CULP INC

Raw materials account for approximately 60%-70% of our bedding production costs. The bedding 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. The ongoing global trade negotiations, including the recent imposition of U.S. tariffs on China imports and the possibility for additional tariffs, have also affected the price of raw materials and may continue to do so. Additionally, because many of our basic raw materials are produced from petrochemical products, our costs are highly sensitive to the underlying price of oil, which has experienced fluctuation in recent periods in connection with impacts from the U.S. conflict with Iran.

The bedding segment generally has not had significant difficulty in obtaining raw materials. However, our increasing use of outside suppliers to source materials could subject the bedding segment to price adjustments, delays, expenses, or production interruptions caused by shipping logistics or business partners outside of our control.

The upholstery 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 the costs of the upholstery products we manufacture. As with our bedding segment, our costs fluctuate based on supply and demand, the general rate of inflation and the price of oil. In addition, the ongoing global trade negotiations, including U.S. tariffs on China imports and the possibility for additional tariffs, have also affected raw material costs and may continue to do so.

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 segment to become more vulnerable to price increases, delays, or production interruptions caused by problems within businesses that we do not control.