CULP INC

Previous wording

Our fiscal year is the 52 or 53-week period ending on the Sunday closest to April 30. The nine months ended January 26, 2025, and January 28, 2024, both represent 39-week periods.

Current wording

Our fiscal year is the 52 or 53-week period ending on the Sunday closest to April 30. The company's three months ended August 3, 2025, and July 28, 2024, represent 14-week and 13-week periods, respectively. We refer to the three months ended August 3, 2025 as the "first quarter" and the three months ended July 28, 2024 as the "comparable quarter".

Previous wording

Our operations are classified into two business segments: mattress fabrics and upholstery fabrics.

Current wording

Our operations are classified into two business segments: bedding (formerly known as mattress fabrics) and upholstery (formerly known as upholstery fabrics).

Previous wording

The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers. Currently, we have a mattress fabrics manufacturing operation located in Stokesdale, North Carolina, and a sewn mattress cover operation located in Ouanaminthe, Haiti.

Current wording

The bedding segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers. Currently, we have a mattress fabrics manufacturing operation located in Stokesdale, North Carolina, and a sewn mattress cover operation located in Ouanaminthe, Haiti.

Previous wording

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 operating expenses at this location; and (5) reduce unallocated corporate expenses and shared service expenses. See Note 10 of the consolidated financial statements for further details regarding our restructuring activities.

Current wording

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 the closure and sale of the company's manufacturing facility and related land ("collectively referred to as the "Property") located in Quebec, Canada; (2) move a portion of the knitting and finishing capacity from the 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; (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; and (5) reduce unallocated corporate expenses and shared service expenses. See Note 10 of the consolidated financial statements for further details regarding this restructuring activity.

Previous wording

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 established a wholly owned subsidiary, Culp Fabrics Vietnam Company Ltd., with an administrative office located in Ho Chi Minh City, Vietnam, for the purpose of enhancing our strategic sourcing capabilities and to further diversify our supply chain in Asia.

Current wording

The upholstery segment develops, sources, manufactures, and sells fabrics primarily to residential, commercial, and hospitality furniture manufacturers. Currently, we have upholstery fabric operations located in Shanghai, China, Burlington, North Carolina, and Vietnam.

Previous wording

Additionally, Read Window Products, LLC (“Read”), a wholly owned subsidiary with operations located in Knoxville, Tennessee, and Burlington, North Carolina (established during the first quarter of fiscal 2025 within an existing upholstery fabrics facility), provides window treatments and sourcing of upholstery fabrics and other products, as well as related measuring and installation services, to customers in the hospitality and commercial markets. Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.

Current wording

Also, Read Window Products, LLC (“Read”), is a wholly owned subsidiary that operates a leased facility in Knoxville, Tennessee, which provides window treatments and sourcing of upholstery fabrics and other products, as well as related measuring and installation services, to customers in the hospitality and commercial markets. Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows. On April 24, 2025 (the fourth quarter of fiscal 2025), the company announced a strategic transformation of its operating model that will combine certain activities within the bedding and upholstery business segments and create one integrated Culp-branded business. As part of this strategic transformation, we will close our leased facilities operated by our upholstery segment located in Burlington, North Carolina and Knoxville, Tennessee and will transition their production and distribution activities to a shared management model within our owned facility located in Stokesdale, North Carolina, which has historically been solely operated by our bedding segment.

Previous wording

Overall, our consolidated net sales for the third quarter of fiscal 2025 decreased by 13.5% compared with the same period a year ago, with mattress fabrics sales decreasing 4.6% and upholstery fabrics sales decreasing 22.3%. Our consolidated net sales for the first nine months of fiscal 2025 decreased by 6.5% compared with the same period a year ago, with mattress fabrics sales decreasing 4.2% and upholstery fabrics sales decreasing 8.8%.

Current wording

Overall, our consolidated net sales for the first quarter of fiscal 2026 decreased by 10.3% compared with the same period a year ago, with bedding sales remaining flat and upholstery sales decreasing 20.4%.

Previous wording

We recorded income tax expense of $635,000, or (3.9%) of loss before income taxes, for the nine-month period ended January 26, 2025, compared with income tax expense of $2.2 million, or (33.4%) of loss before income taxes, for the nine-month period ended January 28, 2024.

Current wording

We recorded income tax expense of $1.4 million, or 120.3% of income before income taxes, for the first quarter, compared with income tax expense of $240,000 or (3.4%) of loss before income taxes, for the comparable period.

Previous wording

Our consolidated effective income tax rates for the first nine months of fiscal 2025 and 2024 were both adversely affected by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stems mostly from our operations located in China, which has a higher income tax rate than the U.S. In addition, during the first nine months of fiscal 2025 and the first nine months of 2024, we incurred pre-tax losses associated with our U.S. operations for which an income tax benefit was not recorded due to a full valuation allowance applied against our U.S. net deferred income tax assets. The income tax charge associated with the full valuation allowance applied against our U.S. net deferred income tax assets was higher during the first nine months of fiscal 2025 compared with the first nine months of fiscal 2024, as our $(16.8) million U.S. pre-tax loss incurred during the first nine months of fiscal 2025 was greater than the $(11.3) million U.S. pre-tax loss incurred during the first nine months of fiscal 2024.

Current wording

Our consolidated effective income tax rates were adversely affected by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stemmed from our operations located in China and a gain from the sale of Property located in Canada during the first quarter of fiscal 2026 (see Notes 8 and 10 of the consolidated financial statements for further details), which jurisdictions have higher income tax rates than the U.S. In addition, we applied a full valuation allowance against our U.S. deferred income tax assets during the first quarters of fiscal 2026 and 2025, respectively. Consequently, an income tax benefit was not recognized for pre-tax losses associated with our U.S. operations totaling ($3.3) million and ($7.0) million that were incurred during the first quarters of fiscal 2026 and 2025, respectively. Lastly, our consolidated effective income tax rates were also adversely affected by pre-tax losses associated with our Haitian operations, which are not subject to income tax. Our Haitian operations are located in an economic zone that permits a 0% income tax rate for the first fifteen years of operations, for which we have seven years remaining. As a result of the 0% income tax rate , an income tax benefit was not recognized for the pre-tax losses associated with our Haitian operations totaling $(362,000) and $(633,000) that were incurred during the first quarters of fiscal 2026 and 2025, respectively.

Previous wording

During the first nine months of fiscal 2025, we incurred a greater consolidated pre-tax loss totaling $(16.4) million compared with $(6.7) million during the first nine months of fiscal 2024. 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 the first nine months of fiscal 2024, as compared with the first nine months of fiscal 2025.

Current wording

During the first quarter of fiscal 2026, we earned a lower consolidated pre-tax income totaling $1.1 million, compared with a significantly higher consolidated pre-tax loss of $(7.0) million. As a result, we reported a positive effective income tax rate during the first quarter of fiscal 2026, compared with a negative effective income tax rate during the first quarter of fiscal 2025. Accordingly, the principal differences between our 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 the first quarter of fiscal 2026, compared with the first quarter of fiscal 2025.

Previous wording

As of January 26, 2025, our cash and cash equivalents (collectively, “cash”) totaled $5.3 million, which represents a decrease of $4.7 million compared with cash of $10.0 million as of April 28, 2024. This decrease was primarily attributable to (i) net cash used in operating activities totaling $9.4 million, and (ii) capital expenditures totaling $2.4 million, partially offset by (iii) net borrowings from our lines of credit totaling $5.4 million and (iv) proceeds from the sale of equipment of $1.5 million.

Current wording

As of August 3, 2025, our cash and cash equivalents (collectively, “cash”) totaled $11.1 million, which represents an increase of $5.5 million compared with cash of $5.6 million as of April 27, 2025. This increase was due mostly to (i) net borrowings on our lines of credit of $5.3 million, an increase of $1.3 million compared to the comparable quarter, and (ii) proceeds from the sale of property, plant, and equipment totaling $966,000, partially offset by net cash used in operating activities of $(695,000).

Previous wording

During fiscal 2024 and continuing through the third quarter of fiscal 2025, property, plant, and equipment has steadily decreased due to reduced capital spending stemming from current unfavorable macro-economic conditions within the home furnishings and bedding industries, as well as the actions taken as described above in “Restructuring Activities.”

Current wording

Property, plant, and equipment has steadily decreased due to reduced capital spending stemming from current unfavorable macro-economic conditions within the home furnishings and bedding industries, as well as restructuring initiatives commencing at the beginning of fiscal 2025 and continuing through the first quarter of fiscal 2026. See note 10 of the consolidated financial statements for further details and description of our restructuring activities.

Previous wording

The $24.2 million as of January 26, 2025, represents property, plant, and equipment of $23.0 million, $221,000, and $973,000 located in the U.S., Canada, and Haiti, respectively. The $32.3 million as of January 28, 2024, represents property, plant, and equipment of $21.9 million, $9.8 million, and $600,000 located in the U.S., Canada, and Haiti, respectively. 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.

Current wording

The $22.1 million as of August 3, 2025, represents property, plant, and equipment of $21.2 million and $888,000 located in the U.S., and Haiti, respectively. The $28.8 million as of July 28, 2024, represents property, plant, and equipment of $20.9 million, $7.4 million, and $511,000 located in the U.S., Canada, and Haiti, respectively. The $23.3 million as of April 27, 2025, represents property, plant, and equipment of $22.3 million, and $955,000 located in the U.S. and Haiti, respectively.

Previous wording

During fiscal 2024 and continuing through the third quarter of fiscal 2025, right of use assets have steadily decreased due to rent expense incurred over the terms of the existing lease agreements. In addition, in connection with the restructuring activity described above in “Restructuring Activities,” right of use assets (i) decreased due to the termination of an agreement to lease a facility located in Ouanaminthe, Haiti, and (ii) shortened the period of use associated with two leased facilities located in Quebec, Canada.

Current wording

Right of use assets have steadily decreased due to restructuring initiatives commencing at the beginning of fiscal 2025 and continuing through the first quarter fiscal 2026. In connection with these restructuring initiatives, right of use assets decreased due mostly to the termination of an agreement to lease a facility located in Ouanaminthe, Haiti, and the shortening of the period of use associated with two leased facilities located in Quebec, Canada.

Previous wording

The $200,000 as of January 26, 2025, represents a right of use asset in Haiti. The $1.8 million as of January 28, 2024, represents right of use assets of $1.2 million and $604,000 located in Haiti and Canada, respectively. 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.

Current wording

The $50,000 as of August 3, 2025, represents a right of use asset located in Haiti. The $568,000 as of July 28, 2024, represents right of use assets of $350,000 and $218,000 located in Haiti and Canada, respectively. The $125,000 as of April 27, 2025, represents a right of use asset located in Haiti.

Previous wording

The potential ongoing geopolitical disruptions related to conflicts in Ukraine and the Middle East, as well as the potential impact of future tariffs, depend on factors beyond our control and we cannot reasonably estimate the impact of these items on our upholstery fabrics segment. Moreover, we note that if these situations worsen and shipping disruptions occur or new tariffs are imposed on our products, the impact on our operations and/or on our suppliers, customers, consumers, and the global economy could adversely affect our financial performance.

Current wording

Notably, the potential ongoing geopolitical disruptions related to conflicts in Ukraine and the Middle East 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 these situations, including shipping disruptions related to conflicts 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.

Previous wording

As of January 26, 2025, accounts receivable increased by $144,000, or 1.3%, compared with January 28, 2024. This increase in accounts receivable is mostly due to longer payment trends during the third quarter of fiscal 2025 compared with the third quarter of fiscal 2024, as we experienced a higher sales mix with customers with longer credit terms. Accordingly, days’ sales outstanding increased to 37 days for the third quarter of fiscal 2025, as compared to 35 days for the third quarter of fiscal 2024.

Current wording

As of August 3, 2025, accounts receivable decreased by $3.1 million, or 27.5%, compared to April 27, 2025. This decrease in accounts receivable is mostly due to shorter payment trends during the first quarter of fiscal 2026, as we experienced a higher sales mix with customers who had longer credit terms during the fourth quarter of fiscal 2025, as compared with the first quarter of fiscal 2026. Accordingly, days’ sales outstanding decreased to 33 days for the first quarter of fiscal 2026, from 46 days for the fourth quarter of fiscal 2025.

Previous wording

The $1.1 million as of January 26, 2025, represents property, plant, and equipment of $1.0 million and $83,000 located in the U.S. and China, respectively. The $1.2 million as of January 28, 2024, represents property, plant, and equipment of $1.1 million and $134,000 located in the U.S. and China, respectively. 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.

Current wording

The $956,000 as of August 3, 2025, represents property, plant, and equipment of $897,000 and $59,000 located in the U.S. and China, respectively. The $1.1 million as of July 28, 2024, represents property, plant, and equipment of $990,000 and $108,000 located in the U.S. and China, respectively. The $1.0 million as of April 27, 2025, represents property, plant, and equipment of $940,000 and $70,000 located in the U.S. and China, respectively.

Previous wording

As of January 26, 2025, right of use assets increased compared with January 28, 2024, and April 28, 2024, respectively. This increase represents the renewal of certain lease agreements associated with our operations located in China totaling $1.9 million, partially offset by rent expense incurred over the terms of the existing respective lease agreements.

Current wording

As of August 3, 2025, right of use assets increased by $681,000 or 46.1%, as compared with July 28, 2024. This increase represents the renewal of certain lease agreements associated with our operations located in China, partially offset by rent expenses incurred over the terms of the existing respective lease agreements.

Previous wording

The $2.6 million as of January 26, 2025, represents right of use assets of $1.9 million and $764,000 located in China and U.S., respectively. The $2.3 million as of January 28, 2024, represents right of use assets of $944,000 and $1.4 million located in China and U.S., respectively. 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.

Current wording

The $2.2 million as of August 3, 2025, represents right of use assets of $1.4 million and $771,000 located in China and the U.S., respectively. The $1.5 million as of July 28, 2024, represents right of use assets of $1.1 million and $393,000 located in the U.S. and China, respectively. The $2.7 million as of April 27, 2025, represents right of use assets of $1.7 million and $1.0 million located in China and the U.S., respectively.

Previous wording

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; (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; and (5) reduce unallocated corporate expenses and shared service expenses.

Current wording

On April 29, 2024 (first quarter of fiscal 2025), our board of directors made a decision to: (i) consolidate the company's North American mattress fabrics operations, including the closure and sale of the Property located in Quebec, Canada; (ii) 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; (iii) transition the bedding segment's weaving operation to a strategic sourcing model through the company's long standing supply partners; (iv) consolidate the company's sewn mattress cover operation located in Ouanaminthe, Haiti, from two leased facilities into one building and reduce other operating expenses at this location; as well as (v) reduce unallocated corporate and shared service expenses.

Previous wording

(1) Of the total $2.3 million restructuring and restructuring related charges, $1.8 million and $624,000 were classified within restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the three-month period ended January 26, 2025.

Current wording

(2) Of the total $2.7 million restructuring and restructuring related charges, $2.6 million and $116,000 were classified within restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the three month period ended July 28, 2024. The $2.7 million expense mostly related to the bedding fabrics segment.

Previous wording

The decreases in interest income are due to lower average cash balances during the third quarter and first nine months of fiscal 2025, compared with the third quarter and first nine months of fiscal 2024.

Current wording

The decrease in interest income is due to lower average cash balances during the first quarter of fiscal 2026, compared with the first quarter of fiscal 2025.

Previous wording

The change in other income (expense) during the third quarter and first nine months of fiscal 2025, compared with prior-year periods, were due mostly to changes in the 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 the third quarter of fiscal 2025, we reported a foreign currency exchange gain associated with our operations located in China totaling $305,000, compared with a foreign currency exchange loss of $(290,000) during the third quarter of fiscal 2024. During the first nine months of fiscal 2025, we reported a foreign currency exchange gain associated with our operations located in China totaling $74,000, compared with a foreign currency exchange gain of $389,000 during the first nine months of fiscal 2024.

Current wording

The change in other expense during the first quarter of fiscal 2026, compared with the first quarter of fiscal 2025, was due primarily to less favorable 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 the first quarter of fiscal 2026, we incurred a foreign currency exchange rate loss associated with our operations located in China totaling $189,000, compared with a foreign currency exchange rate loss of $45,000 incurred during the first quarter of fiscal 2025.

Previous wording

The $74,000 foreign currency exchange gain related to our operations in China was mostly non-cash and was partially offset by $23,000 of income tax expense, which will increase our income tax payments and withholding tax payments associated with future earnings and profits repatriated from our operations located in China to the company's U.S. parent. The income tax expense of $23,000 was associated with taxable foreign currency exchange gains based on more 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 currency exchange rate gains (losses) related to our U.S. dollar denominated balance sheet accounts associated with our operations located in China are considered taxable income or tax deductible, as we incur income tax expense (benefit) and pay income taxes in China's local currency.

Current wording

The $189,000 foreign currency exchange rate loss described above was mostly non-cash and offset by an income tax benefit of $119,000. The income tax benefit of $119,000 was associated with tax deductible foreign currency exchange rate losses 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 currency exchange rate loss derived from U.S. dollar denominated balance sheet accounts is considered tax deductible, as we incur income tax expense and pay income taxes in China's local currency.

Previous wording

We recorded income tax expense of $635,000, or (3.9%) of loss before income taxes, for the nine-month period ended January 26, 2025, compared with income tax expense of $2.2 million, or (33.4%) of loss before income taxes, for the nine-month period ended January 28, 2024.

Current wording

We recorded income tax expense of $1.4 million, or 120.3% of income before income taxes, for the three-month period ended August 3, 2025, compared with income tax expense of $240,000, or (3.4%) of loss before income taxes, for the three-month period ended July 28, 2024.

Previous wording

Our effective income tax rates for the nine-month periods ended January 26, 2025, and January 28, 2024, were based upon the estimated effective income tax rate applicable for the full year after giving effect to any significant items related specifically to interim periods. When calculating the annual estimated effective income tax rates for the nine-month periods ended January 26, 2025, and January 28, 2024, we were subject to loss limitation rules. These loss limitation rules require any taxable loss associated with our U.S. or foreign operations to be excluded from the annual estimated effective income tax rate calculation if it was determined that no income tax benefit could be recognized during the current fiscal year. The effective income tax rate can be affected over the fiscal year by the mix and timing of actual earnings from our U.S. operations and foreign subsidiaries located in China, Canada, Haiti, and Vietnam versus annual projections, as well as changes in foreign currency exchange rates in relation to the U.S. dollar.

Current wording

Our effective income tax rates for the three-month periods ended August 3, 2025, and July 28, 2024, were based upon the estimated effective income tax rate applicable for the full year after giving effect to any significant items related specifically to interim periods. When calculating the annual estimated effective income tax rates for the three-month periods ended August 3, 2025, and July 28, 2024, we were subject to loss limitation rules. These loss limitation rules require any taxable loss associated with our U.S. or foreign operations to be excluded from the annual estimated effective income tax rate calculation if it was determined that no income tax benefit could be recognized during the current fiscal year. The effective income tax rate can be affected over the fiscal year by the mix and timing of actual earnings from our U.S. operations and foreign subsidiaries located in China, Canada, Haiti, and Vietnam versus annual projections, as well as changes in foreign currency exchange rates in relation to the U.S. dollar.

Previous wording

The following schedule summarizes 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 for the nine-month periods ended January 26, 2025, and January 28, 2024:

Current wording

The following schedule summarizes 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 for the three-month periods ended August 3, 2025, and July 28, 2024:

Previous wording

Our consolidated effective income tax rates for the first nine months of fiscal 2025 and 2024 were both adversely affected by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stems mostly from our operations located in China, which has a higher income tax rate than the U.S. In addition, during the first nine months of fiscal 2025 and the first nine months of 2024, we incurred pre-tax losses associated with our U.S. operations, for which an income tax benefit was not recorded due to a full valuation allowance applied against our U.S. net deferred income tax assets. The income tax charge associated with the full valuation allowance applied against our U.S. net deferred income tax assets was higher during the first nine months of fiscal 2025 compared with the first nine months of fiscal 2024, as our $(16.8) million U.S. pre-tax loss incurred during the first nine months of fiscal 2025 was greater than the $(11.3) million U.S. pre-tax loss incurred during the first nine months of fiscal 2024.

Current wording

Our consolidated effective income tax rates were adversely affected by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stemmed from our operations located in China and a gain from the sale of Property located in Canada during the first quarter of fiscal 2026 (see Notes 8 and 10 of the consolidated financial statements for further details), which jurisdictions have higher income tax rates than the U.S. In addition, we applied a full valuation allowance against our U.S. deferred income tax assets during the first quarters of fiscal 2026 and 2025, respectively. Consequently, an income tax benefit was not recognized for pre-tax losses associated with our U.S. operations totaling ($3.3) million and ($7.0) million that were incurred during the first quarters of fiscal 2026 and 2025, respectively. Lastly, our consolidated effective income tax rates were also adversely affected by pre-tax losses associated with our Haitian operations, which are not subject to income tax. Our Haitian operations are located in an economic zone that permits a 0% income tax rate for the first fifteen years of operations, for which we have seven years remaining. As a result of the 0% income tax rate , an income tax benefit was not recognized for the pre-tax losses associated with our Haitian operations totaling $(362,000) and $(633,000) that were incurred during the first quarters of fiscal 2026 and 2025, respectively.

Previous wording

During the first nine months of fiscal 2025, we incurred a greater consolidated pre-tax loss totaling $(16.4) million, compared with $(6.7) million during the first nine months of fiscal 2024. 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 the first nine months of fiscal 2024, as compared with the first nine months of fiscal 2025.

Current wording

During the first quarter of fiscal 2026, we earned a lower consolidated pre-tax income totaling $1.1 million, compared with a significantly higher consolidated pre-tax loss of $(7.0) million. As a result, we reported a positive effective income tax rate during the first quarter of fiscal 2026, compared with a negative effective income tax rate during the first quarter of fiscal 2025. Accordingly, the principal differences between our 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 the first quarter of fiscal 2026, compared with the first quarter of fiscal 2025.

Previous wording

As a result of the 2017 Tax Cuts and Jobs Act, a U.S. corporation is allowed a 100% dividend received deduction for earnings and profits received from a 10% owned foreign corporation. Therefore, a deferred income tax liability will be required only for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the U.S. parent company. As a result, as of January 26, 2025, January 28, 2024, and April 28, 2024, we recorded a deferred income tax liability of $5.1 million, $4.7 million, and $4.8 million, respectively.

Current wording

As a result of the TCJA, a U.S. corporation is allowed a 100% dividend-received deduction for earnings and profits received from a 10% or more owned foreign corporation. Therefore, a deferred income tax liability will be required only for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the U.S. parent company. As a result, as of August 3, 2025, July 28, 2024, and April 27, 2025, we recorded a deferred income tax liability of $5.3 million, $4.9 million, and $5.2 million, respectively.

Previous wording

An unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the end of the reporting period, or is effectively settled through examination, negotiation, or litigation, or 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.

Current wording

An unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the end of the reporting period, or is effectively settled through examination, negotiation, or litigation, or if the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. If it is determined that any of the above conditions occur regarding our uncertain income tax positions, an adjustment to our unrecognized income tax benefit will be recorded at that time.

Previous wording

As of January 26, 2025, January 28, 2024, and April 28, 2024, we had a total of $1.4 million, $1.2 million, and $1.3 million, respectively, of gross unrecognized income tax benefits, of which the entire amount was classified as income taxes payable – long-term in the accompanying Consolidated Balance Sheets. As of January 26, 2025, the unrecognized tax benefit would favorably affect income tax expense in future periods by $1.4 million.

Current wording

As of August 3, 2025, July 28, 2024, and April 27, 2025, we had $841,000, $1.3 million, and $790,000 of total gross unrecognized income tax benefits, of which the entire amount was classified as income taxes payable – long-term in the accompanying Consolidated Balance Sheets. These unrecognized income tax benefits would favorably affect income tax expense in future periods by $841,000, $1.3 million, and $790,000 as of August 3, 2025, July 28, 2024, and April 27, 2025, respectively.

Previous wording

Our gross unrecognized income tax benefit of $1.4 million as of January 26, 2025, relates to income tax positions for which significant change could occur within the next year if the statute of limitations for relevant taxing authorities to examine and challenge the tax position expires.

Current wording

Our gross unrecognized income tax benefit of $841,000 as of August 3, 2025, relates to an income tax position for which significant change is currently not expected within the next year.

Previous wording

Currently, our sources of liquidity include cash and cash equivalents (collectively, "cash"), cash flow from operations, and amounts available under our revolving credit lines. As of January 26, 2025, we believe our cash of $5.3 million and the current availability under our revolving credit lines totaling $23.2 million will be sufficient to fund our foreseeable business needs, restructuring activities, capital expenditures, commitments, and contractual obligations. Refer to Note 11 of the consolidated financial statements for further information regarding our revolving credit lines.

Current wording

Currently, our sources of liquidity include cash and cash equivalents (collectively, "cash"), cash flow from operations, and amounts available under our revolving credit lines. As of August 3, 2025, we believe: (i) our cash of $11.1 million; (ii) improvements in cash flow from operations stemming from expected cash savings from our recent restructuring activities, (iii) the current availability under our U.S. line of credit totaling $17.6 million (refer to Note 11 of the consolidated financial statements for further details regarding our financing arrangements), and (iv) proceeds totaling $4.8 million from the collection of a note receivable associated with the sale of Property located in Quebec, Canada (see Note 7 of the consolidated financial statements for further details) will be sufficient to fund our: (i) foreseeable business needs; (ii) restructuring activities; (iii) capital expenditures; (iv) commitments; (v) contractual obligations; and (vi) income tax payments.

Previous wording

Our cash balance may be adversely affected by factors beyond our control, such as (i) recent customer demand trends affecting net sales, (ii) supply chain disruptions, (iii) higher interest rates and inflation, (iv) the imposition of tariffs and other trade restrictions, and (v) geopolitical events (including conflicts in Ukraine and the Middle East). These factors could cause delays in receipt of payment on accounts receivable and could increase cash disbursements due to rising prices.

Current wording

Our cash balance may be adversely affected by factors beyond our control, such as: (i) recent customer demand trends affecting net sales; (ii) increased tariffs or other changes in U.S. trade policy related to imported products; (iii) supply chain disruptions; (iv) rising interest rates and inflation; and (v) geopolitical events (including conflicts in Ukraine and the Middle East). These factors could cause delays in receipt of payment on accounts receivable and could increase cash disbursements due to rising prices.

Previous wording

In March 2020, our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock. Under the common stock repurchase program, shares may be purchased from time to time in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise. The number of shares purchased and the timing of such purchases are based on working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities.

Current wording

In March 2020, our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock. Under this common stock repurchase program, shares may be purchased from time to time in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise. The number of shares purchased and the timing of such purchases are based on working capital requirements, market and general business conditions, and other factors.

Previous wording

We did not repurchase any shares of common stock during the nine-month periods ended January 26, 2025, or January 28, 2024, respectively.

Current wording

We did not repurchase any shares of common stock during the three-month periods ended August 3, 2025, or July 28, 2024, respectively.

Previous wording

On June 29, 2022, our board of directors announced the decision to suspend the company’s quarterly cash dividend, believing that preserving capital and managing our liquidity were 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 the first nine months of fiscal 2025, fiscal 2024, and fiscal 2023.

Current wording

On June 29, 2022, our board of directors announced the decision to suspend the company’s quarterly cash dividend. We believed that preserving capital and managing our liquidity were 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 the first quarter of fiscal 2026, fiscal 2025, 2024, or 2023.

Previous wording

Operating working capital (the total of accounts receivable and inventories, less accounts payable-trade, less accounts payable-capital expenditures, and less deferred revenue) was $37.9 million as of January 26, 2025, compared with $39.0 million as of January 28, 2024, and $38.5 million as of April 28, 2024. Operating working capital turnover was 5.8 during the third quarter of fiscal 2025, compared with 5.9 during the third quarter of fiscal 2024 and 5.8 during the fourth quarter of fiscal 2024.

Current wording

Operating working capital (the total of accounts receivable and inventories, less accounts payable-trade, less accounts payable-capital expenditures, and less deferred revenue) was $43.7 million as of August 3, 2025, compared with $35.1 million as of July 28, 2024, and $43.4 million as of April 27, 2025. Operating working capital turnover was 5.4 during the first quarter of fiscal 2026, compared with 5.9 during the first quarter of fiscal 2025 and 5.7 during the fourth quarter of fiscal 2025.