CULP INC Commitments Disclosure

14. COMMITMENTS AND CONTINGENCIES

Tariff Refunds

During fiscal 2025 and early fiscal 2026, the company incurred import duties under tariffs imposed pursuant to the International Emergency Economic Powers Act (“IEEPA”). On February 20, 2026, the U.S. Supreme Court ruled that such tariffs were not authorized, and on March 4, 2026, the U.S. Court of International Trade (“CIT”) ordered U.S. Customs and Border Protection to refund certain tariffs collected under IEEPA.

As of May 3, 2026, the company identified certain potential refunds of previously paid tariffs in accordance with the ruling by the CIT. The company estimated the total potential recovery to be approximately $7.0 million, which recovery remained subject to administrative review and final liquidation of the underlying customs entries by U.S. Customs and Border Protection. Accordingly, this potential recovery was considered a gain contingency in accordance with ASC Topic 450, and therefore the company did not recognize a receivable related to potential tariff refunds as of May 3, 2026.

During the first quarter of fiscal 2027, the company received the entire $7.0 million in cash proceeds representing a final approval of these tariff refund claims. The $7.0 million is expected to be recognized as a credit to inventory for inventory that is on hand and within cost of sales for inventory that has been sold during the first quarter fiscal 2027 Consolidated Balance Sheet and Consolidated Statement of Net Income (Loss), respectively.

Legal Matters

The company is involved in legal proceedings and claims which have arisen in the ordinary course of business. Management has determined that these actions, when ultimately concluded or settled, will not have a material adverse effect on our financial position, results of operations, or cash flows.

During the third quarter of fiscal 2026, the company received $1.0 million in cash proceeds in connection with the resolution of a legal matter. The $1.0 million was classified within other expense, net in the fiscal 2026 Consolidated Statement of Net Loss.

Accounts Payable – Capital Expenditures

As of May 3, 2026, and April 27, 2025, we had total amounts due regarding capital expenditures totaling $236,000 and $23,000, respectively, which pertained to outstanding vendor invoices, none of which were financed.

Purchase Commitments - Capital Expenditures

As of May 3, 2026, and April 27, 2025, we had open purchase commitments to acquire equipment for our bedding operations totaling $352,000 and $117,000, respectively.