Tradename

Our tradename pertains to Read, a separate reporting unit within our upholstery segment. This tradename was determined to have an indefinite useful life at the time of its acquisition, and therefore was not amortized.

We were required to assess our tradename for impairment annually or between annual tests if we believed indicators of impairment existed. Accordingly, we performed our annual impairment assessment of Read's tradename as of April 27, 2025. Initially, we performed a qualitative assessment in which we concluded it was more-likely-than-not the fair value of Read's tradename was less than its carrying amount. This conclusion was based on management's decision, announced on April 24, 2025, to strategically transform the company's operating model by combining certain activities within the bedding and upholstery business segments and creating one integrated Culp-branded business. Since the company is transforming to a single Culp-branded business, Read's tradename is being phased out and will no longer be used to market upholstery products to customers. Consequently, we recorded an asset impairment charge totaling $540,000, which represented the entire carrying value of our Read tradename. This charge was classified as restructuring expense within our fiscal 2025 Consolidated Statement of Net Loss.

Customer Relationships

Our customer relationships related to our bedding segment and Read were amortized on a straight-line basis over useful lives of seventeen and nine years, respectively.

As of February 1, 2026 (third quarter of fiscal 2026), management performed a qualitative assessment of Read's customer relationships, as certain indicators of impairment existed, and accordingly, we believed it was more-likely-than-not the fair value of Read's customer relationships were less than its carrying amount. Management's conclusion was based on a significant decline in net sales during the first nine months of fiscal 2026 that was more than anticipated. Read's net sales during the first nine months of fiscal 2026 totaled $4.8 million, a decrease of $4.9 million, or 50.8%, compared with net sales of $9.7 million during the first nine months of fiscal 2025. In addition, the decline in Read's net sales and profitability during the first nine months of fiscal 2026 were also attributable to the closure of Read's facility located in Knoxville, Tennessee, and the transition of certain production activities to our manufacturing facility located in Stokesdale, North Carolina, as well as strategically sourcing production and materials with long-standing supply partners. Based on this uncertainty, we recorded an asset impairment charge totaling $291,000 which represented the entire carrying value of Read's customer relationships. This charge was classified within restructuring credit within our fiscal 2026 Consolidated Statement of Net Loss.

The gross carrying amount of our customer relationships were $868,000 and $3.1 million as of May 3, 2026 and April 27, 2025, respectively. Accumulated amortization for our customer relationships were $664,000 and $2.4 million as of May 3, 2026 and April 27, 2025, respectively.

The remaining amortization expense for the next four fiscal years and thereafter follows: FY 2027 - $51,000; FY 2028 - $51,000; FY 2029 - $51,000; FY 2030 - $51,000.

The weighted average amortization period for our customer relationships is 4.0 years as of May 3, 2026.

Non-Compete Agreement

Our non-compete agreement is associated with a prior acquisition by our bedding segment and is amortized on a straight-line basis over the fifteen-year life of the agreement.

The gross carrying amount of this non-compete agreement was $2.0 million as of May 3, 2026, and April 27, 2025, respectively. Accumulated amortization for this non-compete agreement was $1.9 million and $1.8 million as of May 3, 2026, and April 27, 2025, respectively.

The remaining amortization expense for the next two years and thereafter follows: FY 2027 - $76,000; and FY 2028 - $75,000.

The weighted average amortization period for the non-compete agreement is 2.0 years as of May 3, 2026.

Impairment of Definite Lived Assets - Bedding Segment

As of May 3, 2026, management reviewed the long-lived assets associated with our bedding segment, which consisted of property, plant, and equipment and definite-lived intangible assets (collectively known as the "Bedding Asset Group"), for impairment, as events and changes in circumstances occurred that indicated the carrying amount of the Bedding Asset Group may not be recoverable. The bedding segment has experienced significant cumulative operating losses since the second quarter of fiscal 2023, and continuing through the fourth quarter of fiscal 2026. We believe the significant cumulative operating losses started from a decline in consumer discretionary spending on bedding products, which we believe stemmed from the following factors: (i) inflationary effects of commodities such as gas, food, and other necessities; (ii) a significant increase in interest rates; and (iii) the pulling forward of demand for home goods products during the early years of the COVID-19 pandemic, which such demand subsequently shifted to travel, leisure, and other services.

Based on the above evidence, we were required to determine the recoverability of the Bedding Asset Group, which is classified as held and used, by comparing the carrying amount of the Bedding Asset Group to the sum of the future undiscounted cash flows expected to result from its use and eventual disposition. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized for the excess of the carrying amount over the fair value of the asset group. The carrying amount of the Bedding Asset Group totaled $20.1 million, which represents property, plant, and equipment of $19.8 million, customer relationships of $204,000, and a non-compete agreement of $151,000. The total carrying amount of the Bedding Asset Group did not exceed the sum of its expected future undiscounted cash flows from its use and disposition. As a result, we determined there was no impairment associated with the Bedding Asset Group as of May 3, 2026.