,012			$	20,964

 

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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 not make any dividend payments during fiscal 2024 or fiscal 2023.

Our board of directors has sole authority to determine if and when we will declare future dividends, and on what terms. We will continue to reassess our dividend policy each quarter. Future dividend payments will depend on earnings, capital requirements, financial condition, excess availability under our lines of credit, market and economic conditions, and other factors, including alternative investment opportunities.

Common Stock Repurchases

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 repurchased 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, including alternative investment opportunities.

During fiscal 2024 and fiscal 2023, we did not repurchase any shares of our common stock. As a result, as of April 28, 2024, $3.2 million was available for additional repurchases of our common stock. Despite the current share repurchase authorization, the company does not expect to repurchase any shares through at least the first quarter of fiscal 2025.

Working Capital

Operating Working Capital

Operating working capital (accounts receivable and inventories, less deferred revenue, accounts payable-trade, and accounts payable-capital expenditures) was $38.5 million as of April 28, 2024, compared with $39.2 million as of April 30, 2023. Operating working capital turnover was 5.8 during the fourth quarter of fiscal 2024 compared with 4.6 during the fourth quarter fiscal 2023.

Accounts Receivable

Accounts receivable as of April 28, 2024, were $21.1 million, a decrease of $3.6 million, or 14.7%, compared with $24.8 million as of April 30, 2023. This trend reflects a decrease in net sales during the fourth quarter of fiscal 2024 compared with the fourth quarter of fiscal 2023. Net sales for the fourth quarter of fiscal 2024 were $49.5 million, a decrease of $11.9 million, or 19.4%, compared with net sales of $61.4 million during the fourth quarter of fiscal 2023. See the Executive Summary for section titled “Net Sales” of this Item 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION for further discussion regarding the decline in net sales.

Days’ sales outstanding were 36 days and 35 days for the fourth quarter of fiscal 2024 and fiscal 2023, respectively.

Inventory

Inventories as of April 28, 2024, were $44.8 million, which is comparable with $45.1 million as of April 30, 2023. This trend represents a $2.2 million decrease in inventory related to the upholstery fabrics segment as a result of the decrease in net sales during the fourth quarter of fiscal 2024, compared with the fourth quarter of fiscal 2023. Upholstery fabrics net sales during the fourth quarter of fiscal 2024 were $23.8 million, a decrease of 22.6% compared with net sales of $30.7 million during the fourth quarter of fiscal 2023. The decrease in inventory related to the upholstery fabrics segment was partially offset by a $2.0 million increase in inventory related to the mattress fabrics segment. The increase in inventory related to the mattress fabrics segment primarily reflects lower than anticipated demand trends in relation to inventory purchases during the fourth quarter of fiscal 2024, as compared with the fourth quarter of fiscal 2023. Mattress fabrics net sales during the fourth quarter of fiscal 2024 were $25.8 million, a decrease of 16.1%, compared with net sales of $30.7 million during the fourth quarter of fiscal 2023.

Inventory turns were 3.9 for the fourth quarter of fiscal 2024, compared with 4.7 for the fourth quarter of fiscal 2023.

Accounts Payable-Trade

Accounts payable - trade were $25.6 million as of April 28, 2024, a decrease of $3.8 million, or 13.0%, compared with $29.4 million as of April 30, 2023. The decrease in accounts payable as of April 28, 2024, compared to April 30, 2023, is mostly due to lower inventory purchases in both the U.S. and China resulting from weaker customer demand in fourth quarter of fiscal 2024 as compared with the fourth quarter of fiscal 2023.

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Financing Arrangements, Commitments and Contingencies, and Contractual Obligations

Revolving Credit Agreements

Currently, we have revolving credit agreements with banks for our U.S. parent company and our operations located in China. As of April 28, 2024, we did not have any outstanding borrowings associated with our revolving credit agreements. Our loan agreements require, among other things that we maintain compliance with certain financial covenants. As of April 28, 2024, we were in compliance with these financial covenants.

Refer to Note 10 of the consolidated financial statements for further disclosure regarding our revolving credit agreements.

Leases

Refer to Note 12 of the consolidated financial statements for disclosure of our lease obligations, which includes a five-year maturity schedule.

Capital Expenditures

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

Uncertain Income Tax Positions

As of April 28, 2024, we had $1.3 million of total gross unrecognized tax benefits, which primarily relate to double taxation under applicable income tax treaties with foreign tax jurisdictions. The outcome of these income tax uncertainties is dependent upon various matters including tax examinations, legal proceedings, competent authority proceedings, changes in regulatory tax laws, or interpretations of those tax laws, or expiration of statutes of limitation. As a result of these inherent uncertainties, we cannot reasonably estimate the timing of payment on this amount, if any.

Capital Expenditures and Depreciation Expense

Capital expenditures on a cash basis totaled $3.7 million and $2.1 million during fiscal 2024 and fiscal 2023, respectively. Capital expenditures during fiscal 2024 and fiscal 2023 mostly related to our mattress fabrics segment and represent a maintenance level of capital spending with a strategic focus on capital projects that will increase efficiencies and improve the quality of our products.

Depreciation expense was $6.5 million during fiscal 2024, compared with $6.8 million during fiscal 2023. Depreciation expense for fiscal 2024 and fiscal 2023 mostly related to our mattress fabrics segment.

Based on current expectations, capital spending for fiscal 2025 is projected to be approximately $4.5 million and will center on capital projects that will increase efficiencies and improve the quality of our products. Funding for capital expenditures is expected to be primarily from cash provided by operating activities.

Handling Costs

We record warehousing costs in SG&A expenses. These costs were $4.6 million during fiscal 2024 and $4.2 million during fiscal 2023. Warehousing costs include the operating expenses of our various finished goods distribution centers, such as personnel costs, utilities, building rent and material handling equipment, and lease expense. Had these costs been included in cost of sales, gross profit would have been $23.3 million, or 10.3% of net sales, during fiscal 2024, and $6.7 million, or 2.8% of net sales, during fiscal 2023.

Inflation

Any significant increase in our raw material costs, utility/energy costs, and general economic inflation could have a material adverse impact on the company because competitive conditions have limited our ability to pass significant operating increases on to customers.

During fiscal 2023 and continuing through fiscal 2024, raw material costs started to decline due to slowing global demand; however, the cost of labor remained challenging during fiscal 2023 and continuing through fiscal 2024.

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Inflationary pressures also affected consumer spending during fiscal 2023 and continued through fiscal 2024, causing a slowdown in business in both the mattress industry and the residential home furnishings industry. This slowdown has caused reduced demand from producers of home furnishings for our mattress fabrics and residential upholstery fabrics products during fiscal 2023 and fiscal 2024.

We are unable to predict how long these trends will last, or to what extent inflationary pressures may affect the economic and purchasing cycle for home furnishings products (and therefore affect demand for our products) over the short and long-term.

Critical Accounting Estimates

U.S. generally accepted accounting principles require us to make estimates and assumptions that affect our reported amounts in the consolidated financial statements and accompanying notes. Our estimates are based on (i) currently known facts and circumstances, (ii) prior experience, (iii) assessments of probability, (iv) forecasted financial information, and (v) assumptions that management believes to be reasonable but that are inherently uncertain and unpredictable. We use our best judgment when measuring these estimates, and if warranted, use external advice. Due to the uncertain and unpredictable nature of our estimates, actual results could differ from the estimates that were previously reported in our consolidated financial statements.

As of April 28, 2024, we believe the following list represents our critical accounting estimates that have or are reasonably likely to have a material effect on our financial condition or results of operations. For a discussion of all our significant accounting policies, including our critical accounting policies, refer to Note 1 of the consolidated financial statements.

Inventory Valuation

We operate as a “make-to-order” and “make-to-stock” business. Although management closely monitors demand for each product category to decide which patterns and styles to hold in inventory, the availability of low-cost imported products and shifts in consumer preferences and styles subject the company to markdowns of inventory.

Management continually 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 fabric patterns. As a result, we provide inventory valuation markdowns based upon set percentages for inventory aging categories of six, nine, twelve, and fifteen-months that are determined based on historical experience and judgment. Also, we provide inventory valuation write-downs based on the planned discontinuation of certain products based on current market values at the time of assessment compared with their current carrying values. While management believes that adequate markdowns for inventory have been made in the consolidated financial statements, significant unanticipated changes in demand or changes in consumer tastes and preferences could result in additional inventory markdowns in the future.

As of April 28, 2024, and April 30, 2023, the reserve for inventory markdowns was $9.6 million and $11.8 million, respectively.

Refer to Note 4 of the consolidated financial statements for additional disclosures regarding our assessments and conclusions reached regarding the subsequent measurement of inventory.

Income Taxes – Valuation Allowance

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

To determine if a valuation allowance is required or needs to be subsequently reversed, we use significant judgment when considering the effect of all positive and negative evidence identified and giving weight to that evidence. The weight given to the potential effect of positive and negative evidence is based on the extent to which it can be objectively verified. Our judgments are often based on estimates that are derived from (i) forecasted financial information, (ii) assumptions on when certain taxable or deductible events will occur, and (iii) interpretation of complex income tax laws and regulations.

As of April 28, 2024, we recorded a full valuation allowance against all our U.S. net deferred income tax assets totaling $22.0 million.

Refer to Note 11 of the consolidated financial statements for additional disclosures regarding our assessments and conclusions reached regarding our valuation allowance as of April 28, 2024.

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Stock-Based Compensation

We are required to recognize compensation expense for all stock-based compensation awards in the financial statements, with the cost measured at the grant date fair value.

Compensation expense for performance-based restricted stock units is recognized based on an assessment each reporting period of 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. If certain targets are not expected to be achieved, compensation expense will not be recorded, and any previously recognized compensation expense will be reversed. Determining the probability of the vesting of our performance-based restricted stock units requires judgment, including assumptions used to forecast future financial results. While our forecasts of future financial results represent management’s best estimates, these involve inherent uncertainties. As a result, if we revised our assumptions and estimates during the vesting period, our stock-based compensation expense could be materially different than previously expected.

We estimate the fair value of our performance-based restricted stock units that have a market condition using a Monte Carlo valuation model. The Monte Carlo valuation model incorporates inputs and complex assumptions that include (i) the closing price of our common stock at the respective grant date, (ii) expected volatility of our common stock, (iii) expected volatility and correlation coefficient of our peer companies that are approved by the Compensation Committee of our board of directors, (iv) risk-free interest rate, and (v) dividend yield. The determination of the inputs and complex assumptions used, and the application of the Monte Carlo valuation model, requires significant judgment by management and advice from an external advisor.

We recorded $915,000, $1.1 million, and $1.1 million of compensation expense within selling, general, and administrative expense for our equity-based awards in fiscal 2024, 2023, and 2022, respectively.

Adoption of New Accounting Pronouncements

Refer to Note 1 of the consolidated financial statements for recently adopted accounting pronouncements for fiscal 2024.

Recently Issued Accounting Standards

Refer to Note 1 of the consolidated financial statements for recently issued accounting pronouncements for fiscal 2025 and beyond.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

Interest Rates

We are exposed to market risk from changes in interest rates on our revolving credit agreements.

Effective January 19, 2023, we entered into a second amended and restated U.S. revolving credit agreement (the "Amended Agreement") to establish an asset-based revolving credit facility that required interest to be charged at a rate calculated using an applicable margin over Federal Reserve Bank of New York's secured overnight fund rate (SOFR), as defined in the Amended Agreement. The interest rate under the Amended Agreement as of April 28, 2204, was 6.81%. As of April 28, 2024, there were no outstanding borrowings under the Amended Agreement.

 

Effective on March 20, 2024, we entered into an unsecured credit agreement with a financial institution in China denominated in RMB that requires interest to be charged at a rate based on the Loan Prime Rate ("LPR") in China minus 50 basis points (2.95% as of April 28, 2024). There were no borrowings outstanding under this agreement as of April 28, 2024.

Our previously existing revolving credit agreement with another financial institution in China bears interest at a rate determined by the Chinese government at the time of borrowing, and is not directly determined by a published interest rate benchmark. There were no borrowings outstanding under this agreement as of April 28, 2024.

Foreign Currency

We are exposed to market risk from changes in the value of foreign currencies for our subsidiaries domiciled in Canada, 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 28, 2024, would not have materially affected our results of operations or financial position.

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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS

AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED 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 28, 2024 and April 30, 2023, the related consolidated statements of net loss, comprehensive loss, shareholders’ equity, and cash flows for each of the three years in the period ended April 28, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 28, 2024 and April 30, 2023, and the results of its operations and its cash flows for each of the three years in the period ended April 28, 2024, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the 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 12, 2024

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CONSOLIDATED BALANCE SHEETS

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

 

April 28, 2024, and April 30, 2023		2024				2023
ASSETS
current assets:
cash and cash equivalents		$	10,012			$	20,964
short-term investments - rabbi trust			903				1,404
accounts receivable, net			21,138				24,778
inventories			44,843				45,080
short-term note receivable			264				219
current income taxes receivable			350				—
other current assets			3,371				3,071
total current assets			80,881				95,516
property, plant and equipment, net			33,182				36,111
right of use assets			6,203				8,191
long-term investments - rabbi trust			7,102				7,067
intangible assets			1,876				2,252
long-term note receivable			1,462				1,726
deferred income taxes			518				480
other assets			830				840
total assets		$	132,054			$	152,183
LIABILITIES AND SHAREHOLDERS' EQUITY
current liabilities:
accounts payable - trade		$	25,607			$	29,442
accounts payable - capital expenditures			343				56
operating lease liability - current			2,061				2,640
deferred compensation - current			903				1,404
deferred revenue			1,495				1,192
accrued expenses			6,726				8,533
income taxes payable - current			972				753
total current liabilities			38,107				44,020
operating lease liability - long-term			2,422				3,612
income taxes payable - long-term			2,088				2,675
deferred income taxes			6,379				5,954
deferred compensation - long-term			6,929				6,842
total liabilities			55,925				63,103
commitments and contingencies (notes 10 and 12)
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 12,469,903 at April 28, 2024    and 12,327,414 at April 30, 2023			624				616
capital contributed in excess of par value			45,011				44,250
accumulated earnings			30,376				44,195
accumulated other comprehensive income			118				19
total equity			76,129				89,080
total liabilities and equity		$	132,054			$	152,183

 

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

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CONSOLIDATED STATEMENTS OF NET LOSS

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

(dollars in thousands, except per share data)		2024				2023				2022
net sales		$	225,333			$	234,934			$	294,839
cost of sales			(197,394	)			(224,038	)			(258,746	)
gross profit			27,939				10,896				36,093
selling, general and administrative expenses			(38,611	)			(37,978	)			(35,415	)
restructuring expense			(636	)			(1,396	)			—
(loss) income from operations			(11,308	)			(28,478	)			678
interest expense			(11	)			—				(17	)
interest income			1,174				531				373
other expense			(625	)			(443	)			(1,359	)
loss before income taxes			(10,770	)			(28,390	)			(325	)
income tax expense			(3,049	)			(3,130	)			(2,886	)
net loss		$	(13,819	)		$	(31,520	)		$	(3,211	)
net loss per share-basic		$	(1.11	)		$	(2.57	)		$	(0.26	)
net loss per share-diluted		$	(1.11	)		$	(2.57	)		$	(0.26	)

 

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

 

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

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

 

		2024				2023				2022
net loss		$	(13,819	)		$	(31,520	)		$	(3,211	)
other comprehensive income (loss)
unrealized holding gain (loss) on investments			99				(13	)			(144	)
reclassification adjustment for realized loss included in    net loss			—				—				30
total unrealized gain (loss) on investments			99				(13	)			(114	)
comprehensive loss			(13,720	)			(31,533	)			(3,325	)

 

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

 

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

 

 

 

(dollars in thousands, except common stock shares)										Capital								Accumulated
										Contributed								Other
For the years ended April 28, 2024, April 30, 2023,		Common Stock								in Excess				Accumulated				Comprehensive				Total
and May 1, 2022		Shares				Amount				of Par Value				Earnings				Income				Equity
Balance, May 2, 2021			12,312,822			$	616			$	43,807			$	84,437			$	146			$	129,006
net loss			—				—				—				(3,211	)			—				(3,211	)
stock-based compensation			—				—				1,133				—				—				1,133
unrealized loss on investments			—				—				—				—				(114	)			(114	)
common stock issued in connection with    vesting of performance-based restricted    stock units			10,863				—				—				—				—				—
immediately vested common stock awards			29,657				1				(1	)			—				—				—
common stock surrendered in connection    with payroll withholding taxes			(3,025	)			—				(50	)			—				—				(50	)
common stock repurchased			(121,688	)			(6	)			(1,746	)			—				—				(1,752	)
dividends paid			—				—				—				(5,511	)			—				(5,511	)
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

 

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

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

 

(dollars in thousands)		2024				2023				2022
cash flows from operating activities:
net loss		$	(13,819	)		$	(31,520	)		$	(3,211	)
adjustments to reconcile net loss income to net cash (used in) provided by    operating activities:
depreciation			6,521				6,845				6,994
non-cash inventory (credit) charges			(1,628	)			5,819				1,927
amortization			390				438				559
stock-based compensation			915				1,145				1,133
deferred income taxes			387				(2	)			691
gain on sale of property, plant, and equipment			(299	)			(314	)			—
non-cash restructuring expense			330				791				—
realized loss from the sale of investments			—				—				450
foreign currency exchange (gain) loss			(593	)			(537	)			16
changes in assets and liabilities:
accounts receivable			3,559				(2,642	)			15,416
inventories			1,593				15,370				(12,714	)
other current assets			(329	)			(297	)			946
other assets			(115	)			86				(1,386	)
accounts payable-trade			(2,926	)			10,274				(22,131	)
accrued expenses and deferred compensation			(1,870	)			853				(5,204	)
deferred revenue			303				672				(20	)
income taxes			(643	)			823				(907	)
net cash (used in) provided by operating activities			(8,224	)			7,804				(17,441	)
cash flows from investing activities:
capital expenditures			(3,711	)			(2,108	)			(5,695	)
proceeds from the sale of property, plant, and equipment			385				468				—
proceeds from note receivable			330				15				—
proceeds from the sale of short-term investments (available for sale)			—				—				9,879
proceeds from the sale and maturity of investments (held to maturity)			—				—				13,486
purchase of short-term investments (available for sale)			—				—				(4,391	)
purchase of investments (held-to-maturity)			—				—				(9,751	)
proceeds from the sale of investments (rabbi trust)			1,449				2,058				56
purchase of investments (rabbi trust)			(884	)			(1,185	)			(1,088	)
net cash (used in) provided by investing activities			(2,431	)			(752	)			2,496
cash flows from financing activities:
proceeds from lines of credit			4,166				—				9,000
payments associated with lines of credit			(4,146	)			—				(9,000	)
dividends paid			—				—				(5,511	)
repurchases of common stock			—				—				(1,752	)
common stock surrendered for payroll withholding taxes			(146	)			(33	)			(50	)
payments for debt issuance costs			—				(403	)			(110	)
net cash used in financing activities			(126	)			(436	)			(7,423	)
effect of exchange rate changes on cash and cash equivalents			(171	)			(202	)			(91	)
(decrease) increase in cash and cash equivalents			(10,952	)			6,414				(22,459	)
cash and cash equivalents at beginning of year			20,964				14,550				37,009
cash and cash equivalents at end of year		$	10,012			$	20,964			$	14,550

 

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

10. LINES OF CREDIT

Fiscal 2022

 

 

 

 

 

 

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

During the three years ended April 28, 2024, there were no disagreements on any matters of accounting principles or practices or financial statement disclosures.

ITEM 9A. CONTROLS 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 28, 2024. 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, 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 28, 2024.

Grant Thornton LLP, an independent registered public accounting firm, has audited the consolidated financial statements as of and for the years ended April 28, 2024, April 30, 2023, and May 1, 2022, which are included in Item 8. This annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to Securities and Exchange Commission rules that permit us to provide only management’s report in this annual report.

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

 

ITEM 9B. OTHER INFORMATION

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

 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

Not Applicable.

 

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, 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,” and “Board Committees and Attendance – Audit Committee,” which information is herein incorporated by reference.

ITEM 11. EXECUTIVE 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 OWNERSHIP 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 2024 regarding shares of our common stock that may be issued upon the exercise of equity awards previously granted and currently outstanding equity awards under the company’s equity incentive and stock option plans, as well as the number of shares available for the grant of equity awards that had not been granted as of that date.

EQUITY COMPENSATION PLAN INFORMATION

 

		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		641,784 (1)				$	—				976,008
Equity compensation plans not approved by security holders			—				—				—
Total		641,784 (1)				$	—				976,008

 

(1) For performance-based restricted stock unit awards, the number of shares represents the maximum number of shares with remaining performance periods that could be issued if certain performance targets are met. The performance based shares with remaining open performance periods total 332,857 of which 9,164 are expected to vest based on estimated operating performance relative to pre-established targets. For time-based restricted stock unit awards, the number of shares shown represents the number of shares to be issued upon completion of the time-based vesting period for such restricted stock units.

 

(2) All of the shares shown in column (a) are 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).

 

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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 ACCOUNTANT 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.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

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)		44
Consolidated Balance Sheets – April 28, 2024, and April 30, 2023		45
Consolidated Statements of Net Loss - for the years ended April 28, 2024, April 30, 2023, and May 1, 2022		46
Consolidated Statements of Comprehensive Loss - for the years ended April 28, 2024, April 30, 2023, and May 1, 2022		47
Consolidated Statements of Shareholders’ Equity – for the years ended April 28, 2024, April 30, 2023, and May 1, 2022		48
Consolidated Statements of Cash Flows – for the years ended April 28, 2024, April 30, 2023, and May 1, 2022		49
Notes to Consolidated Financial Statements		50

 

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.

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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)	Restated and Amended Bylaws of the company, as amended July 10, 2019, were filed as Exhibit 3(ii) to the company’s Form 10-K for the year ended April 28, 2019, filed July 12, 2019 (Commission File No. 001-12597), and are incorporated herein by reference.
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.
10.4+	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.
10.5+	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.
10.6+	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. (*)
10.7+	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.
10.8	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.
10.9+	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.
10.10+	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.
10.11+	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.
10.12+	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.
10.13+	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.
10.14	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.
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 12, 2024
24(b)*	Power of Attorney of Perry E. Davis, dated July 12, 2024
24(c)*	Power of Attorney of Sharon A. Decker, dated July 12, 2024
24(d)*	Power of Attorney of Kimberly B. Gatling, dated July 12, 2024
24(e)*	Power of Attorney of Fred A. Jackson, dated July 12, 2024
24(f)*	Power of Attorney of Alexander B. Jones, dated July 12, 2024
24(g)*	Power of Attorney of Jonathan L. Kelly, dated July 12, 2024
24(h)*	Power of Attorney of Franklin N. Saxon, dated July 12, 2024

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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
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.

None.

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SIGNATURES

FORM 10-K SUMMARY 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 12th day of July 2024.

 

		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 12th day of July 2024.

 

/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 *			Jonathan L. Kelly*
	John A. Baugh			Jonathan L. Kelly
	(Director)			(Director)
	Perry E. Davis*		/s/	Kenneth R. Bowling
	Perry E. Davis			Kenneth R. Bowling
	(Director)			Chief Financial Officer
				(principal financial officer and principal accounting officer)

* By /s/ Kenneth R. Bowling

Kenneth R. Bowling, Attorney-in-Fact, pursuant to Powers of Attorney filed with the Securities and Exchange Commission.

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