CULP INC

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.

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. 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.