What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-07-14 compared with 2022-07-15 · 810 added, 709 removed, 772 unchanged (66% of the section changed)

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ABOUT MARKET RISK

Interest Rates

We are exposed to market risk from changes in interest rates on our revolving credit agreements.

As of May 1, 2022, our existing U.S.

revolving credit agreement required interest to be charged at a rate (applicable interest rate of 2.40%) as a variable spread over LIBOR based on the company’s ratio of debt to EBITDA as defined in the existing U.S.

revolving credit agreement.

As of May 1, 2022, there were no borrowings outstanding under our U.S.

revolving credit agreement.

Effective June 24, 2022, we entered into an amended and restated U.S.

revolving credit agreement that requires interest to be charged at a rate that is calculated using an applicable margin over the Federal Reserve Bank of New York’s secured overnight fund rate (SOFR) as defined in the amended and restated U.S.

revolving credit agreement.

Our revolving credit lines associated with our operations located in China bear interest at a rate determined by the Chinese government at the time of borrowing.

As of May 1, 2022, there were no borrowings outstanding under our revolving credit agreements associated with our operations located in China.

Effective January 19, 2023, we entered into a second amended and restated U.S.

revolving credit agreement (the "Amended Agreement") to establish an asset-based revolving credit facility that required interest to be charged at a rate (applicable interest rate of 6.3% as of April 30, 2023) calculated using an applicable margin over Federal Reserve Bank of New York's secured overnight fund rate (SOFR), as defined in the Amended Agreement.

As of April 30, 2023, there were no outstanding borrowings under the Amended Agreement.

Our revolving credit line associated with our operations located in China bears interest at a rate determined by the Chinese government at the time of borrowing.

As of April 30, 2023, there were no borrowings outstanding under our revolving credit agreement associated with our operations located in China.

Foreign Currency

We are exposed to market risk from changes in the value of foreign currencies for our subsidiaries domiciled in Canada and China.

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dollar as their functional currency.

A substantial portion of the company’s imports purchased outside the U.S.

are denominated in U.S.

A 10% change in the above exchange rates as of May 1, 2022, would not have materially affected our results of operations or financial position.

A 10% change in the above exchange rates as of April 30, 2023, would not have materially affected our results of operations or financial position.

CONSOLIDATED FINANCIAL STATEMENTS

AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGIST ERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

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We have audited the accompanying consolidated balance sheets of Culp, Inc.

(a North Carolina corporation) and subsidiaries (the “Company”) as of May 1, 2022, and May 2, 2021, the related consolidated statements of net (loss) income, comprehensive (loss) income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended May 1, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 1, 2022, and May 2, 2021, and the results of its operations and its cash flows for each of the three years in the period ended May 1, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of May 1, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated July 15, 2022, expressed an unqualified opinion.

(a North Carolina corporation) and subsidiaries (the “Company”) as of April 30, 2023 and May 1, 2022, the related consolidated statements of net (loss) income, comprehensive (loss) income, shareholders’

equity, and cash flows for each of the three years in the period ended April 30, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2023 and May 1, 2022, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of April 30, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated July 14, 2023, expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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We believe that our audits provide a reasonable basis for our opinion.

Critical audit matter

Critical audit matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

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/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2007.

Charlotte, North Carolina

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(dollars in thousands, except per share data and preferred and common stock shares)

May 1, 2022, and May 2, 2021

April 30, 2023, and May 1, 2022

current assets:

cash and cash equivalents

short-term investments - available for sale

short-term investments - held to maturity

short-term investments - rabbi trust

accounts receivable, net

short-term note receivable

current income taxes receivable

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long-term investments - rabbi trust

long-term investments - held-to-maturity

intangible assets

long-term note receivable

deferred income taxes

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operating lease liability - current

deferred compensation

deferred revenue

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common stock, $ .05 par value, authorized 40,000,000

shares, issued and outstanding 12,228,629 at May 1, 2022

shares, issued and outstanding 12,327,414 at April 30, 2023

and 12,228,629 at May 1, 2022

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The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF NET (LOSS) INCOME

For the years ended May 1, 2022, May 2, 2021, and May 3, 2020

CONSOLIDATED STATEM ENTS OF NET (LOSS) INCOME

For the years ended April 30, 2023, May 1, 2022, and May 2, 2021

(dollars in thousands, except per share data)

cost of sales

gross profit from continuing operations

selling, general and administrative expenses

asset impairments

restructuring credit

income (loss) from continuing operations

restructuring expense

(loss) income from operations

interest expense

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other expense

(loss) income before income taxes from continuing operations

(loss) income before income taxes

income tax expense

income (loss) from investment in unconsolidated joint venture

net (loss) income from continuing operations

loss before income taxes from discontinued operation

income tax benefit

net loss from discontinued operation

income from investment in unconsolidated joint venture

net (loss) income

net (loss) income from continuing operations per share-basic

net (loss) income from continuing operations per share-diluted

net loss from discontinued operation per share-basic

net loss from discontinued operation per share-diluted

net (loss) income per share-basic

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

For the years ended May 1, 2022, May 2, 2021, and May 3, 2020

For the years ended April 30, 2023, May 1, 2022, and May 2, 2021

net (loss) income

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comprehensive (loss) income

comprehensive loss attributable to non-controlling interest

associated with discontinued operation

comprehensive (loss) income attributable to Culp Inc.

common shareholders

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Shareholders' equity attributable to Culp Inc.

(dollars in thousands, except common stock shares)

Non-Controlling

For the years ended May 1, 2022, May 2, 2021,

For the years ended April 30, 2023, May 1, 2022,

Comprehensive

and May 2, 2021

Balance, April 28, 2019

capital contribution from non-controlling

interest - discontinued operation

(Loss) Income

Balance, May 3, 2020

stock-based compensation

unrealized loss on investments

unrealized gain on investments

common stock issued in connection with

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with payroll withholding taxes

common stock repurchased

dividends paid

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stock-based compensation

unrealized gain on investments

unrealized loss on investments

common stock issued in connection with

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with payroll withholding taxes

common stock repurchased

dividends paid

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vesting of performance-based restricted

common stock issued in connection with

vesting of time-based restricted

immediately vested common stock awards

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with payroll withholding taxes

common stock repurchased

dividends paid

Balance, May 1, 2022

Balance, April 30, 2023

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended May 1, 2022, May 2, 2021, and May 3, 2020

CONSOLIDATED STATEM ENTS OF CASH FLOWS

For the years ended April 30, 2023, May 1, 2022, and May 2, 2021

(dollars in thousands)

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net (loss) income

adjustments to reconcile net (loss) income to net cash (used in) provided by

adjustments to reconcile net (loss) income to net cash provided by (used in)

operating activities:

asset impairments

reversal of contingent consideration associated with discontinued operation

loss on disposal of discontinued operation

non-cash inventory charges

stock-based compensation

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gain on sale of property, plant, and equipment

(income) loss from investment in unconsolidated joint venture

non-cash restructuring expense

income from investment in unconsolidated joint venture

realized loss (gain) from the sale of investments

foreign currency exchange loss

foreign currency exchange (gain) loss

changes in assets and liabilities, net of effects of

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deferred revenue

accrued restructuring costs

net cash (used in) provided by operating activities

net cash provided by (used in) operating activities

cash flows from investing activities:

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proceeds from the sale of property, plant, and equipment

proceeds from long-term note receivable associated with discontinued operation

proceeds from note receivable

investment in unconsolidated joint venture

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purchase of investments (held-to-maturity)

proceeds from the sale of long-term investments (rabbi trust)

proceeds from the sale of investments (rabbi trust)

purchase of long-term investments (rabbi trust)

net cash provided by (used in) investing activities

net cash (used in) provided by investing activities

cash flows from financing activities:

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payments associated with lines of credit

proceeds from Paycheck Protection Program loan

payments associated with Paycheck Protection Program loan

proceeds from subordinated loan payable associated with the

noncontrolling interest of discontinued operation

cash paid for acquisition of businesses

dividends paid

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common stock surrendered for payroll withholding taxes

capital contribution associated with the noncontrolling interest

of discontinued operation

payments for debt issuance costs

net cash (used in) provided by financing activities

net cash used in financing activities

effect of exchange rate changes on cash and cash equivalents

(decrease) increase in cash and cash equivalents

increase (decrease) in cash and cash equivalents

cash and cash equivalents at beginning of year

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Description of Business

Continuing Operations

Our continuing operations are classified into two business segments:

Our operations are classified into two business segments:

mattress fabrics and upholstery fabrics.

Mattress Fabrics

The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers.

We have mattress fabric operations located in Stokesdale, NC, High Point, NC, and Quebec, Canada.

Currently, we have mattress fabric operations located in Stokesdale, NC and Quebec, Canada.

During the last half of fiscal 2023, we rationalized our domestic cut and sewn cover platform, which included the termination of agreements to lease two facilities located in High Point, NC and moving our R&D and prototyping capabilities from these facilities to our facility located in Stokesdale, North Carolina.

Additionally, we acquired the remaining fifty percent ownership interest in our former unconsolidated joint venture located in Ouanaminthe, Haiti during the fourth quarter of fiscal 2021.

As a result, we are now the sole owner with full control of this cut and sew mattress cover operation (see Note 2 of the consolidated financial statements for further details regarding this business combination).

Upholstery Fabrics

The upholstery fabrics segment develops, sources, manufactures, and sells fabrics primarily to residential and commercial furniture manufacturers.

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During the third quarter of fiscal 2022, we also commenced operation of a new facility in Ouanaminthe, Haiti dedicated to the production of cut and sewn upholstery kits.

Additionally, Read Window Products, LLC (“Read”), a wholly-owned subsidiary with operations located in Knoxville, TN, provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation of Read’s products, to customers in the hospitality and commercial industries.

However, due to the decline in demand for cut and sewn upholstery kits, we terminated the agreement to lease this new facility during the third quarter of fiscal 2023, and we relocated a scaled down upholstery cut and sewn operation into our existing mattress cover facility also located in Ouanaminthe, Haiti, during the fourth quarter of fiscal 2023.

Additionally, Read Window Products, LLC (“Read”), a wholly-owned subsidiary with operations located in Knoxville, TN, provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation for Read’s products, to customers in the hospitality and commercial industries.

Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.

Discontinued Operation – Home Accessories Segment

Effective June 22, 2018, we acquired an 80 % ownership interest in eLuxury, LLC (“eLuxury”), a company that offers bedding accessories and home goods directly to consumers and businesses through its e-commerce platform.

eLuxury’s financial information was included in our home accessories segment.

Effective March 31, 2020, we sold our entire ownership interest in eLuxury to its noncontrolling interest holder as part of our comprehensive response to the challenging conditions arising from the COVID-19 global pandemic.

As a result of this sale, our home accessories segment was eliminated at such time, and therefore its results of operations and assets and liabilities were excluded from our continuing operations and presented as a discontinued operation in our consolidated financial statements.

See Note 3 of the consolidated financial statements for further details.

Basis of Presentation

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generally accepted accounting principles.

Certain amounts presented in prior periods have been reclassified to conform to the current period financial statement presentation.

Non-cash charges totaling $ 1.9 million and $ 882,000 for markdowns of inventory estimated based on our policy for aged inventory were reclassified from the line item "inventories" to the line item "non-cash inventory charges" in the Consolidated Statement of Cash Flows for the years ended May 1, 2022, and May 2, 2021, respectively.

These reclassifications did not have an on effect on previously reported net cash (used in) provided by operating activities and increase (decrease) in cash and cash equivalents.

Principles of Consolidation

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All significant intercompany balances and transactions have been eliminated in consolidation.

The accounts of our subsidiaries located in Shanghai, China and Poznan, Poland are consolidated as of April 30, a calendar month end, which are required by the Chinese and Polish governments, respectively.

No events occurred related to the difference between our fiscal year end on the Sunday closest to April 30 and our China and Polish subsidiaries, year end of April 30 that materially affected the company’s financial position, results of operations, or cash flows for fiscal years 2022, 2021, and 2020.

The accounts of our subsidiary located in Shanghai, China, are consolidated as of April 30, a calendar month end, which is required by the Chinese government.

No events occurred related to the difference between our fiscal year end on the Sunday closest to April 30 and our Chinese subsidiary's year end of April 30 that materially affected the company’s financial position, results of operations, or cash flows for fiscal years 2023, 2022, and 2021.

Class International Holdings, Ltd.

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(Culp International), a wholly-owned subsidiary of Culp, Inc.

(“Culp”), entered into a joint venture agreement pursuant to which Culp International owned 50 % of CIH.

As a result of our initial 50 % ownership interest, Culp’s investment in CIH was accounted for under the equity method of accounting in accordance with ASC Topic 823 – Investments – Equity Method and Joint Ventures.

(“Culp”), entered into a joint venture agreement pursuant to which Culp International owned 50 % of CIH.

As a result of our initial 50 % ownership interest, Culp’s investment in CIH was accounted for under the equity method of accounting in accordance with ASC Topic 823 –

Investments –

Equity Method and Joint Ventures.

The equity method of accounting is required for an investee entity (i.e., CIH) that is not consolidated but over which the reporting entity (i.e., Culp.) exercises significant influence.

Whether or not a reporting entity exercises significant influence with respect to an investee depends on an evaluation of several factors, including representation on the investee’s board of directors, voting rights, and ownership level.

In accordance with the equity

method of accounting, our 50 % proportionate share of earnings and losses from CIH w ere reflected in the caption “Income (loss) from investment in unconsolidated joint venture” in the Consolidated Statements of Net (Loss) Income for the first nine months of fiscal 2021 and the full fiscal 2020 year .

In accordance with the equity method of accounting, our 50 % proportionate share of earnings from CIH were reflected in the caption “income from investment in unconsolidated joint venture”

in the Consolidated Statement of Net Income for the first nine months of fiscal 2021.

Effective February 1, 2021, Culp International entered into a Share Purchase Agreement to acquire the remaining 50% ownership interest in CIH.

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Our fiscal year is the 52 or 53-week period ending on the Sunday closest to April 30.

Fiscal 2022, 2021, and 2020 included 52 weeks, 52 weeks, and 53 weeks, respectively.

Fiscal 2023, 2022, and 2021 each included 52-week periods.

Use of Estimates

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Management believes we are not exposed to any significant credit risk related to cash and cash equivalents.

Short-Term Investments (Available-for-Sale)

During fiscal 2022, we sold all our short-term investments classified as available-for-sale, and therefore we did not report short-term investments classified as available-for-sale in the accompanying Consolidated Balance Sheet as of May 1, 2022.

As of May 2, 2021, our short-term investments classified as available-for-sale were recorded at their fair values of $ 5.5 million, had an accumulated unrealized gain of $ 24,000 , and resided with our U.S.

The fair value of our short-term investments approximated their cost basis.

Long-Term Investments (Rabbi Trust)

We have a rabbi trust to set aside funds for participants of our deferred compensation plan (the “Plan”) that enables our participants to credit their contributions to various investment options of the Plan.

Rabbi Trust Investments

The investments associated with the rabbi trust consist of investments in a money market fund and various mutual funds that are classified as available-for-sale.

Our long-term investments classified as available-for-sale were recorded at their fair value of $ 9.4 million and $ 8.4 million as of May 1, 2022, and May 2, 2021, respectively.

These investments had an accumulated unrealized gain totaling $ 32,000 and $ 122,000 as of May 1, 2022, and May 2, 2021, respectively.

The fair value of our long-term investments associated with our rabbi trust approximates their cost basis and reside with our U.S.

Investments (Held-To-Maturity)

During fiscal 2022, we sold all our short-term investments classified as held-to-maturity, and therefore we did not report short-term or long-term investments classified as held-to-maturity in the accompanying Consolidated Balance Sheet as of May 1, 2022.

As of May 2, 2021, our investments classified as held-to-maturity consisted of investment grade U.S.

corporate bonds, foreign bonds, and government bonds.

These investments were classified as held-to-maturity as we had the positive intent and ability to hold these investments until maturity.

Our held-to-maturity investments were recorded as either current or noncurrent in our Consolidated Balance Sheets, based on the maturity date in relation to the respective reporting period and recorded at amortized cost.

As of May 2, 2021, the amortized cost and fair value of our held-to-maturity investments were $ 4.3 million.

Our bond investments were classified as level 2 in accordance with the fair value hierarchy defined in Note 15 of the consolidated financial statements.

Our bond investments were traded over the counter within a broker network and not on an active market.

The fair value of our bond investments was determined based on a published source that provided an average bid price.

The average bid price was based on various broker prices that were determined based on market conditions, interest rates, and the rating of the respective bond investments.

All our investments classified as held-to-maturity resided with our U.S.

Our rabbi trust investments classified as available-for-sale were recorded at their fair value of $ 8.5 million and $ 9.4 million as of April 30, 2023, and May 1, 2022, respectively.

These investments had accumulated unrealized gains totaling $ 19,000 and $ 32,000 as of April 30, 2023, and May 1, 2022, respectively.

The fair value of our investments associated with our rabbi trust approximates their cost basis and reside with our U.S.

Accounts Receivable and Current Expected Credit Losses

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As of the end of each reporting period, we assess the credit risk of our customers within our accounts receivable portfolio.

Our risk assessment includes the respective customer’s (i) financial position;

(ii) past payment history;

(iii) management’s general ability;

and (iv) historical loss experience;

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Our inventory aging categories are six, nine, twelve, and fifteen months.

We also provide inventory valuation write-downs based on the planned discontinuance of certain products based on the current market values at that time as compared to their current carrying values.

We also provide inventory valuation write-downs based on the planned discontinuance of certain patterns based on the current market values at that time as compared to their current carrying values.

Property, Plant, and Equipment

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When properties or equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts.

Amounts received on disposal less the book value of assets sold are charged or credited to income from operations.

Amounts received on disposal greater than or less than the book value of assets sold are credited or charged to (loss) income from operations.

Management reviews long-lived assets, which consist principally of property, plant, and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recovered.

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Assets to be disposed of by sale are reported at the lower of the carrying value or fair value less cost to sell when the company has committed to a disposal plan and would be reported separately as assets held for sale in the Consolidated Balance Sheets.

Advertising Costs

Advertising costs are expensed as incurred.

No advertising costs were incurred and presented in continuing operations during fiscal years 2022, 2021, or 2020.

We did incur advertising costs totaling $ 1.7 million during fiscal 2020, which were included in net loss from discontinued operation in the fiscal 2020 Consolidated Statement of Net Loss.

Interest Costs

No interest costs were incurred during fiscal 2023.

Total interest costs incurred were $ 17,000 and $ 51,000 during fiscal 2022 and 2021, respectively.

All of the total interest costs incurred during fiscal years 2022 and 2021 were presented in continuing operations.

Of the $ 190,000 in total interest costs incurred during fiscal 2020, $ 106,000 and $ 84,000 were presented in continuing operations and discontinued operations, respectively.

We capitalize interest costs incurred on funds used to construct property, plant, and equipment.

The capitalized interest is recorded as part of the asset to which it relates and is depreciated over the asset’s estimated useful life.

No interest costs for the construction of qualifying fixed assets were capitalized during fiscal 2023, 2022, or 2021.

Foreign Currency Adjustments

The United States dollar is the functional currency for the company’s Canadian and Chinese subsidiaries.

All monetary foreign currency asset and liability accounts are remeasured into U.S.

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Exchange gains and losses from remeasurement of foreign currency denominated monetary assets and liabilities are recorded in the other expense line item in the Consolidated Statements of Net (Loss) Income in the period in which they occur.

A summary of our foreign currency exchange (losses) gains by geographic area follows:

A summary of our foreign currency exchange gains (losses) by geographic area follows:

(dollars in thousands)

Goodwill and Intangible Assets

Fiscal 2022 and 2021

No asset impairment charges were recorded during fiscal 2022 or fiscal 2021.

In accordance with ASC Topic 350, Intangibles – Goodwill and Other, our business was classified into four reporting units during fiscal 2020:

mattress fabrics, upholstery fabrics, Read, and home accessories.

Effective March 31, 2020, we sold our entire ownership interest in eLuxury to its noncontrolling interest holder, and our home accessories reporting unit was eliminated at such time.

As a result of this sale, we met the criteria outlined in ASC Topic 205-20 for our goodwill to be classified as held for sale and the results of operations and assets and liabilities for our home accessories segment were excluded from our continuing operations and presented as a discontinued operation in our consolidated financial statements (see Note 3 to the consolidated financial statements for further details).

ASC Topic 350 requires us to assess goodwill for impairment annually (the last day of our fiscal year) or between annual tests if we believe certain indicators of impairment exist.

Such indicators could include but are not limited to (1) deterioration in the environment of the industry and markets in which we operate, (2) unanticipated competition, (3) a deterioration in general economic conditions, (4) overall decline in financial performance such as negative and declining cash flows, or a decline in actual or planned revenue or earnings compared with actual and projected results or relevant prior periods, and (5) a decrease in the price per share of our common stock.

As a result, we first assess qualitative factors, such as the indicators outlined above, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we conduct a quantitative goodwill impairment test.

The quantitative impairment test involves comparing the fair value of the applicable reporting unit with its carrying value.

We estimate the fair values of our reporting units using a combination of income, discounted cash flows, and market approaches, which utilize comparable companies’ data.

If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

As a result of our third quarter and annual impairment assessments during the fourth quarter, we recorded asset impairment charges associated with our goodwill and tradenames totaling $ 33.9 million during fiscal 2020.

Of the total $33.9 million, $ 20.2 million and $ 13.7 million were reported in discontinued operations and continuing operations, respectively.

Also, of the total $33.9 million asset impairment charges, $ 27.2 million and $ 6.7 million pertained to goodwill and tradenames, respectively.

Due to the asset impairment charges of $27.2 million associated with our goodwill, no goodwill was reported on our Consolidated Balance Sheet as of May 1, 2022, and May 2, 2021.

See Notes 8 and 9 to the consolidated financial statements for further details of our assessment s of impairment, conclusions reached, and the performance of our quantitative test.

Deferred Income Taxes – Overall

Indefinite-Lived Intangible Assets

In accordance with ASC Topic 350, Intangibles –

Goodwill and Other, our business was classified into three reporting units during fiscal 2023:

mattress fabrics, upholstery fabrics, and Read.

ASC Topic 350 requires us to assess indefinite-lived intangible assets such as our tradename for impairment annually (the last day of our fiscal year) or between annual tests if we believe certain indicators of impairment exist.

Such indicators could include but are not limited to (1) deterioration in the environment of the industry and markets in which we operate, (2) unanticipated competition, (3) a deterioration in general economic conditions, (4) an overall decline in financial performance, such as negative and declining cash flows, or a decline in actual or planned revenue or earnings compared with actual and projected results or relevant prior periods, and (5) a decrease in the price per share of our common stock.

As a result, we first assess qualitative factors, such as the indicators outlined above, to determine whether it is more likely than not that the fair value of our tradename is less than its carrying amount.

If we conclude that it is more likely than not that the fair value of our tradename is less than its carrying amount, we would conduct a quantitative impairment test.

The quantitative impairment test would involve comparing the fair value of our tradename with its carrying value.

We would estimate the fair value of our tradename using an income, discounted cash flows, or market approach, as appropriate, that would require management assumptions (i.e., unobservable inputs).

If the carrying amount of our tradename exceeds the tradename's fair value, an impairment loss is recognized in an amount equal to that excess.

No asset impairment charges were recorded during fiscal 2023, 2022, or 2021, as it relates to indefinite-lived intangible assets.

See Note 7 of the consolidated financial statements for further details of our assessments of impairment, conclusions reached, and the performance of our quantitative test relating to our indefinite-live intangible asset (i.e.

Deferred Income Taxes –

Income taxes are accounted for under the asset and liability method.

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The effect on deferred income taxes of a change in tax rates is recognized in income tax (expense) benefit in the period that includes the enactment date.

Deferred Income Taxes – Valuation Allowance

Deferred Income Taxes –

Valuation Allowance

We evaluate our deferred income taxes to determine if a valuation allowance is required.

We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard with significant weight being given to evidence that can be objectively verified.

We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not”

standard, with significant weight being given to evidence that can be objectively verified.

Since we operate in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law.

Deferred Income Taxes – Undistributed Earnings from Foreign Subsidiaries

Deferred Income Taxes –

Undistributed Earnings from Foreign Subsidiaries

We assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S.

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Uncertain Income Tax Positions

We recognize an income tax benefit for a tax position taken or expected to be taken in an income tax return if the more-likely-than-not recognition threshold is met by the end of the reporting period, or is effectively settled through examination, or litigation, or negotiation, or if the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired.

The income tax effect recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

We recognize an income tax benefit for a tax position taken or expected to be taken on an income tax return if the more-likely-than-not recognition threshold is met by the end of the reporting period, or is effectively settled through examination, litigation, or negotiation, or if the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired.

The income tax

effect recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

Penalties and interest related to uncertain income tax positions are recorded as income tax expense.

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Revenue Recognition

Revenue is recognized upon the transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.

We determined that our customer purchase orders represent contracts.

In addition to purchase orders, we also have supply contracts with certain customers that define standard terms and conditions.

In addition to customer purchase orders, we also have supply contracts with certain customers that define standard terms and conditions.

Our contracts generally include promises to sell upholstery fabrics, mattress fabrics, or home goods products.

In addition, we provide fabrication and installation services of our own products associated with customized window treatments.

In addition, we provide fabrication and installation services for our own products associated with customized window treatments.

Revenue associated with sales of our products is recognized at the point in time when control of the promised goods has been transferred to the customer.

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Revenue for our customized fabrication services is recognized over time using the output method based on units produced.

Revenue associated with our installation services of our own products is also recognized over time as the customer receives and consumes the benefits of the promised installation services.

Revenue associated with our installation services for our own products is also recognized over time as the customer receives and consumes the benefits of the promised installation services.

Revenue associated with our installation services is recognized over time using the output method based on units installed.

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The transaction price is typically allocated to performance obligations based upon stand-alone selling prices.

We did not disclose the value of unsatisfied performance obligations as substantially all of any unsatisfied performance obligations as of May 1, 2022, will be satisfied within one year or less.

We did not disclose the value of unsatisfied performance obligations as substantially all of any unsatisfied performance obligations as of April 30, 2023, will be satisfied within one year or less.

Revenue Measurement

Revenue is measured as the amount of consideration we expect to receive in exchange for the transfer of the promised products and services.

The amount of consideration we expect to receive changes due to variable consideration is associated with allowances for sales returns, early payment discounts, and volume rebates that we offer to customers.

The amount of variable consideration which is included in the transaction price is only included in net sales to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur in a future period.

Our mattress fabrics and upholstery fabrics business segments only allow product returns to the extent that the products or services did not meet the contractually agreed upon specifications at the time of sale.

The amount of consideration we expect to receive changes due to variable consideration associated with allowances for sales returns, early payment discounts, and volume rebates that we offer to customers.

The amount of variable consideration included in the transaction price is only included in net sales to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur in a future period.

Our mattress fabrics and upholstery fabrics segments only allow product returns to the extent that the products or services did not meet the contractually agreed upon specifications at the time of sale.

Customers must receive authorization prior to returning products.

Our former home accessories business segment allowed returns for any reason provided the product was returned within the stated time frame, generally 30 days, unless the product was customized in which case a defect must be present in order to return the product.

Estimates of allowances for sales returns are based on historical data, current potential product return issues, and known sales returns for which customers have been granted return authorization.

Estimates of allowances for sales returns are based on historical data, current potential product return issues, and known sales returns for which customers have been granted authorization.

Known sales returns for which customers have been granted permission to return products for a refund or credit continue to be recorded as a contra account receivable.

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Shipping costs, principally freight, that comprise payments to third-party shippers are classified as cost of sales.

Handling costs represent finished goods warehousing costs incurred to store, move, and prepare products for shipment in the company’s various distribution facilities.

Handling costs were $ 4.3 million, $ 3.9 million, and $ 4.0 million fiscal 2022, 2021, and 2020, respectively, and are included in selling, general and administrative expenses.

Handling costs represent finished goods

warehousing costs incurred to store, move, and prepare products for shipment in the company’s various distribution facilities.

Handling costs were $ 4.2 million, $ 4.3 million, and $ 3.9 million during fiscal 2023, 2022, and 2021, respectively, and are included in selling, general and administrative expenses.

Sales and Other Taxes

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We account for lease components separately from non-lease components.

We recognize a ROU asset and lease liability on the commencement date of a lease arrangement based on the present value of lease payments over the lease term.

We recognize a right of use asset and lease liability on the commencement date of a lease arrangement based on the present value of lease payments over the lease term.

A lease term may include renewal options if it is reasonably certain that the option to renew a lease period will be exercised.

A renewal option is considered reasonably certain to be exercised if there is a significant economic incentive to exercise the renewal option on the date a lease arrangement is commenced.

For our leases, an estimated incremental borrowing rate (“IBR”) is utilized, based on information available at the inception of the lease.

The IBR represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease.

For our leases, an estimated incremental borrowing rate (“IBR”) is utilized, based on information available at the inception of the lease.

The IBR represents an estimate of the interest rate we would use at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease.

Stock-Based Compensation

Our equity incentive plans are described more fully in Note 13 to the notes to the consolidated financial statements.

ASC Topic 718, “Compensation – Stock Compensation”, requires that all stock-based compensation be recognized as compensation expense in the financial statements and that such cost be measured at the grant date for awards issued to employees and the company’s board of directors.

Equity awards issued to a non-employee are measured at the earlier date of when the performance criteria are met or at the end of each reporting period.

Compensation expense for time-vested restricted stock awards is amortized on a straight-line basis over the respective vesting period.

Compensation expense for performance-based restricted stock units is recorded based on an assessment each reporting period to determine the probability of whether or not certain performance targets will be met and how many common stock shares are expected to be earned as of the end of the vesting period.

ASC Topic 718, “Compensation –

Stock Compensation ”, requires that all stock-based compensation be recognized as compensation expense in the financial statements and that such cost be measured at the grant date for awards issued to employees and the company’s board of directors.

Compensation expense for time-vested restricted stock unit awards is amortized on a straight-line basis over the respective vesting period.

Compensation expense for performance-based restricted stock unit awards is recorded based on an assessment each reporting period to determine the probability of whether or not certain performance targets will be met and how many common stock shares are expected to be earned as of the end of the vesting period.

If certain performance targets are not expected to be achieved, compensation expense will not be recorded, and any previously recognized compensation expense will be reversed.

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The accompanying consolidated financial statements include certain financial instruments, and the fair market value of such instruments may differ from amounts reflected on a historical basis.

These financial instruments include our short-term and long-term investments classified as available-for-sale.

These financial instruments include our short-term and long-term investments related to a rabbi trust that sets aside funds for participants in our deferred compensation plan and are classified as available-for-sale.

The fair value measurements of our financial instruments are described more fully in Note 14 of the consolidated financial statements.

The carrying amount of cash and cash equivalents, accounts receivable, other current assets, lines of credit, accounts payable, and accrued expenses approximate their fair value because of the short maturity of these financial instruments.

The carrying amount of cash and cash equivalents, accounts receivable, other current assets, accounts payable, and accrued expenses approximate their fair value because of the short maturity of these financial instruments.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects of accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application.

This guidance was effective for fiscal years, and periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

As a result, we adopted the provisions of ASU 2019-12 on May 3, 2021 (the beginning of fiscal 2022).

The adoption of ASU 2019-12 did not affect our financial position, results of operations, or cash flows.

There were not any recently adopted accounting pronouncements affecting our consolidated financial statements during fiscal 2023.

Recently Issued Accounting Pronouncements

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Effective January 1, 2017, Culp International Holdings, Ltd.

(“Culp International”), a wholly-owned subsidiary of the company, entered into a joint venture agreement pursuant to which Culp International owned 50 % of CLASS International Holdings, Ltd.

(“CIH).

CIH produces cut and sewn mattress covers housed in two facilities totaling 120,000 square feet, located in a modern industrial park on the northeastern border of Haiti.

Effective February 1, 2021 (sometimes referred to as the “acquisition date”), Culp International entered into a Share Purchase Agreement with its former joint venture partner pursuant to which Culp International acquired the remaining 50 % ownership interest in CIH.

We believe having sole ownership of this operation increases our flexibility and enhances our capacity by having near-shore capabilities that help us meet the needs of our mattress cover customers.

Prior to the acquisition of the remaining 50 % ownership interest in CIH, we accounted for our initial 50 % ownership interest in CIH as an unconsolidated joint venture under the equity method of accounting.

In connection with the acquisition of the remaining 50% ownership interest in CIH, our consolidated financial statements now include all of the accounts of CIH, and any significant intercompany balances and transactions have been eliminated in consolidation.

The consideration transferred for our now- 100 % ownership interest in connection with this acquisition totaled $ 2.7 million, of which $ 1.7 million represents the fair value of our previously held 50% ownership interest in CIH, and $ 954,000 represented the purchase price that was mostly paid at closing on February 1, 2021, for the remaining 50% ownership interest in CIH.

The consideration transferred for our now- 100 % ownership interest in connection with this acquisition totaled $ 2.7 million, of which $ 1.7 million represented the fair value of our previously held 50% ownership interest in CIH, and $ 954,000 represented the purchase price that was mostly paid at closing on February 1, 2021, for the remaining 50% ownership interest in CIH.

We remeasured our previously held 50% ownership interest in CIH at its acquisition date fair value.

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Accounts payable

Fair value of identifiable assets acquired and liabilities assumed

Gain on bargain purchase

Equipment and leasehold improvements will be depreciated on a straight-line basis over their remaining useful lives ranging from 1 to 10 years .

Equipment and leasehold improvements are being depreciated on a straight-line basis over their remaining useful lives ranging from 1 to 10 years .

Gain on Bargain Purchase

Concurrent with our acquisition of the remaining 50% ownership interest in CIH, our former joint venture partner sold its mattress related business to a third party.

Our acquisition of the remaining 50% ownership interest in CIH was undertaken due to this sale and the terms negotiated therewith.

Our acquisition of the remaining 50% ownership interest in CIH was undertaken due to this sale and the terms negotiated in connection therewith.

As a result, the $ 3.5 million fair value of the identifiable assets acquired and liabilities assumed exceeded the consideration transferred of $ 2.7 million.

Consequently, we (i) reassessed the recognition and measurement of the assets acquired, liabilities assumed, and previously held ownership interest;

Consequently, we (i) reassessed the recognition and measurement of the assets acquired, liabilities assumed, and our previously held ownership interest;

(ii) gained an understanding of why there was a bargain purchase;

and (iii) reviewed the rebate and supply agreements that were executed concurrent with the Share Purchase Agreement.

and (iii) reviewed the rebate and supply agreements that were executed concurrent with the Share Purchase Agreement described below.

As part of our review of the rebate and supply agreements, we verified that the terms of these agreements were consistent with fair market value terms and are considered separate transactions and not considered part of the business combination.

Accordingly, this acquisition has been accounted for as a bargain purchase and, as a result, we recognized a gain of $ 819,000 , which is reported in the line-item “gain on bargain purchase” in the fiscal 2021 Consolidated Statement of Net Income.

Accordingly, this acquisition has been accounted for as a bargain purchase and, as a result, we recognized a gain of $ 819,000 , which was reported in the line-item “gain on bargain purchase”

in the fiscal 2021 Consolidated Statement of Net Income.

Separate Transactions

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In connection with the Share Purchase Agreement, we entered into supply and rebate agreements with an affiliated company of our former joint venture partner to secure plant capacity utilization and preserve sales channels of certain mattress fabric products.

supply and rebate agreement s are effective as of the acquisition date and are based on future sales orders consistent with current market conditions.

The transactions associated with the supply and rebate agreements will be accounted for in accordance with ASC Topic 606 Revenue from Contract with Customers.

The supply and rebate agreements were effective as of the acquisition date and based on future sales orders consistent with current market conditions.

The transactions associated with the supply and rebate agreements were accounted for in accordance with ASC Topic 606 Revenue from Contract with Customers.

During fiscal 2023, 2022 and the period from February 1, 2021, through May 2, 2021, shipments pursuant to the supply agreement were $ 198,000 , $ 1.6 million and $ 379,000 , respectively.

During fiscal 2022 and the period from February 1, 2021, through May 2, 2021, charges of $ 73,000 and $ 25,000 pursuant to the rebate agreement were included in net sales in the Consolidated Statement of Net (Loss) Income.

During fiscal 2023, there was no charge pursuant to the rebate agreement as the terms of the rebate agreement were not met.

Acquisition-Related Costs

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(Unaudited) Pro Forma Financial Information

The following unaudited pro forma consolidated results of operations for the fiscal years ending May 2, 2021, and May 3, 2020, have been prepared as if this acquisition had occurred on April 29, 2019.

The following unaudited pro forma consolidated results of operations for the fiscal year ending May 2, 2021, has been prepared as if this acquisition had occurred on April 29, 2019.

(dollars in thousands, except per share data)

Income (loss) from continuing operations

Net income (loss) from continuing operations

Net loss from discontinued operation

Net income (loss)

net income (loss) from continuing operations per share-basic

net income (loss) from continuing operations per share-diluted

net loss from discontinued operation per share-basic

net loss from discontinued operation per share-diluted

Net income (loss) per share - basic

Net income (loss) per share - diluted

Income from operations

Net income per share - basic

Net income per share - diluted

The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

Equity Method of Accounting

In accordance with the equity method of accounting, we reported our previous 50% proportionate share of net income (loss) of CIH as a separate line titled “income (loss) from investment in consolidated joint venture” in the accompanying Consolidated Statements of Net (Loss) Income.

Our 50% proportionate share of the net income (loss) of the unconsolidated joint venture was $ 31,000 and $( 125,000 ) during fiscal 2021 and 2020, respectively.

HOME ACCESSORIES SEGMENT

Effective June 22, 2018, we entered into an Equity Purchase Agreement (the “Equity Agreement”) in which we acquired an 80 % ownership interest in eLuxury, LLC (eLuxury) a company that offers bedding accessories and home goods directly to consumers.

eLuxury’s primary products include a line of mattress pads manufactured at eLuxury’s facility located in Evansville, Indiana.

eLuxury also offers handmade platform beds, cotton bed sheets, as well as other bedding items sourced from other suppliers.

Its products are available on eLuxury’s own branded website, eLuxury.com , Amazon, and other leading online retailers for specialty home goods.

On March 31, 2020, we sold our entire ownership interest in eLuxury to eLuxury’s noncontrolling interest holder in consideration of an accelerated settlement of certain financial obligations due and payable by eLuxury to us and the entry into supply and royalty arrangements designed to preserve an additional sales channel for our core products.

Also, this sale was expected to increase our

liquidity and allow us to focus on our core businesses of upholstery and mattress fabrics and was part of our comprehensive response to the challenging business conditions arising from the COVID-19 global pandemic.

In connection with the sale of our entire ownership interest in eLuxury, (i) we received $ 509,500 at closing as an accelerated repayment of principal amounts previously loaned to eLuxury, together with outstanding interest, under a loan agreement between us and eLuxury;

(ii) we forgave $ 300,000 of borrowings payable by eLuxury to us under this loan agreement;

(iii) we entered into an amended and restated credit and security agreement with eLuxury and the buyer (former noncontrolling interest holder) (together, the “Borrowers”), pursuant to which the Borrowers agreed to repay an additional $ 1 million previously loaned to eLuxury within thirty days of the closing of the sale transaction (and which amount was secured by the assets of both Borrowers);

and (iv) eLuxury agreed to pay $ 613,000 within sixty days of the sale transaction in satisfaction of certain trade accounts payable due from eLuxury to us.

The remaining $ 1 million we previously loaned to eLuxury and the outstanding trade accounts payable balance of $ 613,000 due from eLuxury to us was paid in full in accordance with the terms of the sale agreement outlined above.

Discontinued Operation Financial Statement Presentation and Disclosures

Financial Statement Presentation

Due to the sale of our entire ownership interest in eLuxury, our home accessories segment was eliminated.

Consequently, we determined that the results from operations and assets and liabilities associated with our home accessories segment were to be excluded from our continuing operations and presented as a discontinued operation in our consolidated financial statements.

As a result, we classified the results from operations of our home accessories segment separately in captions titled “Discontinued Operations” within our fiscal 2020 Consolidated Statements of Net Loss.

Consolidated Balance Sheet as of Disposal Date

The following is a summary of the assets and liabilities that were sold on March 31, 2020:

(dollars in thousands)

current assets:

cash and cash equivalents

accounts receivable

other current assets

total current assets held for sale - discontinued operation

property, plant, and equipment

intangible asset

right of use assets

total noncurrent assets held for sale - discontinued operation

LIABILITIES AND NET ASSETS

current liabilities:

accounts -payable trade

operating lease liability - current

accrued expenses

total current liabilities held for sale - discontinued operation

loan payable - Culp Inc.

subordinated loan payable - noncontrolling interest

operating lease liability - long-term

total noncurrent liabilities held for sale - discontinued operation

total liabilities

total net assets of discontinued operation

Net Loss from Discontinued Operation

The following is a reconciliation of the major classes of financial statement line items constituting loss before income taxes from discontinued operation that are disclosed in the notes to the financial statements to loss from discontinued operation that are presented in the fiscal 2020 Consolidated Statements of Net Loss:

(dollars in thousands)

cost of sales

selling, general and administrative expenses

asset impairments (1)

reversal of contingent consideration - earn-out obligation (2)

interest expense (3)

loss from discontinued operation related to major classes

of loss before income taxes

loss on disposal of discontinued operation (4)

loss before income taxes from discontinued operation

income tax benefit

net loss from discontinued operation

During fiscal 2020, we recorded asset impairment charges totaling $ 20.2 million, of which $ 13.6 million and $ 6.6 million pertained to the goodwill and tradename, respectively.

See Notes 8, 9, and 15 of the notes to the consolidated financial statements for further details of our assessments that resulted in the impairment of the goodwill and tradename associated with this discontinued operation.

See separate section below titled “Contingent Consideration” for further details.

Interest expense is directly attributable to our discontinued operation as it pertains to loans payable assumed by the buyer, (the noncontrolling interest) or required to be paid to Culp Inc.

based on the terms of the sale agreement.

See separate section below titled “Consolidation and Deconsolidation” for further details.

The following is a summary of net loss from continuing operations, net loss from discontinued operation, and net loss attributable Culp Inc.

common shareholders and the noncontrolling interest for fiscal year 2020:

(dollars in thousands)

net loss from continuing operations

net loss from continuing operations attributable to

noncontrolling interest

net loss from continuing operations attributable

common shareholders

net loss from discontinued operation

net loss from discontinued operation attributable to

noncontrolling interest

net loss from discontinued operation attributable to Culp Inc.

common shareholders

net loss from noncontrolling interest

net loss attributable to Culp Inc.

common shareholders

Cash Flow Disclosures

Our discontinued operation had net cash used in operating activities totaling $( 2.3 ) million during fiscal 2020.

Our discontinued operation had net cash used in investing activities totaling $( 134,000 ) during fiscal 2020.

Our discontinued operation had net cash provided by financing activities, all of which were loan proceeds and capital contributions from Culp Inc.

and the noncontrolling interest holder of eLuxury totaling $ 2.4 million during fiscal 2020.

We incurred a $ 1.9 million loss on disposal of discontinued operation that was reported within loss before income taxes from discontinued operation in the fiscal 2020 Consolidated Statement of Net Loss.

In addition, we reported a loss on disposal of discontinued operation of $ 1.6 million in the fiscal 2020 Consolidated Statement of Cash Flows, as the buyer (former noncontrolling interest holder) retained the cash held with eLuxury totaling $ 285,000 .

Contingent Consideration

The Equity Agreement related to the acquisition of our ownership interest in eLuxury contained a contingent consideration arrangement that required us to pay the seller, who was also the owner of the noncontrolling interest, an earn-out payment based on a multiple of adjusted EBITDA, as defined in the Equity Agreement, for the twelve-month period ending August 31, 2021, less $12.0 million.

We recorded a contingent liability at the acquisition date for this earn-out obligation at its fair value totaling $5.6 million based on the Black Scholes pricing model.

We were required to assess the fair value of this earn-out obligation each quarterly reporting period.

Based on management’s assessment as of the end of our third quarter of fiscal 2020, we determined it was necessary to adjust forecasted EBITDA as it related to this earn-out obligation.

This determination was based on the future outlook of our former home accessories segment and its slower than expected business improvement, as well as updated assumptions on economic conditions in the e-commerce space, combined with the upcoming timeframe for determining the amount associated with this contingent consideration arrangement.

As a result of these factors, we recorded a reversal of $ 6.1 million for the full amount of our earn-out obligation at the end of our third quarter of fiscal 2020.

In connection with the sale agreement of our entire ownership interest in eLuxury, this contingent consideration arrangement was nullified on March 31, 2020.

Since the earn-out obligation was solely based on the financial performance of our home accessories segment and the contingent consideration arrangement was nullified as a result of the disposal, the reversal of this earn-out obligation is directly attributable to our discontinued operation.

Consolidation and Deconsolidation

Consolidation

Prior to the disposal of eLuxury, we included all the accounts of eLuxury in our consolidated financial statements and eliminated all significant intercompany balances and transactions during the first nine months of fiscal 2020.

Net loss attributable to the noncontrolling interest in eLuxury was excluded from net loss attributable to Culp Inc.

common shareholders during the first nine months of fiscal 2020.

Substantive Profit-Sharing Provisions

T he Equity Agreement related to the acquisition of our ownership interest in eLuxury contained substantive profit-sharing provisions which explicitly stated the ownership interests as of the acquisition date of June 22, 2018, and the allocation of net income or loss between us, as the controlling interest holder, and the noncontrolling interest holder.

The Equity Agreement stated that as of the acquisition date, we acquired an 80 % ownership interest in eLuxury, with the seller retaining a 20 % noncontrolling interest.

Additionally, eLuxury’s net income or loss, future capital contributions and equity distributions were allocated at a percentage of 70 % to or from us and 30 % to or from the noncontrolling interest holder.

Also, the Equity Agreement included certain loss limitations pursuant to which net losses allocated pursuant to the Equity Agreement would not exceed the maximum amount of net loss that could be allocated without causing any owners to have a capital account deficit as defined in the agreement.

The carrying value of our controlling interest and the noncontrolling interest was recorded based on the terms of the substantive profit-sharing provisions of the Equity Agreement.

As a result, eLuxury’s total net asset balance of $ 1.9 million as of March 31, 2020 (the disposal date), represented the carrying value of our interest (the controlling interest holder) in eLuxury.

Deconsolidation

A parent company must deconsolidate a subsidiary as of the date the parent ceases to have a controlling interest in that subsidiary and recognize a gain or loss in net income at that time.

As a result, we deconsolidated eLuxury from our consolidated financial statements on March 31, 2020, and recognized a loss on disposal of discontinued operation totaling $ 1.9 million.

The $ 1.9 million loss on disposal of discontinued operation represented the entire carrying amount of eLuxury’s assets less liabilities as of the disposal date of March 31, 2020.

Based on the terms of the sale agreement, we did not receive any consideration for eLuxury’s net assets associated with the sale of our entire ownership interest in eLuxury, and we did not retain a noncontrolling interest in eLuxury.

Additionally,

based on the terms of the substantive profit-sharing provisions stated in the Equity Agreement, the noncontrolling interest holder did not have a carrying amount for its interest in eLuxury .

Continuing Obligations, Financial Commitments, and Continuing Relationships with the Discontinued Operation

Supply Agreement

In connection with the sale of our entire ownership interest in eLuxury, we entered into a supply agreement with eLuxury to preserve an additional sales channel for our core products – upholstery and mattress fabrics.

The supply agreement requires eLuxury to purchase all its requirements at fair market prices for mattress and upholstery fabrics products of the type we were supplying to eLuxury at the time of the sale transaction, as well as certain home accessories and soft goods products, subject to our ability to provide competitive pricing and delivery terms for such products.

There are no guarantees or provisions under the supply agreement that require eLuxury to purchase a minimum amount of our products.

On January 12, 2022, we entered into an agreement with eLuxury that extended the term of the supply agreement from its original expiration date of March 31, 2022, to March 31, 2027.

During fiscal 2022 and 2021, shipments to eLuxury pursuant to the supply agreement were $ 103,000 and $ 331,000 , respectively.

During the three-month period after the disposal date of March 31, 2020, and through our fiscal year end date of May 3, 2020, shipments to eLuxury pursuant to the supply agreement totaled $ 7,000 .

As a result of our continuing involvement with eLuxury, we reported net sales and the related cost of sales associated with our inventory shipments to eLuxury, which required us to report these transactions in continuing operations for all periods presented in our Consolidated Statements of Net (Loss) Income.

During fiscal 2020, we reported both net sales and cost of sales totaling $ 968,000 that were previously eliminated in consolidation and occurred prior to the March 31, 2020, disposal date.

Royalty Agreement

Also in connection with the sale of our entire ownership interest in eLuxury, we entered into a royalty agreement with eLuxury that required eLuxury to pay us a royalty fee based on a percentage of sales, as defined in the royalty agreement.

On January 12, 2022, we entered into an agreement with eLuxury that terminated this royalty agreement and required eLuxury to pay us a termination fee of $ 150,000 .

During fiscal years 2022, 2021, and 2020, royalty payments received pursuant to the royalty agreement were immaterial.

Financial Guarantee

As of May 2, 2021, we had an agreement that guaranteed 70 % of any unpaid lease payments associated with eLuxury’s facility located in Evansville, Indiana.

The lease agreement expires during September 2024 and requires monthly payments of $ 18,865 .

In connection with the termination of the royalty agreement noted above, we were fully released from our guarantee associated with this lease.

In accordance with the equity method of accounting, we reported our previous 50% proportionate share of net income of CIH as a separate line titled “income from investment in consolidated joint venture”

in the accompanying Consolidated Statements of Net (Loss) Income.

Our 50% proportionate share of the net income of the unconsolidated joint venture was $ 31,000 during fiscal 2021.

ACCOUNTS RECEIVABLE

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ending balance

As of May 1, 2022, and May 2, 2021, we assessed the credit risk of our customers within our accounts receivable portfolio.

Our risk assessment includes the respective customer’s (i) financial position;

As of April 30, 2023, and May 1, 2022, we assessed the credit risk of our customers within our accounts receivable portfolio.

Our risk assessment includes the respective customer’s (i) financial position;

(ii) past payment history;

(iii) management’s general ability;

and (iv) historical loss experience;

as well as (v) any other ongoing economic conditions.

After our risk assessment was completed, we assigned credit grades to our customers, which in turn were used to determine our allowance for doubtful accounts totaling $ 292,000 and $ 591,000 as of May 1, 2022, and May 2, 2021, respectively.

A summary of the activity in the allowance for returns and allowances and discounts follow:

After our risk assessment was completed, we assigned credit grades to our customers, which in turn were used to determine our allowance for doubtful accounts totaling $ 342,000 and $ 292,000 as of April 30, 2023, and May 1, 2022, respectively.

A summary of the activity in the allowance for returns and allowances and discounts follows:

(dollars in thousands)

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ending balance

Subsequent Event

On June 25, 2022, a customer and its affiliates associated with our mattress fabrics segment announced that they filed voluntary petitions for reorganization under Chapter 11 of the U.S.

Bankruptcy Proceedings

On June 25, 2022, a significant customer and its affiliates associated with our mattress fabrics segment announced that they filed voluntary petitions for reorganization under Chapter 11 of the U.S.

Bankruptcy Code.

Subject to court approval, our customer and its affiliates entered into an asset purchase agreement for the sale of substantially all of its assets.

The proposed buyer under the asset purchase agreement has also provided a commitment for debtor-in-possession financing to allow our customer and its affiliates to conduct normal business operations pending the anticipated closing of the sale.

A credit loss associated with accounts receivable outstanding as of May 1, 2022, for this customer and its affiliates was not recorded as we received payment in full regarding these invoices and, based on information available to us at this time, we do not believe there is a risk of loss on these accounts.

In addition, based on the information available to us at this time, we currently do not expect to record a material credit loss associated with accounts receivable for this customer and its affiliates for outstanding invoices after May 1, 2022 relating to products sold prior to the bankruptcy filing.

Our customer and its affiliates entered into an asset purchase agreement for the sale of substantially all of their assets, and the new owner is now conducting normal operations.

We did not record a credit loss associated with outstanding accounts receivable dated on or prior to May 1, 2022, for this customer and its affiliates, as we received payment in full regarding these invoices.

We did not record a credit loss associated with outstanding accounts receivable dated after May 1, 2022, relating to products sold prior to the bankruptcy filing, as we received payment in full regarding these invoices.

On January 23, 2023, a significant customer and its affiliates associated with our mattress fabrics segment filed pre-planned voluntary petitions for reorganization under Chapter 11 of the U.S.

Bankruptcy Code.

Our customer and its affiliates are operating as a debtors-in-possession and subject to and within the provisions of the petitions as approved by the U.S.

Bankruptcy Court.

We did not record a credit loss associated with outstanding accounts receivable for this customer and its affiliates, in connection with products sold prior to the bankruptcy filing, as we received payment in full regarding these invoices during the fourth quarter of fiscal 2023.

As of April 30, 2023, based on information available at this time, we do not believe there is a risk of material credit loss associated with outstanding accounts receivable with this customer, as we are selling products based on credit terms, and we are being paid in the normal course of business.

REVENUE FROM CONTRACTS WITH CUSTOMERS

Nature of Performance Obligations

Continuing Operations

Our continuing operations are classified into two business segments:

Our operations are classified into two business segments:

mattress fabrics and upholstery fabrics.

1 unchanged sentence

The upholstery fabrics segment develops, manufactures, sources, and sells fabrics primarily to residential and commercial furniture manufacturers.

In addition, the upholstery fabrics segment includes Read, which provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation services of Read’s products, to customers in the hospitality and commercial industries.

In addition, the upholstery fabrics segment includes Read, which provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation services for Read’s products, to customers in the hospitality and commercial industries.

Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.

Our primary performance obligations include the sale of mattress fabrics and upholstery fabrics, as well as the performance of customized fabrication and installation services of Read’s products associated with window treatments.

Discontinued Operation – Home Accessories Segment

As disclosed in Note 3 of the notes to the consolidated financial statements, we sold our entire ownership interest in eLuxury on March 31, 2020, and consequently our home accessories segment was eliminated at such time.

Additionally, net sales associated with our home accessories segment were excluded from our continuing operations and presented within discontinued operation in our Consolidated Statement of Net Loss for fiscal 2020.

The home accessories segment was our finished products business that manufactured, sourced, and sold bedding accessories and home goods directly to consumers and businesses through global e-commerce, business-to-business, and other sales channels.

Prior to its disposal, our former home accessories segment reported net sales totaling $ 13.8 million during fiscal 2020.

Revenue associated with the sales of home accessories products was recognized at the point-in-time when control was transferred to the customer.

Our primary performance obligations include the sale of mattress fabrics and upholstery fabrics, as well as the performance of customized fabrication and installation services for Read’s products associated with window treatments.

Significant Judgments

See Note 1 of the consolidated financial statements for disclosure of our accounting policies regarding our significant judgements associated with revenue recognition, determining our transaction prices, and revenue measurement.

See Note 1 of the consolidated financial statements for disclosure of our accounting policies regarding our significant judgments associated with revenue recognition, determining our transaction prices, and revenue measurement.

Contract Assets & Liabilities

Certain contracts, primarily those for customized fabrication and installation services associated with Read, require upfront customer deposits that result in a contract liability which is recorded on the Consolidated Balance Sheets as deferred revenue.

If upfront deposits or prepayments are not required, customers may be granted credit terms which generally range from 15- 60 days.

Certain contracts relating to customized fabrication and installation services associated with Read require upfront customer deposits that result in a contract liability which is recorded on the Consolidated Balance Sheets as deferred revenue.

If upfront deposits or prepayments are not required, customers may be granted terms which generally range from 15 - 60 days.

Our terms are customary within the industries in which we operate and are not considered financing arrangements.

There were no contract assets recognized as of May 1, 2022, or May 2, 2021.

During the fourth quarter of fiscal 2023, we entered into a contract with an upholstery fabrics customer that required the customer to pay us an upfront license fee payment totaling $ 250,000 to use a certain trademark for a period of three years commencing in fiscal 2024 and extending through fiscal 2026.

There were no contract assets recognized as of April 30, 2023, or May 1, 2022.

A summary of the activity of deferred revenue follows:

4 unchanged sentences

Ending Balance

As of April 30, 2023, total deferred revenue of $ 1.2 million pertained to (i) upfront customer deposits associated with customized fabrication and installation services related to Read totaling $ 942,000 and (ii) an upfront license fee paid to us for the licensing of a certain trademark to be used by an upholstery fabrics customer totaling $ 250,000 .

As of May 1, 2022, the entire deferred revenue amount of $ 520,000 represented upfront customer deposits associated with customized fabrication and installation services related to Read.

Disaggregation of Revenue

The following table presents our disaggregated revenue related to continuing operations by segment, timing of revenue recognition, and product sales versus services rendered for fiscal 2022:

The following table presents our disaggregated revenue related to operations by segment, timing of revenue recognition, and product sales versus services rendered for fiscal 2023:

(dollars in thousands)

2 unchanged sentences

Total Net Sales

The following table presents our disaggregated revenue related to continuing operations by segment, timing of revenue recognition, and product sales versus services rendered for fiscal 2021:

The following table presents our disaggregated revenue related to operations by segment, timing of revenue recognition, and product sales versus services rendered for fiscal 2022:

(dollars in thousands)

2 unchanged sentences

Total Net Sales

The following table presents our disaggregated revenue related to continuing operations by segment, timing of revenue recognition, and product sales versus services rendered for fiscal 2020:

The following table presents our disaggregated revenue related to operations by segment, timing of revenue recognition, and product sales versus services rendered for fiscal 2021:

(dollars in thousands)

7 unchanged sentences

finished goods

Substantial and Unusual Losses Resulting from Subsequent Measurement of Inventory

We incurred non-cash inventory charges totaling $ 5.8 million during fiscal 2023, which represents a $ 2.9 million impairment charge associated with our mattress fabrics segment;

a total of $ 2.8 million related to markdowns of inventory in both segments that were estimated based on our policy for aged inventory;

and $ 98,000 for the loss on disposal and markdowns of inventory related to the exit of our cut and sewn upholstery fabrics operation located in Shanghai, China (see Note 9 of the consolidated financial statements for further details).

We incurred non-cash inventory charges of $ 1.9 million and $ 882,000 during fiscal 2022 and 2021, respectively, which represent markdowns of inventory in both segments that were based on our policy of aged inventory.

Mattress Fabrics Segment - Net Realizable Value

During the second quarter of fiscal 2023, our mattress fabrics segment experienced a 35.8 % decline in net sales compared with the second quarter of fiscal 2022.

This decline in net sales led to a significant decrease in gross margin to ( 8.7 %), excluding non-cash inventory charges of $ 3.8 million during the second quarter of fiscal 2023, as compared with a gross margin of 15 % during the second quarter of fiscal 2022.

The significant decline in net sales and profitability during the second quarter of fiscal 2023 stemmed from a greater than anticipated decline in consumer discretionary spending on mattress products, which we believed was due to the following factors:

(i) inflationary effects of commodities such as gas, food, and other necessities;

(ii) a significant increase in interest rates;

(iii) the pulling forward of demand for home goods products during the early years of the COVID-19 pandemic, which demand subsequently shifted to travel, leisure, and other services;

and (iv) excess inventory held by customers due to a decline in consumer demand.

Based on this evidence, as of October 30, 2022 (the end of our second quarter of fiscal 2023), management conducted a thorough review of our mattress fabrics inventory, and as a result, recorded a charge of $ 2.9 million within cost of sales to write down inventory to its net realizable value.

This $ 2.9 million charge was based on management's estimates of product sales prices, customer demand trends, and its plans to transition to new products.

As of January 29, 2023 (the end of our third quarter of fiscal 2023), and April 30, 2023 (the end of fiscal 2023), we reviewed our mattress fabrics inventory to determine if additional write-downs of inventory that were not recorded based on our policy for aged inventory were necessary.

Based on this assessment, no additional write-downs of inventory to their net realizable value were recorded during the third and fourth quarters of fiscal 2023.

Based on current unfavorable macroeconomic conditions, it is possible that estimates used by management to determine the write down of inventory to its net realizable value could be materially different from its actual value or our ultimate results.

These differences could result in higher than expected inventory provisions, which could adversely affect the company's results of operations and financial condition in the near term.

PROPERTY, PLANT, AND EQUIPMENT

16 unchanged sentences

Non-compete agreement, net

A summary of the change in the carrying amount of our tradename follows:

(dollars in thousands)

beginning balance

loss on impairment - continuing operations

loss on impairment - discontinued operation (note 3)

ending balance

Our tradename as of May 1, 2022, and May 2, 2021, pertained to Read, a separate reporting unit within the upholstery fabrics segment.

This tradename was determined to have an indefinite useful life at the time of acquisition, and therefore is not being amortized.

Our tradename pertains to Read, a separate reporting unit within our upholstery fabrics segment.

This tradename was determined to have an indefinite useful life at the time of its acquisition, and therefore is not being amortized.

However, we are required to assess this tradename annually or between annual tests if we believe indicators of impairment exist.

Based on our assessments as of May 1, 2022, and May 2, 2021, no indicators of impairment existed, and therefore we did no t record any asset impairment charges associated with our tradename during fiscal 2022 or fiscal 2021.

Continuing Operations (Fiscal 2020)

As of April 28, 2019, the tradename associated with our continuing operations totaled $ 683,000 and was associated with Read.

In accordance with ASC Topic 350 Intangibles – Goodwill and Other, we are required to assess our tradenames for impairment annually or between annual tests if we believe indicators of impairment exist.

Accordingly, we performed an annual assessment of Read’s tradename as of May 3, 2020.

First, we performed a qualitative assessment in which we concluded that it was more likely than not that the fair value of Read’s tradename was less than its carrying amount.

This conclusion was based on impairment indicators that existed, such as our unfavorable financial performance and the significant decline in the price per share of our common stock and market capitalization stemming from the COVID-19 global pandemic.

Since we determined it was more likely than not that the fair value of Read’s tradename was less than its carrying amount, we performed a quantitative impairment test.

Our quantitative impairment test involved determining the fair value of Read’s tradename utilizing the relief from royalty method and comparing the

respective fair value of Read’s tradename with its carrying amount.

Consequently, based on our quantitative impairment test, we recorded an asset impairment charge totaling $ 143,000 in the fiscal 2020 Consolidated Statement of Net Loss.

Discontinued Operation – Home Accessories Segment (Fiscal 2020)

As of April 28, 2019, the tradename associated with our discontinued operation totaled $ 6.6 million.

During the fiscal 2020 year, we recorded asset impairment charges totaling $ 6.6 million, of which $ 2.4 million and $ 4.2 million were recorded in the third and fourth quarters, respectively.

Third Quarter of Fiscal 2020

As of February 2, 2020 (the end of our third quarter), we believed indicators of impairment existed that pertained to the future outlook of our former home accessories segment and its slower than expected business improvement, as well as economic conditions that existed within the e-commerce bedding space.

Since we determined it was more-likely-than-not that the fair value of the tradename associated with our former home accessories segment was less than its carrying amount, we performed a quantitative impairment test.

Our quantitative impairment test involved determining the fair value of the tradename associated with our former home accessories segment utilizing a relief from royalty method and comparing the respective fair value with its carrying amount.

Consequently, based on our quantitative impairment test, we recorded an asset impairment charge totaling $ 2.4 million that is presented within the discontinued operation section of our fiscal 2020 Consolidated Statement of Net Loss.

Fourth Quarter of Fiscal 2020

During the fourth quarter of fiscal 2020, management made a strategic decision to sell our entire ownership interest in eLuxury to focus on our core products of mattress and upholstery fabrics, which we believed would increase our liquidity and assist with our comprehensive response to the COVID-19 global pandemic.

As a result, we recorded an additional asset impairment charge of $ 4.2 million based on the expected selling price of our entire ownership in eLuxury in comparison to its carrying amount.

As disclosed in Note 3 of the notes to the consolidated financial statements, effective March 31, 2020, we sold our entire ownership interest in eLuxury to its noncontrolling interest holder, resulting in the elimination of the home accessories segment at such time.

Based on the terms of the sale agreement, we did not receive any consideration for eLuxury’s net assets associated with the sale of our entire ownership interest in eLuxury.

The $ 4.2 million asset impairment charge recorded during the fourth quarter is presented within the discontinued operation section of our fiscal 2020 Consolidated Statement of Net Loss.

Accordingly, we performed an annual assessment of Read's tradename as of April 30, 2023.

First, we performed a qualitative assessment to determine if any impairment indicators existed.

(ii) processing and pricing inefficiencies associated with customization and installation services;

(iii) an unfavorable mix of small scale and larger scale projects;

and (iv) changes in management and key personnel.

Consequently, we conducted a quantitative impairment test to determine the fair value of Read's tradename by calculating Read's future discounted cash flows based on management's assumptions that involve unobservable inputs such as (i) discount rate, (ii) future growth rates, (iii) changes in working capital, and (iv) effect of strategic actions to be performed by management to address recent operating inefficiencies.

results of our quantitative impairment test, the fair value of Read's tradename exceeded its carrying amount, and therfore, no impairment was noted as of April 30, 2023.

Customer Relationships

5 unchanged sentences

Our customer relationships are amortized on a straight-line basis over useful lives ranging from nine to seventeen years .

The gross carrying amount of our customer relationships was $ 3.1 million as of May 1, 2022, and May 2, 2021.

Accumulated amortization for these customer relationships was $ 1.5 million and $ 1.2 million as of May 1, 2022, and May 2, 2021, respectively.

The gross carrying amount of our customer relationships was $ 3.1 million as of April 30, 2023, and May 1, 2022.

Accumulated amortization for these customer relationships was $ 1.8 million and $ 1.5 million as of April 30, 2023, and May 1, 2022, respectively.

The remaining amortization expense for the next five fiscal years and thereafter follows:

5 unchanged sentences

and thereafter - $ 102,000 .

The weighted average amortization period for our customer relationships is 5.7 years as of May 1, 2022.

The weighted average amortization period for our customer relationships is 4.8 years as of April 30, 2023.

Non-Compete Agreement

5 unchanged sentences

Our non-compete agreement is associated with a prior acquisition by our mattress fabrics 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 1, 2022, and May 2, 2021.

Accumulated amortization for this non-compete agreement was $ 1.6 million and $ 1.5 million as of May 1, 2022, and May 2, 2021, respectively.

The gross carrying amount of this non-compete agreement was $ 2.0 million as of April 30, 2023, and May 1, 2022.

Accumulated amortization for this non-compete agreement was $ 1.6 million as of April 30, 2023, and May 1, 2022.

The remaining amortization expense for the next five years and thereafter follows:

3 unchanged sentences

FY 2027 - $ 76,000 ;

FY 2027 - $ 75,000 , and thereafter - $ 73,000 .

The weighted average amortization period for the non-compete agreement is 6.0 years as of May 1, 2022.

A summary of the change in the carrying amount of goodwill follows:

(dollars in thousands)

beginning balance

loss on impairment - continuing operations

loss on impairment - discontinued operation (note 3)

ending balance

As a result of asset impairments incurred during fiscal 2020 described below, we did not report goodwill in the accompanying Consolidated Balance Sheets as of May 1, 2022, and May 2, 2021.

Continuing Operations (Fiscal 2020)

As of April 28, 2019, goodwill associated with our continuing operations totaled $ 13.6 million, of which $ 11.5 million was associated with our mattress fabrics reporting unit and $ 2.1 million was associated with Read, a separate reporting unit within the upholstery fabrics segment.

In accordance with ASC Topic 350 Intangibles – Goodwill and Other, we are required to assess goodwill for impairment annually or between annual tests if we believe indicators of impairment exist.

Accordingly, we performed our annual assessment of goodwill as of May 3, 2020.

First, we performed a qualitative assessment in which we concluded that it was more likely than not that the fair value of both our mattress fabrics and Read reporting units were less than their carrying amounts, including goodwill.

Since we determined it was more likely than not that the fair value for both our mattress fabrics and Read reporting units were less than their carrying amounts, we conducted a quantitative goodwill impairment test.

Our quantitative goodwill impairment test involved determining the fair value of each of our mattress fabrics and Read reporting units utilizing a discounted cash flows method and comparing the respective fair value of our mattress fabrics and Read reporting units with their respective carrying amounts, including goodwill.

Consequently, based on our quantitative goodwill impairment test, we recorded an asset impairment charge totaling $ 13.6 million in asset impairments in the fiscal 2020 Consolidated Statement of Net Loss.

Discontinued Operation – Home Accessories Segment (Fiscal 2020)

As of April 28, 2019, goodwill associated with our discontinued operation totaled $ 13.6 million.

During fiscal 2020, we recorded asset impairment charges totaling $ 13.6 million, of which $ 11.2 million and $ 2.4 million were recorded in the third and fourth quarters, respectively.

Third Quarter of Fiscal 2020

Since we determined it was more likely than not that the fair value of our former home accessories reporting unit was less than its carrying amount, we performed a quantitative goodwill impairment test.

Our quantitative goodwill impairment test involved determining the fair value of our former home accessories segment utilizing a discounted cash flows method and comparing the respective fair value of our former home accessories reporting unit with its respective carrying amount, including goodwill.

Consequently, based on our quantitative goodwill impairment test, we recorded an asset impairment charge totaling $ 11.2 million that is presented within the discontinued operation section of our fiscal 2020 Consolidated Statement of Net Loss.

Fourth Quarter of Fiscal 2020

As a result, we recorded an additional asset impairment charge of $ 2.4 million based on the expected selling price of our entire ownership in eLuxury in comparison to its carrying amount, including goodwill.

As disclosed in Note 3 of the consolidated financial statements, effective March 31, 2020, we sold our entire ownership interest in eLuxury to its noncontrolling interest holder, resulting in the elimination of the home accessories segment at such time.

Based on the terms of the sale agreement, we did not receive any consideration for eLuxury’s net assets that were associated with the sale of our entire ownership interest in eLuxury.

The $ 2.4 million asset impairment charge recorded during the fourth quarter is presented within the discontinued operation section of our fiscal 2020 Consolidated Statement of Net Loss.

and FY 2028 - $ 73,000 .

The weighted average amortization period for the non-compete agreement is 5.0 years as of April 30, 2023.

Impairment - Mattress Fabrics Segment

As of October 30, 2022 (the end of our second quarter of fiscal 2023), management reviewed the long-lived assets associated with our mattress fabrics segment, which consisted of property, plant, and equipment, right of use assets, and finite-lived intangible assets (collectively known as the "Mattress Asset Group"), for impairment, as events and changes in circumstances occurred that indicated the carrying amount of the Mattress Asset Group may not be recoverable.

During the second quarter of fiscal 2023, our mattress fabrics segment experienced a 35.8 % decline in net sales compared with the second quarter of fiscal 2022.

This decline in net sales led to a significant decrease in gross margin to ( 23.1 %) during the second quarter of 2023, compared with gross margin of 15.0 % during second quarter of fiscal 2022.

(i) inflationary effects of commodities such as gas, food, and other necessities;

(ii) a significant increase in interest rates;

(iii) the pulling forward of demand for home goods products during the early years of the COVID-19 pandemic, which demand subsequently shifted to travel, leisure, and other services;

and (iv) excess inventory held by customers due to a decline in consumer demand.

Based on the above evidence, we were required to determine the recoverability of the Mattress Asset Group, which was classified as held and used, by comparing the carrying amount of the Mattress 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 undiscounted cash flows, an impairment charge is recognized for the excess of the carrying amount over the sum of the future undiscounted cash flows of the asset group.

As of October 30, 2022, the carrying amount of the Mattress Asset Group totaled $ 38.8 million, which related to property, plant, and equipment of $ 35.9 million, right of use assets of $ 2.1 million, a non-compete agreement of $ 414,000 , and customer relationships of $ 383,000 .

The total carrying amount of the Mattress Asset Group did not exceed the sum of its future undiscounted cash flows from its use and eventual disposition.

As a result, we determined no impairment associated with the Mattress Asset Group existed as of October 30, 2022.

Since the end of the second quarter on October 30, 2022, and through the end of fiscal 2023, our mattress fabrics segment remained unprofitable, as it incurred operating losses totaling $( 4.2 ) million and $( 2.5 ) million during the third quarter and fourth quarter of fiscal 2023, respectively.

As of April 30, 2023, the carrying amount of the Mattress Asset Group totaled $ 36.8 million, which represents property, plant, and equipment of $ 33.7 million, right use assets of $ 2.3 million, a non-compete agreement of $ 377,000 , and customer relationships of $ 358,000 .

The total carrying amount of the Mattress Asset Group did not exceed the sum of its future undiscounted cash flows from its use and eventual disposition.

As result, we maintain our position that no impairment associated with the Mattress Asset Group existed as of April 30, 2023.

Impairment - Read

As of April 30, 2023, management reviewed the long-lived assets associated with Read, a separate reporting unit within our upholstery fabrics segment.

Read's long-lived assets consist of property, plant, and equipment, a right of use asset, and finite-lived intangible assets (collectively known as "Read's Asset Group").

Read's Asset Group was reviewed for impairment because events and changes in circumstances occurred that indicated the carrying amount of the Read's Asset Group may not be recoverable.

As a result, we performed a qualitative assessment to determine if any impairment indicators existed.

Based on this assessment we concluded that indicators of impairment did exist, such as unfavorable financial performance in that we have incurred net operating losses during the last two fiscal years, which stem from (i) tight labor supply and wage inflation, (ii) processing and pricing inefficiencies associated with customization and installation services, (iii) an unfavorable mix of small scale and larger scale projects;

and (iv) changes in management and key personnel.

Based on the above evidence, we were required to determine the recoverability of Read's Asset Group, which was classified as held and used, by comparing the carrying amount of Read's Asset Group to the sum of the future undiscounted cash flows expected to result from its use and eventual disposition.

As of April 30, 2023, the carrying amount of Read's Asset Group totaled $ 1.5 million, which represents customer relationships of $ 978,000 , property, plant, and equipment of $ 329,000 , and a right of use asset of $ 215,000 .

The total carrying amount of Read's Asset Group did not exceed the sum of its future undiscounted cash flows from its use and eventual disposition.

As a result, we determined no impairment associated with Read's Asset Group existed as of April 30, 2023.

ACCRUED EXPENSES

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compensation and related benefits

UPHOLSTERY FABRICS SEGMENT RESTRUCTURING ACTIVITIES

Second Quarter of Fiscal 2023 - China

During the second quarter of fiscal 2023, we closed our cut and sew upholstery fabrics operation located in Shanghai, China, which included the termination of an agreement to lease a building.

This strategic action, along with the further use of our Asian supply chain, was our response to declining consumer demand for cut and sew products, by adjusting our operating costs to better align with the lower demand.

As a result of this strategic action, we recorded restructuring expense and restructuring related charges during fiscal 2023 totaling $ 713,000 , which represent represent (i) employee termination benefits of $ 468,000 , (ii) loss from the disposal and markdowns of inventory of $ 98,000 , (iii) an impairment loss associated with equipment of $ 80,000 , (iv) lease termination costs of $ 47,000 , (v) and

other associated costs of $ 20,000 .

Of the total $ 713,000 , $ 615,000 and $ 98,000 , were recorded to restructuring expense and cost of sales, respectively, in the fiscal 2023 Consolidated Statement of Net Loss.

Third and Fourth Quarters of Fiscal 2023 - Haiti

Effective January 24, 2023, Culp Upholstery Fabrics Haiti, Ltd.

("CUF Haiti") entered into an agreement to terminate a lease associated with a facility located in Ouanaminthe, Haiti ("Haiti"), that was used solely for the production of cut and sewn kits associated with our upholstery fabrics segment.

As a result, CUF Haiti's production of cut and sewn upholstery kits has been moved to an existing facility leased by Culp Home Fashions Haiti, Ltd.

("CHF Haiti").

Both CUF Haiti and CHF Haiti are indirect wholly-owned subsidiaries of Culp, Inc.

CHF Haiti's facility, which is also located in Ouanaminthe, Haiti, will not only produce cut and sewn kits associated with our upholstery fabrics segment, but will also continue to produce cut and sewn mattress covers associated with our mattress fabrics segment.

We believe this restructuring action will reduce the costs of our operations located in Haiti to better align with the declining consumer demand for cut and sewn products by consolidating existing facilities and reducing headcount.

As mentioned above, CUF Haiti entered into an agreement to terminate the lease (the "Termination Agreement") of a facility ("right of use asset").

Pursuant to the terms of the original lease agreement (the "Original Lease"), CUF Haiti was required to pay in advance $ 2.8 million for the full amount of rent due prior to the commencement of the Original Lease, and the initial lease term was set to expire on December 31, 2029 .

Pursuant to the terms of the Termination Agreement, the Original Lease was formally terminated when CUF Haiti vacated and returned possession of their right of use asset associated with the Original Lease to the lessor.

After CUF Haiti vacated and returned possession of their right of use asset to the lessor, a third party (the "Lessee") took possession of CUF Haiti's right of use asset, and the Lessee agreed to pay CUF Haiti $ 2.4 million over a period commencing on April 1, 2023 and ending on December 31, 2029, based on monthly installments as stated in the Termination Agreement.

In connection with the Termination Agreement, an affiliate of the Lessee has guaranteed payment in full of all amounts due and payable to CUF Haiti by the Lessee, and CUF Haiti has been fully and unconditionally released and discharged from all of its remaining obligations under the Original Lease.

In connection with the Termination Agreement, CUF Haiti's right of use asset was classified as held for sale and was presented separately as assets held for sale on the Consolidated Balance Sheet as of January 29, 2023 (i.e., the end of the third quarter of fiscal 2023).

As a result, CUF Haiti's right of use asset was recorded at its fair value of $ 2.0 million, which was lower than its carrying value as of January 29, 2023 (see Note 14 to the consolidated financial statements for further details regarding fair value measurement).

Consequently, since the fair value of CUF Haiti's right of use asset was lower than its carrying amount, we recorded a restructuring charge of $ 434,000 during the third quarter of fiscal 2023 to reduce the carrying amount of CUF Haiti's right of use asset to its reported fair value.

During the fourth quarter of fiscal 2023, CUF Haiti recognized the sale of its right of use asset, as it vacated and returned possession of their right of use asset to the Lessor, and the Lessee has taken possession of CUF Haiti's right of use asset.

As a result, CUF Haiti's right of use asset classified as held for sale was derecognized and a short-term and long-term note receivable was recognized based on the payments and timing of such payments due from the Lessee as stated in the Termination Agreement.

As of April 30, 2023, CUF Haiti's note receivable totaled $ 1.9 million, of which $ 219,000 and $ 1.7 million were classified as short-term and long-term, respectively.

As a result of this strategic action, we recorded restructuring expense during fiscal 2023 totaling $ 781,000 .

which represents (i) lease termination costs of $ 434,000 , (ii) an impairment loss related to leasehold improvements of $ 277,000 , (iii) employee termination benefits of $ 39,000 , and (iv) other associated costs of $ 31,000 .

The following summarizes our restructuring expense and related charges from both our restructuring activities noted above for fiscal 2023:

(dollars in thousands)

Employee termination benefits

Lease termination costs

Impairment loss - leasehold improvements and equipment

Loss on disposal and markdowns of inventory

Other associated costs

Restructuring expense and restructuring related charges (1)

(1) Of the total $ 1.5 million, $ 1.4 million and $ 98,000 were recorded to restructuring expense and cost of sales, respectively, in the fiscal 2023 Consolidated Statement of Net Loss.

The following summarizes the activity in accrued restructuring for fiscal 2023:

(dollars in thousands)

Beginning of year balance

Accrual established in fiscal 2023

Expenses incurred

End of year balance

LINES OF CREDIT

Revolving Credit Agreement – United States

As of May 1, 2022, our Credit Agreement (the “Existing Credit Agreement”) with Wells Fargo Bank, N.A.

(“Wells Fargo”) provided a revolving loan commitment of $ 30 million, was set to expire on August 15, 2022 , and allowed us to issue letters of credit not to exceed $ 1 million.

Interest was charged under the Existing Credit Agreement at a rate (applicable interest rate of 2.40 % and 1.71 % as of May 1, 2022, and May 2, 2021, respectively) as a variable spread over LIBOR based on our ratio of debt to EBITDA.

Outstanding borrowings were secured by a pledge of 65 % of the common stock of Culp International Holdings, Ltd.

(a subsidiary located in the Cayman Islands).

There were $ 275,000 of outstanding letters of credit provided by the Existing Credit Agreement as of May 1, 2022, and May 2, 2021.

As of May 1, 2022, we had $ 725,000 remaining for the issuance of additional letters of credit.

There were no borrowings outstanding under the Existing Credit Agreement as of May 1, 2022, or May 2, 2021.

Subsequent Event

Effective June 24, 2022, we entered into an Amended and Restated Credit Agreement (the “Amended Agreement”) with Wells Fargo.

The Amended Agreement amends, restates, supersedes, and serves as a replacement for the Existing Credit Agreement.

The Amended Agreement provides a revolving credit facility of up to $ 40 million, is secured by a lien on the company’s assets, and expires in June 2025 .

The proceeds of borrowings under the Amended Agreement are to be used for working capital and other general corporate purposes.

The company’s available borrowings under the Amended Agreement are based on a borrowing base calculation using certain accounts receivable and inventory of the company, subject to certain sub-limits as defined in the Amended Agreement, to be calculated on a monthly basis.

Similar to the Existing Credit Agreement, the Amended Agreement contains a sub-facility that allows the company to issue letters of credit in an aggregate amount not to exceed $ 1 million.

Borrowings under the Amended Agreement bear interest at a rate calculated using a margin (the “Applicable Margin”) over the Federal Reserve Bank of New York’s secured overnight funding rate (SOFR).

The Applicable Margin is set initially at 1.35 % and may vary under the terms of the Amended Agreement from 1.35 % to 2.50 %, depending on the ratio of the company’s consolidated debt to consolidated EBITDA, as defined in the Amended Agreement, determined on a quarterly basis.

The Amended Agreement contains customary affirmative and negative covenants and requires compliance by the company with certain financial covenants, including minimum tangible net worth of $ 100 million plus 50 % of annual net income, and a minimum ratio of consolidated EBITDA to consolidated net interest expense of 3.0 to 1.0 as defined in the Amended Agreement.

The EBITDA to interest expense covenant does

not apply during the first three quarters of the company’s fiscal 2023, but during that period, the company must maintain minimum “access to liquidity” of $ 15 million, which is defined as unencumbered liquid assets plus available and unused credit under the revolving credit facility as calculated using the borrowing base, all as defined in the Amended Agreement.

Revolving Credit Agreements – China

Revolving Credit Agreement –

United States

Existing Credit Agreement

As of May 1, 2022, we had a Credit Agreement (the “Existing Credit Agreement”) with Wells Fargo Bank, N.A.

(“Wells Fargo”) that provided a revolving loan commitment of $ 30 million, was set to expire on August 15, 2022 , and allowed us to issue letters of credit not to exceed $ 1 million.

Amended Agreement

Effective June 24, 2022, we entered into an Amended and Restated Credit Agreement (the “Amended Agreement”) with Wells Fargo.

The Amended Agreement amended, restated, superseded, and served as a replacement for the Existing Credit Agreement.

The Amended Agreement provided a revolving credit facility of up to $ 40 million, was secured by a lien on the company’s assets, and was set to expire in June 2025 .

The company’s available borrowings under the Amended Agreement were based on a borrowing base calculation using certain accounts receivable and inventory of the company, subject to certain sub-limits as defined in the Amended Agreement, to be calculated on a monthly basis.

Similar to the Existing Credit Agreement, the Amended Agreement contained a sub-facility that allows the company to issue letters of credit in an aggregate amount not to exceed $ 1 million.

Borrowings under the Amended Agreement incurred interest at a rate calculated using a margin (the “Applicable Margin”) over the Federal Reserve Bank of New York’s secured overnight funding rate (SOFR).

The Applicable Margin was set initially at 1.35 % and varied under the terms of the Amended Agreement from 1.35 % to 2.50 %, depending on the ratio of the company’s consolidated debt to consolidated EBITDA, as defined in the Amended Agreement, determined on a quarterly basis.

The Amended Agreement contained customary affirmative and negative covenants and required compliance by the company with certain financial covenants, including minimum tangible net worth of $ 100 million plus 50 % of annual net income, and a minimum ratio of consolidated EBITDA to consolidated net interest expense of 3.0 to 1.0 as defined in the Amended Agreement.

The EBITDA to interest expense covenant did not apply during the first three quarters of the company’s fiscal 2023, but during that period, the company was required to maintain minimum “access to liquidity”

of $ 15 million, which is defined as unencumbered liquid assets plus available and unused credit under the revolving credit facility as calculated using the borrowing base, all as defined in the Amended Agreement.

First Amendment

On August 19, 2022, we entered into a First Amendment to the Amended Agreement ("the First Amendment") with Wells Fargo.

The terms of the First Amendment amended the time period in which the financial covenant for the minimum ratio of consolidated EBITDA to consolidated net interest expense applied, such that this EBITDA to interest expense covenant did not apply during any of the four quarters of the Company's fiscal 2023.

During that time period, we were still required to maintain minimum "access to liquidity" of $ 15 million as mentioned in the above Amended Agreement section.

Second Amended and Restated Agreement

On January 19, 2023, Culp Inc., as borrower (the "company"), and Read as guarantor (the "Guarantor"), entered into a Second Amended and Restated Credit Agreement (the "ABL Credit Agreement"), by and among the company, the Guarantor, and Wells Fargo, as lender (the "Lender"), to establish an asset-based revolving credit facility (the "ABL Facility"), the proceeds of which may be used to pay fees

and expenses related to the ABL Facility and to provide funding for ongoing working capital and general corporate purposes.

The ABL Credit Agreement amends, restates, and supersedes, and serves as a replacement for, the Amended Agreement.

The ABL Facility may be used for revolving credit loans and letters of credit from time to time up to a maximum principal amount of $ 35.0 million, subject to the limitations described below.

Like the Amended Agreement, the ABL Facility contains a sub-facility that allows the company to issue letters of credit in an aggregate amount not to exceed $ 1 million.

The amount available under the ABL Facility is limited by a borrowing base consisting of certain eligible accounts receivable and inventory, reduced by specified reserves as follows:

85 % of eligible accounts receivable, plus

the least of:

lesser of (i) 65 % of eligible inventory valued at cost based on a first-in first-out basis (net of intercompany profits) and (ii) 85 % of the net-orderly-liquidation value percentage of eligible inventory, plus

the least of (i) 65 % of eligible in-transit inventory valued at cost based on a first-in first-out basis (net of intercompany profits), (ii) 85 % of the net-orderly-liquidation value percentage of eligible in-transit inventory, and (iii) $ 5.0 million, plus

the lesser of (i) 65 % of eligible raw material inventory valued at cost based on a first-in first-out basis (net of intercompany profits) and (ii) 85 % of the net-orderly-liquidation value percentage of eligible raw material inventory

In each case, the net-orderly-liquidation value is calculated based on the lower of (i) a first-in first-out basis and (ii) market value, and is (A) net of intercompany profits, (B) net of write-ups and write-downs in value with respect to currency exchange rates and (C) consistent with most recent appraisals received and acceptable to Lender.

$ 22.5 million;

An amount equal to 200 % of eligible accounts receivable.

applicable reserves.

The ABL Facility permits both base rate borrowings and borrowings based upon daily simple SOFR (the secured overnight financing rate administered by the Federal Reserve Bank of New York (or its successor)).

Borrowings under the ABL Facility bear interest at an annual rate equal to daily simple SOFR plus 150 basis points (if the average monthly excess availability under the ABL Facility is greater than 50%) or 175 basis points (if the average monthly excess availability under the ABL Facility is less than or equal to 50%) or 50 basis points above base rate (if the average monthly excess availability under the ABL Facility is greater than 50%) or 75 basis points above base rate (if the average monthly excess availability under the ABL Facility is less than or equal to 50%), as applicable, with a fee on unutilized commitments at an annual rate of 37.5 basis points and an annual servicing fee of $ 12,000 .

The ABL Facility matures on January 19, 2026 .

The ABL Facility may be prepaid from time to time, in whole or in part, without prepayment or premium.

In addition, customary mandatory prepayments of the loans under the ABL Facility are required upon the occurrence of certain events including, without limitation, outstanding borrowing exposures exceeding the borrowing base and certain dispositions of assets outside of the ordinary course of business.

Accrued interest is payable monthly in arrears.

The company's obligations under the ABL Facility (and certain related obligations) are (a) guaranteed by the Guarantor and each of the company's future domestic subsidiaries is required to guarantee the ABL Facility on a senior secured basis (such guarantors and the company, the "Loan Parties") and (b) secured by all assets of the Loan Parties, subject to certain exceptions.

The liens and other security interests granted by the Loan Parties on the collateral for the benefit of the Lender under the ABL Facility are, subject to certain permitted liens, first priority.

Cash Dominion.

Under the terms of the ABL Facility, if (i) an event of default has occurred or (ii) excess borrowing availability under the ABL Facility (based on the lesser of $ 35.0 million and the borrowing base) (the "Excess Availability") falls below $ 7.0 million at

such time, the Loan Parties will become subject to cash dominion, which will require prepayment of loans under the ABL Facility with the cash deposited in certain deposit accounts of the Loan Parties, including a concentration account, and will restrict the Loan Parties' ability to transfer cash from their concentration account.

Such cash dominion period (a "Dominion Period') shall end when Excess Availability shall be equal to or greater than $ 7.0 million for a period of 60 consecutive days and no event of default is continuing.

Financial Covenants.

The ABL Facility contains a springing covenant requiring that the company's fixed charge coverage ratio be no less than 1.10 to 1.00 during any period that (i) an event of default has occurred or (ii) Excess Availability under the ABL Facility falls below $ 5.25 million at such time.

Such compliance period shall end when Excess Availability shall be equal to or greater than $ 5.25 million for a period of 60 consecutive days and no event of default is continuing.

Affirmative and Restrictive Covenants.

The ABL Credit Agreement governing the ABL Facility contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the company's ability to, among other things:

incur additional indebtedness;

make investments;

pay dividends and make other restricted payments;

sell certain assets;

create liens;

consolidate, merge, sell or otherwise dispose of all or substantially all of the company's assets;

enter into transactions with affiliates

Effective January 19, 2023, interest was charged under the ABL Agreement at a rate (applicable interest rate of 6.3 % as of April 30, 2023) calculated using the Applicable Margin over SOFR based on the company's excess availability under the ABL Facility, as defined

in the ABL Agreement.

Under the Existing Credit Agreement, interest was charged at a rate (applicable interest rate of 2.40 % as of May 1, 2022) as a variable spread over LIBOR based on a ratio of debt to EBITDA , as defined in the Existing Credit Agreement.

There were $ 275,000 of outstanding letters of credit provided by the ABL Agreement and the Existing Agreement, as applicable, as of April 30, 2023 and May 1, 2022.

As of April 30, 2023, we had $ 725,000 remaining for the issuance of additional letters of credit under the ABL Agreement.

There were no borrowings outstanding under either the ABL Agreement or the Existing Credit Agreement, as applicable, as of April 30, 2023 and May 1, 2022, respectively.

As of April 30, 2023, our available borrowings calculated under the provisions of the ABL Agreement totaled $ 26.8 million.

Revolving Credit Agreements - China Operations

Denominated in Chinese Yuan Renminbi ("RMB")

We have an unsecured credit agreement denominated in RMB with a bank located in China that provides for a line of credit of up to 40 million RMB ($ 6.1 million USD as of May 1, 2022).

This agreement has an interest rate determined by the Chinese government at the time of borrowing and was renewed during the third quarter of fiscal 2022 to extend the expiration date to November 15, 2022 .

There were no borrowings outstanding under this agreement as of May 1, 2022, or May 2, 2021, respectively.

We have an unsecured credit agreement denominated in RMB with a bank located in China that provides for a line of credit of up to 40 million RMB ($ 5.8 million USD as of April 30, 2023).

Interest charged under this agreement is based on an interest rate determined by the Chinese government at the time of borrowing.

This agreement is set to expire on November 24, 2023 .

There were no borrowings outstanding under this agreement as of April 30, 2023 and May 1, 2022, respectively.

Denominated in United States Dollar ("USD")

We have an unsecured credit agreement denominated in USD with another bank located in China that provides for a line of credit of up to $ 2 million USD and expires on August 30, 2022 .

The interest rate regarding this agreement is determined by the Chinese government at the time of borrowing.

There were no borrowings outstanding under this agreement as of May 1, 2022, or May 2, 2021, respectively.

We had an unsecured credit agreement denominated in USD with another bank located in China that provided for a line of credit of up to $ 2 million USD, which expired on August 30, 2022 .

Currently, the company does not plan to renew or replace this agreement.

Our loan agreements require, among other things, that we maintain compliance with certain financial covenants.

As of May 1, 2022, we were in compliance with our financial covenants.

As of April 30, 2023, we were in compliance with our financial covenants.

Interest paid during fiscal years 2023, 2022, and 2021 was $ 8,000 , $ 10,000 , and $ 60,000 , respectively.

Income Tax Expense and Effective Income Tax Rate

Total income tax expense was allocated as follows:

(dollars in thousands)

(loss) income from continuing operations

loss from discontinued operation

Income tax expense attributable to (loss) income from continuing operations consists of:

The entire amount of income tax expense of $ 3.1 million, $ 2.9 million, and $ 7.7 million during fiscal 2023, 2022, and 2021, respectively, was allocated to (loss) income from continuing operations.

Income tax expense consists of:

(dollars in thousands)

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2017 Tax Cuts and Jobs Act

undistributed earnings – foreign subsidiaries

undistributed earnings –

foreign subsidiaries

federal & state carryforwards and credits

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valuation allowance

(Loss) income before income taxes from continuing operations related to our foreign and U.S.

(Loss) income before income taxes related to our foreign and U.S.

operations consists of:

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United States

The following schedule summarizes the principal differences between the income tax expense from continuing operations at the federal income tax rate and the effective income tax rate from continuing operations reflected in the consolidated financial statements:

The following schedule summarizes the principal differences between the income tax expense at the federal income tax rate and the effective income tax rate reflected in the consolidated financial statements:

federal income tax rate

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gain on bargain purchase

income tax effects of impairment of nondeductible goodwill

consolidated effective income tax rate (1) (2)

Our consolidated effective income tax rates for all fiscal years presented were negatively affected by the mix of consolidated (loss) income before income taxes from continuing operations, as significant pre-tax losses have been incurred by our U.S.

operations and almost all our taxable income was earned by our foreign operations located in China and Canada, which have higher income tax rates than the U.S.

As a result, income tax expense incurred stems from taxable income from our foreign jurisdictions that exceeds our consolidated (loss) income before income taxes from continuing operations.

Accordingly, the extent of the fluctuations in our consolidated effective income tax rates is dependent on the extent income tax expense incurred from our foreign operations compares with our consolidated (loss) income before income taxes from continuing operations that has been significantly lowered by our U.S.

“Other” for all periods presented represents miscellaneous adjustments that pertain to U.S.

(1) Our consolidated effective income tax rate during fiscal 2023 was much more negatively affected by the mix of earnings and losses between our U.S.

operations and foreign subsidiaries, as compared with fiscal 2022 and 2021.

During fiscal 2023, we incurred a significantly higher pre-tax loss from our U.S.

operations totaling $( 33.5 ) million, compared with $( 7.6 ) million and $( 4.7 ) million for fiscal 2022 and 2021, respectively.

As a result, a significantly higher income tax benefit was not recognized due to a full valuation allowance being applied against our U.S.

net deferred income tax assets during fiscal 2023, as compared with

fiscal 2022 and 2021.

In addition, almost all of our taxable income for each of fiscal 2023, 2022, and 2021 was earned by our foreign operations located in China and Canada, which have higher income tax rates than the U.S.

(2) During fiscal 2023, we incurred a significantly higher consolidated pre-tax loss totaling $( 28.4 ) million, compared with a much lower consolidated pre-tax loss totaling $( 325,000 ) during fiscal 2022 and pre-tax income totaling $ 10.9 million during fiscal 2021.

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 for fiscal 2022 and 2021, compared with fiscal 2023.

(3) “Other”

for all periods presented represents miscellaneous adjustments that pertain to U.S.

permanent differences such as meals and entertainment and income tax provision to return adjustments.

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foreign income tax credits - U.S.

loss carryforwards – U.S.

loss carryforwards –

valuation allowance - U.S.

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undistributed earnings on foreign subsidiaries

unrecognized tax benefits – U.S.

property, plant and equipment (2)

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Net deferred liabilities

Pertains to the company’s operations located in China.

Pertains to the company’s operations located in the U.S.

As of May 1, 2022, our U.S.

(1) Pertains to the company’s operations located in China.

(2) Pertains to the company’s operations located in the U.S.

As of April 30, 2023, our U.S.

federal net operating loss carryforwards totaled $ 48.2 million, with related future income tax benefits of $ 10.1 million.

In accordance with the 2017 Tax Cuts and Jobs Act (“TCJA”), U.S.

federal net operating loss carryforwards generated in fiscal 2019 and after do not expire.

As of May 1, 2022, all our unused U.S.

As of April 30, 2023, all our unused U.S.

federal net operating loss carryforwards were generated during fiscal 2019 and after, and therefore, do not expire in accordance with the TCJA.

As of May 1, 2022, our U.S.

As of April 30, 2023, our U.S.

state net operating loss carryforwards totaled $ 27.2 million, with related future income tax benefits of $ 1.0 million.

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foreign income tax credits of $ 783,000 have expiration dates ranging from fiscal years 2026 through 2028 , which represent 10 years from when the associated earnings and profits from our foreign subsidiaries were repatriated to the U.S.

In accordance with the TJCA, GILTI became effective during fiscal 2019.

Our policy to account for GILTI is to expense this tax in the period incurred.

As a result, we recorded an income tax charge of $ 1.9 million during fiscal 2020.

Effective July 20, 2020, the U.S.

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With the enactment of these final regulations, we became eligible for an exclusion from GILTI if we meet the provisions for the GILTI High-Tax exception included in these final regulations on a jurisdiction-by-jurisdiction basis.

To meet the provisions of the GILTI High-Tax exception, the tested foreign entity’s effective income tax rate related to current year’s earnings must be higher than 90 % of the U.S.

To meet the provisions of the GILTI High-Tax exception, the tested foreign entity’s effective income tax rate related to current year’s earnings must

be higher than 90 % of the U.S.

federal income tax rate of 21 % (i.e., 18.9 %).

In addition, the enactment of the new regulations and the provisions for the GILTI High-Tax exception were retroactive to the original enactment of the GILTI tax provision, which included our fiscal 2019 and 2020 fiscal years.

Since we met the requirements for the GILTI High-Tax exception for our fiscal 2019 and 2020 fiscal years, we recorded a non-cash income tax benefit of $ 3.6 million resulting from the re-establishment of certain U.S.

Since we met the requirements for the GILTI High-Tax exception for our 2019 and 2020 fiscal years, we recorded a non-cash income tax benefit of $ 3.6 million resulting from the re-establishment of certain U.S.

federal net operating loss carryforwards.

$ 3.6 million income tax benefit was recorded as a discrete event in which its full income tax effects were recorded during the first quarter of fiscal 2021.

The $ 3.6 million income tax benefit was recorded as a discrete event in which its full income tax effects were recorded during the first quarter of fiscal 2021.

We did not meet the GILTI High-Tax exception for the 2021 tax year regarding our foreign operations located in China.

This was due primarily to significant income tax deductible foreign exchange losses that significantly lowered income tax expense associated with current year’s earnings.

This was due primarily to significant income tax deductible foreign exchange losses that significantly lowered income tax expense associated with the current year’s earnings.

As a result, the current effective income tax rate was lower than the required 18.9 % current effective income tax rate to meet the GILTI High-Tax exception.

Consequently, we incurred a non-cash income tax charge of $ 1.8 million, which was fully offset by a $ 1.8 million non-cash income tax benefit due to a corresponding reversal of our full valuation allowance associated with our U.S.

Consequently, we incurred a non-cash income tax charge of $ 1.8 million, which charge was fully offset by a $ 1.8 million non-cash income tax benefit due to a corresponding reversal of our full valuation allowance associated with our U.S.

net deferred income tax assets.

We do not expect to meet the GILTI High-Tax exception for the 2022 tax year regarding our operations located in Canada and Haiti.

With regards to Canada, we placed several significant capital projects into service during fiscal 2022, and therefore, are eligible for a significant amount of deductible accelerated depreciation.

As a result, our current year’s income tax expense is much lower than prior fiscal years, and therefore, our current effective income tax rate is expected to be lower than the required 18.9 % current effective income tax rate to meet the GILTI High-Tax exception.

For our operations located in Haiti, taxable income or losses are not subject to income tax, as we are in an economic zone that permits a 0 % income tax rate for the first fifteen years of operations, for which we have ten years remaining.

Since our operations located in Haiti are not subject to income tax, our projected current effective income tax rate of 0 % will be lower than the required 18.9 % current effective income tax rate to meet the GILTI High-Tax exception.

Although, our operations located in Canada and Haiti did not meet the GILTI High-Tax exception, we did not incur any GILTI tax for the 2022 tax year, as the losses subject to GILTI tax from our Haitian operations exceeded the income subject to GILTI tax from our Canadian operation.

Deferred Income Taxes – Valuation Allowance

We did not meet the GILTI High-Tax exception for the 2022 tax year regarding our operations located in Canada and Haiti.

With regards to Canada, we placed several significant capital projects into service during fiscal 2022, and therefore, were eligible for a significant amount of deductible accelerated depreciation.

As a result, our current year's income tax expense was much lower than prior fiscal years, and therefore, our current effective income tax rate was lower than the required 18.9 % current effective income tax rate to meet the GILTI High-Tax exception.

For our operations located in Haiti, taxable income or losses are not subject to income tax, as we are located in an economic zone that permits a 0 % income tax rate for the first fifteen years of operations, for which we have nine years remaining.

Since our operations located in Haiti are not subject to income tax, our current effective tax rate was 0 %, which is lower than the required 18.9 % current effective income tax rate to meet the GILTI High-Tax exception.

Although our operations located in Canada and Haiti did not meet the GILTI High-Tax exception, we incurred a nominal amount of GILTI tax for the 2022 tax year, as the losses subject to GILTI tax from our Haitian operations mostly offset the income subject to GILTI tax from our Canadian operation.

We do not expect to pay GILTI tax for the 2023 tax year, as we expect to meet the GILTI High-Tax exception regarding our operations located in China and Canada, and we incurred taxable losses associated with our operations located in Haiti.

Deferred Income Taxes –

Valuation Allowance

We evaluate the realizability of our deferred income taxes to determine if a valuation allowance is required.

We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not”

standard, with significant weight being given to evidence that can be objectively verified.

Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law.

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tax law change relating to the GILTI tax provisions of the TCJA, we assessed the need for an additional valuation allowance against our U.S.

net deferred income taxes as of the end of the first quarter of fiscal 2021.

net deferred income assets as of the end of the first quarter of fiscal 2021.

GILTI represented a significant source of our U.S.

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Consequently, due to the retroactivity of the new regulations, we experienced a recent history of cumulative U.S.

taxable losses during the last two fiscal years, and we expected at the time of this assessment that our history of U.S.

pre-tax losses during the last two fiscal years, and we expected at the time of this assessment that our history of U.S.

pre-tax losses would continue into fiscal 2021.

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This $ 7.0 million income tax charge was recorded as a discrete event in which its full income tax effects were recorded during the first quarter of fiscal 2021.

As of May 1, 2022, we evaluated the realizability of our U.S.

As of April 30, 2023, we evaluated the realizability of our U.S.

net deferred income tax assets to determine if a full valuation allowance was still required.

Based on our assessment, we determined we still have a recent history of significant cumulative U.S.

taxable losses, in that we experienced U.S.

taxable losses during each of the last three fiscal years.

pre-tax losses, in that we experienced U.S.

pre-tax losses during each of the last three fiscal years.

In addition, we are currently expecting U.S.

taxable losses to continue into fiscal 2023.

As a result of the significant weight of this negative evidence, we believe it is more-likely-than-not that our U.S deferred income tax assets would not be fully realizable, and therefore we provided for a full valuation allowance against our U.S.

pre-tax losses to continue into fiscal 2024.

As a result of the significant weight of this negative evidence, we believe it is more-likely-than-not that our U.S net deferred income tax assets will not be fully realizable, and therefore we provided for a full valuation allowance against our U.S.

net deferred income tax assets.

Based on our assessments as of May 1, 2022, and May 2, 2021, valuation allowances against our U.S.

Based on our assessments as of April 30, 2023, and May 1, 2022, valuation allowances against our U.S.

net deferred income tax assets pertain to the following:

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change in valuation allowance associated with current year earnings

establishment of valuation allowance (2)

change in estimate during current year (2)

ending balance

Refer to the above Assessment within the section titled Deferred Income Taxes – Valuation Allowance for further details regarding our assessment and conclusions reached for providing a full valuation allowance against our U.S net deferred income tax assets during the first quarter of fiscal 2021.

In connection with the sale of a discontinued operation that was treated as a partnership for income tax purposes, we generated a capital loss carryforward totaling $ 10.9 million with a related future income tax benefit of $ 2.3 million.

Since capital losses can only be offset by capital gains, we established a full valuation allowance on this capital loss carryforward, as we do not have capital assets that would generate capital gains that would utilize this carryforward.

Amount represents changes in our U.S.

(1) Refer to the above "Assessment" subsection within the section titled Deferred Income Taxes –

Valuation Allowance for further details regarding our assessment and conclusions reached for providing a full valuation allowance against our U.S net deferred income tax assets during the first quarter of fiscal 2021.

(2) Amounts represent changes in our U.S.

net deferred income tax asset balances during the current year that pertain to (i) income tax provision to return adjustments, (ii) changes in estimates of our U.S.

effective income tax rate that pertain to U.S.

state income tax rates and apportionment percentages, (iii) recognition of uncertain income tax position due to expiration of statute of limitations, and (iv) other immaterial items.

Deferred Income Taxes – Undistributed Earnings from Foreign Subsidiaries

We assess (i) whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S.

parent company, and (ii) if we are required to record a deferred income tax liability for undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely.

As of May 1, 2022, we assessed the liquidity requirements of our U.S.

state income tax rates and apportionment percentages, (iii) recognition of an uncertain income tax position due to the expiration of statute of limitations, (iv) expiration of certain U.S.

state loss carryforwards, and (v) other immaterial items.

Deferred Income Taxes –

Undistributed Earnings from Foreign Subsidiaries

We assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S.

parent company and whether we are required to record a deferred income tax liability for those undistributed earnings from our foreign subsidiaries that will not be reinvested indefinitely.

As of April 30, 2023, we assessed the liquidity requirements of our U.S.

parent company and determined that our undistributed earnings and profits from our foreign subsidiaries would not be reinvested indefinitely and would be eventually distributed to our U.S.

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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 % owned foreign corporation.

Therefore, a deferred income tax liability will be required for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the 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, we recorded a deferred income tax liability of $ 3.6 million and $ 3.5 million as of May 1, 2022, and May 2, 2021, respectively.

As a result, we recorded a deferred income tax liability of $ 4.2 million and $ 3.6 million as of April 30, 2023, and May 1, 2022, respectively.

Uncertainty in Income Taxes

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, or negotiation, or litigation, or if the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired.

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.

The following table sets forth the change in the company’s unrecognized income tax benefit:

(dollars in thousands)

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lapse of applicable statute of limitations

increases from current period tax positions

decreases from current period tax positions

ending balance

As of May 1, 2022, we had $ 1.1 million of total gross unrecognized tax benefits, of which the entire $ 1.1 million would favorably affect the income tax rate in future periods.

As of May 2, 2021, we had $ 1.4 million of total gross unrecognized tax benefits, of which $ 1.1 million would favorably affect the income tax rate in future periods.

As of May 1, 2022, we had $ 1.1 million of total gross unrecognized tax benefits, of which the entire $ 1.1 million was classified as income taxes payable-long-term in the accompanying Consolidated Balance Sheets.

As of May 2, 2021, we had $ 1.4 million of total gross unrecognized tax benefits, of which $ 1.1 million and $ 380,000 were classified as income taxes payable-long-term and noncurrent deferred income taxes, respectively, in the accompanying Consolidated Balance Sheets.

As of April 30, 2023, we had $ 1.2 million of total gross unrecognized tax benefits, of which the entire amount was classified as income taxes payable - long-term in the accompanying Consolidated Balance Sheets.

As of May 1, 2022, we had $ 1.1 million of total gross

unrecognized 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 $ 1.2 million and $ 1.1 million as of April 30, 2023, and May 1, 2022, respectively.

We elected to classify interest and penalties as part of income tax expense.

As of May 1, 2022, and May 2, 2021, the gross amount of interest and penalties due to unrecognized tax benefits was $ 125,000 and $ 165,000 , respectively.

Our gross unrecognized income tax benefit of $ 1.1 million as of May 1, 2022, relates to income tax positions for which significant change is currently not expected within the next year.

As of April 30, 2023, and May 1, 2022, the gross amount of interest and penalties due to unrecognized tax benefits was $ 239,000 and $ 185,000 , respectively.

Our gross unrecognized income tax benefit of $ 1.2 million as of April 30, 2023, relates to income tax positions for which significant change is currently not expected within the next year.

This amount primarily relates to double taxation under applicable income tax treaties with foreign tax jurisdictions.

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Balance Sheet

The right of use assets and lease liabilities associated with our operating leases as of May 1, 2022, and May 2, 2021, are as follows:

The right of use assets and lease liabilities associated with our operating leases as of April 30, 2023, and May 1, 2022, are as follows:

(dollars in thousands)

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Operating lease liability - current

Operating lease liability – noncurrent

Operating lease liability –

Supplemental Cash Flow Information

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Right of use assets exchanged for lease liabilities

Operating lease costs associated with continuing operations were $ 3.9 million, $ 2.9 million, and $ 2.6 million during fiscal 2022, 2021, and 2020, respectively.

During fiscal 2020, operating lease costs totaling $ 204,000 were associated with our former home accessories segment and were presented within loss from discontinued operations in the fiscal 2020 Consolidated Statement of Net Loss.

Operating lease costs were $ 3.6 million, $ 3.9 million, and $ 2.9 million during fiscal 2023, 2022, and 2021, respectively.

Short-term lease costs were $ 44,000 , $ 68,000 , and $ 55,000 during fiscal 2023, 2022, and 2021, respectively.

Variable lease expense was immaterial for fiscal 2022, 2021, and 2020.

As of May 1, 2022, the weighted average remaining lease term and discount rate for our operating leases follows:

Variable lease expense was immaterial for each of fiscal 2023, 2022, and 2021.

As of April 30, 2023, the weighted average remaining lease term and discount rate for our operating leases follows:

Weighted average lease term

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Present value of lease liabilities

Related Party Lease – Mattress Fabrics Segment

We have an agreement to lease a facility totaling 65,886 square feet from a partnership owned by an immediate family member of an officer of the company.

The current non-cancelable lease term for this facility ends September 30, 2023.

Rents paid to the entity owned by an immediate family member of an officer totaled $ 148,000 , $ 151,000 , and $ 157,000 in fiscal 2022, 2021, and 2020, respectively.

Related Party Lease –

Mattress Fabrics Segment

On March 23, 2023, we terminated an agreement with a partnership owned by an immediate family member of an officer of the company, pursuant to which we leased a 63,522 square foot facility for our domestic mattress cover operation.

Prior to the termination of the lease agreement, rent payments totaled $ 123,000 , $ 148,000 , and $ 151,000 in fiscal 2023, 2022, and 2021, respectively.

In accordance with the termination of the lease agreement, we were reimbursed $ 67,000 for leasehold improvements we made to the leased property.

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 and settled, will not have a material adverse effect upon the financial position, results of operations, or cash flows of the company.

Accounts Payable – Capital Expenditures

As of May 1, 2022, and May 2, 2021, we had total amounts due regarding capital expenditures totaling $ 473,000 and $ 348,000 , respectively, which pertained to outstanding vendor invoices, none of which were financed.

Management has determined that these actions, when ultimately concluded and settled, will not have a material adverse effect on our financial position, results of operations, or cash flows.

Accounts Payable –

Capital Expenditures

As of April 30, 2023, and May 1, 2022, we had total amounts due regarding capital expenditures totaling $ 56,000 and $ 473,000 , respectively, which pertained to outstanding vendor invoices, none of which were financed.

Purchase Commitments - Capital Expenditures

As of May 1, 2022, we had open purchase commitments to acquire equipment for our U.S.

As of April 30, 2023, we had open purchase commitments to acquire equipment for our U.S.

and Canadian mattress fabrics operations totaling $ 629,000 .

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On September 16, 2015, our shareholders approved an equity incentive plan titled the Culp, Inc.

2015 Equity Incentive Plan (the “2015 Plan”).

The 2015 Plan authorizes the grant of stock options intended to qualify as incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based units, and other equity and cash related

awards as determined by our Compensation Committee.

An aggregate of 1,200,000 shares of common stock were authorized for issuance under the 2015 Plan, with certain sub-limits that would apply with respect to specific types of awards that may be issued as defined in the 2015 Plan.

As of May 1, 2022, there were 577,349 shares available for future equity-based grants under the company’s 2015 Plan.

2015 Equity Incentive Plan (the “2015 Plan”).

An aggregate of 1,200,000 shares of common stock were

authorized for issuance under the 2015 Plan, with certain sub-limits that would apply with respect to specific types of awards that may be issued as defined in the 2015 Plan.

As of April 30, 2023, there were 224,266 shares available for future equity-based grants under the company’s 2015 Plan.

Time-Based Restricted Stock Awards

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outstanding at end of year

(1) During fiscal 2023, time-based restricted stock units totaling 32,799 vested at a fair value of $ 167,000 , or $ 5.10 per share.

The following table summarizes information related to our grants of time-based restricted stock unit awards associated with certain senior executives and key members of management during fiscal years 2023, 2022, and 2021:

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Stock Awarded

July 22, 2021

September 6, 2022

August 10, 2022

July 22, 2021

August 6, 2020

(1) Price per share represents closing price of our common stock on the date the respective award was granted.

We recorded compensation expense of $ 808,000 , $ 893,000 , and $ 614,000 within selling, general, and administrative expense for time-based restricted stock units in fiscal 2023, 2022, and 2021, respectively.

As of May 1, 2022, the remaining unrecognized compensation cost related to our time-based restricted stock units was $ 1.1 million, which is expected to be recognized over a weighted average vesting period of 1.6 years.

As of May 1, 2022, our time-based restricted stock unit awards that were expected to vest had a fair value totaling $ 1.4 million.

As of April 30, 2023, the remaining unrecognized compensation cost related to our time-based restricted stock units was $ 759,000 , which is expected to be recognized over a weighted average vesting period of 1.5 years.

As of April 30, 2023, our time-based restricted stock unit awards that were expected to vest had a fair value totaling $ 1.6 million.

Performance-Based Restricted Stock Units

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The fair market value per share was determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock for the performance-based component.

The following table provides assumptions used to determine the fair market value of the market-based total shareholder return component using the Monte Carlo simulation model on our outstanding performance-based restricted stock units granted to senior executives on July 22, 2021, and July 18, 2019:

Closing price of our common stock

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Correlation coefficient of peer companies (1)

The expected volatility and correlation coefficient of our peer companies for the July 22, 2021, and July 18, 2019, grant dates were based on peer companies that were approved by the Compensation Committee of our board of directors as an aggregate benchmark for determining the market-based total shareholder return component.

(1) The expected volatility and correlation coefficient of our peer companies for the August 10, 2022, and July 22, 2021, grant dates were based on peer companies that were approved by the Compensation Committee of our board of directors as an aggregate benchmark for determining the market-based total shareholder return component.

Therefore, we disclosed ranges of the expected volatility and correlation coefficient for the companies that represented this peer group.

Key Employees and a Non-Employee

We grant performance-based restricted stock units which could earn up to a certain number of shares of common stock if certain performance targets are met over a three-fiscal year performance period, as defined in the related restricted stock unit award agreements.

Key Employees

We grant performance-based restricted stock units to key employees which could earn up to a certain number of shares of common stock if certain performance targets are met over a three-fiscal year performance period, as defined in the related restricted stock unit award agreements.

Our performance-based restricted stock units granted to key employees were measured based on the fair market value (the closing price of our common stock) on the date of grant.

No market-based total shareholder return component was included in these awards.

Our performance-based restricted stock units granted to a non-employee, which vested during the first quarter of fiscal 2020, were measured based on the fair market value (the closing price of our common stock) on the date when the performance criteria were met.

The following table summarizes information related to our grants of performance-based restricted stock units associated with certain senior executives and key employees that were unvested as of May 1, 2022:

Restricted Stock

Units Expected

Date of Grant

Units Awarded

July 22, 2021 (1)

July 22, 2021 (2)

August 10, 2022 (1)

July 22, 2021 (1)

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(4) Compensation cost is based on an assessment each reporting period to determine the probability of whether or not certain performance targets will be met and how many shares are expected to be earned as of the end of the vesting period.

These amounts represent the number of shares that are expected to vest as of May 1, 2022.

Price per share represents the fair market value per share ($ 1.08 per $1, or an increase of $ 1.18 to the closing price of our common stock on the date of grant) determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock ($ 14.75 ) for the performance-based component of the performance-based restricted stock units granted to senior executives on July 22, 2021.

Price per share represents the fair market value per share ($ 1.03 per $1, or an increase of $ 0.55 to the closing price of our common stock on the date of grant) determined using the Monte Carlo simulation model for the market-based total shareholder

return component and the closing price of our common stock ($ 18.49 ) for the performance-based component of the performance-based restricted stock units granted to certain senior executives on July 18, 2019 .

These amounts represent the number of shares that are expected to vest as of April 30, 2023.

(5) Price per share represents the fair market value per share ($ 1.14 per $1, or an increase of $ 0.71 to the closing price of our common stock on the date of grant) determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock ($ 5.06 ) for the performance-based component of the performance-based restricted stock units granted to senior executives on August 10, 2022.

(6) Price per share represents the fair market value per share ($ 1.08 per $1, or an increase of $ 1.18 to the closing price of our common stock on the date of grant) determined using the Monte Carlo simulation model for the market-based total shareholder return

component and the closing price of our common stock ($ 14.75 ) for the performance-based component of the performance-based restricted stock units granted to certain senior executives on July 22, 2021.

(7) Price per share represents the closing price of our common stock on the date of grant.

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Fiscal 2021 (2)

Senior executives and key employees.

Non-employee .

(1) Performance-based restricted stock units vested for senior executives.

(2) Performance-based restricted stock units vested for key employees.

(3) Dollar amounts are in thousands.

The weighted average price per share is derived from the closing prices of our common stock on the dates the respective performance-based restricted stock units vested.

We recorded a (credit) charge to compensation expense totaling $( 81,000 ), $ 357,000 , and $ 114,000 within selling, general, and administrative expense associated with our performance-based restricted stock units for fiscal years 2022, 2021, and 2020, respectively.

As of May 1, 2022, the remaining unrecognized compensation cost related to the performance-based restricted stock units was $ 2,000 , which is expected to be recognized over a weighted average vesting period of 0.2 years.

As of May 1, 2022, our performance-based restricted stock units that are expected to vest had a fair value totaling $ 1,000 .

(4) Price per share is derived from the closing prices of our common stock on the dates the respective performance-based restricted stock units vested.

We recorded a charge (credit) to compensation expense totaling $ 2,000 , $( 81,000 ), and $ 357,000 within selling, general, and administrative expense associated with our performance-based restricted stock units for fiscal years 2023, 2022, and 2021, respectively.

Common Stock Awards

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We recorded $ 335,000 , $ 321,000 , and $ 280,000 of compensation expense within selling, general, and administrative expense for these common stock awards for fiscal 2023, 2022, and 2021, respectively.

ASC Topic 820 establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the company’s assumptions (unobservable inputs).

Determining where an asset or liability falls within that hierarchy depends on the lowest level input that is significant to the fair value measurement as a whole.

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The hierarchy consists of three broad levels, as follows:

Level 1 – Quoted market prices in active markets for identical assets or liabilities,

Level 2 – Inputs other than level 1 inputs that are either directly or indirectly observable, and

Level 3 – Unobservable inputs developed using the company’s estimates and assumptions, which reflect those that market participants would use.

Level 1 –

Quoted market prices in active markets for identical assets or liabilities,

Level 2 –

Inputs other than level 1 inputs that are either directly or indirectly observable, and

Level 3 –

Unobservable inputs developed using the company’s estimates and assumptions, which reflect those that market participants would use.

The determination of where an asset or liability falls in the hierarchy requires significant judgment.

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However, we expect that changes in classifications between different levels will be rare.

Recurring Basis – Continuing Operations

The following tables present information about assets and liabilities measured at fair value on a recurring basis related to our continuing operations:

Fair value measurements as of May 1, 2022, using:

Recurring Basis

The following tables present information about assets and liabilities measured at fair value on a recurring basis:

Fair value measurements as of April 30, 2023, using:

active markets

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(amounts in thousands)

Premier Money Market Fund

Short Term Bond Mutual Funds

Short Duration Inflation Protected Mutual Fund

Mortgage Securities Mutual Fund

Government Money Market Fund

Growth Allocation Mutual Funds

Moderate Allocation Mutual Fund

Nonrecurring Basis – Continuing Operations

Nonrecurring Basis

Third and Fourth Quarters of Fiscal 2023

We classified a right of use asset associated with a leased facility as held for sale in the Consolidated Balance Sheet as of January 29, 2023 (i.e., the end of the third quarter of fiscal 2023), in connection with the restructuring activity associated with our upholstery fabrics cut and sew operation located in Haiti (which is described more fully in Note 9 of the consolidated financial statements).

This right of use asset classified as held for sale was recorded at its fair value of $ 2.0 million, which represented the present value of future discounted cash flows based on the payments and timing of such payments due from the Lessee as stated in the Termination Agreement (which is

described more fully in Note 9 of the consolidated financial statements).

The interest rate used to determine the present value of the future discounted cash flows was based on significant unobservable inputs based on assumptions determined by management such as (i) the credit characteristics of the Lessee and guarantor of the Termination Agreement;

(ii) the length of the payment terms as defined in the Termination Agreement;

(iii) the payment terms as defined in the Termination Agreement being denominated in USD, and (iv) the fact that the right of use asset was located in, and the Lessee and guarantor conduct business in Haiti, a foreign country.

As a result, since management used significant unobservable inputs and assumptions to determine the fair value of this right of use asset, this right of use asset was classified as level 3 within the fair value hierarchy defined above.

During the fourth quarter of fiscal 2023, the right of use asset mentioned above was vacated and possession was returned to the Lessor, and the Lessee took possession of this right of use asset as described more fully in Note 9 of the consolidated financial statements.

As a result, the right of use asset classified as held for sale as of January 29, 2023, was derecognized and a short-term and long-term note receivable was recognized based on the payments and timing of such payments due from the Lessee as stated in the Termination Agreement.

As of April 30, 2023, this note receivable totaled $ 1.9 million, of which $ 219,000 and $ 1.7 million were classified as short-term and long-term, respectively.

Fourth Quarter of Fiscal 2021

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Equipment and leasehold improvements

The fair value of the right of use assets was based on our analysis of a recent appraisal of the annual lease rates per square foot for industrial buildings that are similar in nature and within the same locale.

The fair values of the right of use assets were based on our analysis of a recent appraisal of the annual lease rates per square foot for industrial buildings that are similar in nature and within the same locale.

We believe the annual lease rates per square foot presented in our recent appraisal represent significant observable inputs, and therefore these right of use assets were classified as level 2.

Additionally, in connection with the CIH business combination effective February 1, 2021, we acquired cash, accounts receivable, and certain other current assets, and we assumed accounts payable.

Based on the nature of these items and their short-term maturity, the carrying amount of these items approximated their fair values.

Based on the nature of these items and their short-term maturity, the carrying amounts of these items approximated their fair values.

See Note 2 of the consolidated financial statements for the final allocation of the acquisition cost to assets acquired and liabilities assumed based on their fair values.

Annual Impairment Assessment – May 3, 2020

The following table presents information about assets measured at fair value on a nonrecurring basis related to our continuing operations as of May 3, 2020:

Fair value measurements as of May 3, 2020, using:

Quoted Prices

identical assets

(amounts in thousands)

We recorded an asset impairment charge of $ 13.6 million in asset impairments in the fiscal 2020 Consolidated Statement of Net Loss for the entire carrying value of goodwill associated with our continuing operations.

As a result, we did no t have goodwill recorded in our Consolidated Balance Sheets as of May 1, 2022, and May 2, 2021, respectively.

Goodwill was recorded at fair market value using a discounted cash flow method that used significant unobservable inputs and was classified as level 3.

See Note 9 of the consolidated financial statements for further details regarding our assessment of impairment, conclusions reached, and the performance of our quantitative impairment tests.

We recorded an asset impairment charge of $ 143,000 in asset impairments in the fiscal 2020 Consolidated Statement of Net Loss.

Tradename was recorded at fair market value using the relief from royalty method that used significant unobservable inputs and was classified as level 3.

See Note 8 of the consolidated financial statements for further details regarding our assessment of impairment, conclusions reached, and the performance of our quantitative impairment test.

Nonrecurring Basis – Discontinued Operation

During fiscal 2020, the entire carrying value of our goodwill and tradename associated with our discontinued operation was impaired.

Consequently, we recorded asset impairment charges totaling $ 20.2 million that were presented in loss before income taxes from discontinued operation of the fiscal 2020 Consolidated Statement of Net Loss.

Of the total asset impairment charges totaling $ 20.2 million, $ 13.6 million and $ 6.6 million pertained to goodwill and tradename, respectively.

At the end of the third quarter of fiscal 2020, we assessed the fair value of our contingent consideration related to the acquisition of our ownership interest in eLuxury.

Based on this assessment, we recorded a reversal of $ 6.1 million for the full amount of this contingent consideration.

See below for fair value techniques used to determine the fair value of goodwill, tradename, and contingent consideration and the level of the fair value hierarchy at which these assets and liabilities were classified based on the lowest level of inputs used.

Goodwill was assessed for impairment at the end of our third quarter and during our fourth quarter of fiscal 2020.

At the end of the third quarter of fiscal 2020, goodwill was recorded at fair market value using a discounted cash flow method that used significant unobservable inputs and was classified as level 3.

During the fourth quarter of fiscal 2020, goodwill was recorded at fair market value based on the expected selling price of our entire ownership interest in eLuxury in comparison to its carrying amount, including goodwill.

Based on the terms of the sale agreement, we did not receive any consideration for eLuxury’s net assets associated with the sale of our entire ownership interest in eLuxury.

We believe the selling price represents a significant observable input and was classified as level 2.

See Note 9 of the consolidated financial statements for further details regarding our assessment of impairment, conclusions reached, and the performance of our quantitative impairment tests.

Tradename was assessed for impairment at the end of our third quarter and during our fourth quarter of fiscal 2020.

At the end of the third quarter of fiscal 2020, tradename was recorded at fair market value using the relief from royalty method that used significant unobservable inputs and was classified as level 3.

During the fourth quarter of fiscal 2020, tradename was recorded at fair market value based on the expected selling price of our entire ownership interest in eLuxury in comparison to its carrying amount.

Based on the terms of the sale agreement, we did not receive any consideration for eLuxury’s net assets associated with the sale of our entire ownership interest in eLuxury.

We believe the selling price represents a significant observable input and was classified as level 2.

See Note 8 of the consolidated financial statements for further details regarding our assessment of impairment, conclusions reached, and the performance of our quantitative impairment test.

Contingent Consideration

At the end of the third quarter of fiscal 2020, the fair value of our contingent consideration was determined using forecasted financial information to calculate EBITDA as it related to the Equity Agreement associated with the acquisition of our ownership interest in eLuxury.

Since forecasted financial information utilizes significant unobservable inputs, the fair value of our contingent consideration was classified as level 3.

See Note 3 of the consolidated financial statements for further details regarding the terms of this contingent consideration arrangement.

NET (LOSS) INCOME FROM CONTINUING OPERATIONS PER SHARE

Basic net (loss) income from continuing operations per share is computed using the weighted-average number of shares outstanding during the period.

Diluted net (loss) income from continuing operations per share uses the weighted-average number of shares outstanding during the period plus the dilutive effect of stock-based compensation calculated using the treasury stock

Weighted average shares used in the computation of basic and diluted net (loss) income from continuing operations per share are as follows:

NET (LOSS) INCOME PER SHARE

Basic net (loss) income per share is computed using the weighted-average number of shares outstanding during the period.

Diluted net (loss) income per share uses the weighted-average number of shares outstanding during the period plus the dilutive effect of stock-based compensation calculated using the treasury stock method.

Weighted average shares used in the computation of basic and diluted net (loss) income per share are as follows:

(in thousands)

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weighted-average common shares outstanding, diluted

During fiscal 2022, 18,281 shares of unvested common stock were not included in the computation of diluted net loss from continuing operations per share, as their effect would be antidilutive due to the decrease in the price per share of our common stock during the reporting period compared with the price per share of our common stock as of the respective grant dates of the related stock-based compensation awards.

In addition, during fiscal 2022, 85,796 shares of unvested common stock were not included in the computation of diluted net loss from continuing operations per share as we incurred a net loss during the reporting period.

During fiscal 2021, 2,175 shares of unvested common stock were not included in the computation of diluted net income from continuing operations per share, as their effect would be antidilutive due to the decrease in the price per share of our common stock during the reporting period compared with the price per share of our common stock as of the respective grant dates of the related stock-based compensation awards.

During fiscal 2020, 19,388 shares of unvested common stock were not included in the computation of diluted net loss from continuing operations per share, as their effect would be antidilutive due to the decrease in the price per share of our common stock during the reporting period compared with the price per share of our common stock as of the respective grant dates of the related stock-based compensation awards.

In addition, during fiscal 2020, 26,343 shares of unvested common stock were not included in the computation of diluted net loss from continuing operations per share as we incurred a net loss during the reporting period.

Shares of unvested common stock that were not included in the computation of diluted net (loss) income per share consist of the following:

(in thousands)

antidilutive effect from decrease in the price per share of our common stock

antidilutive effect from net loss incurred during the fiscal year

total unvested shares of common stock not included in

computation of diluted net (loss) income per share

BENEFIT PLANS

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Deferred Compensation Plan

We have a nonqualified deferred compensation plan (the “Plan”) covering senior executives and certain key members of management.

The Plan provides for participant deferrals on a pre-tax basis that are subject to annual deferral limits by the IRS and non-elective contributions made by the company.

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Our contributions to the Plan were $ 215,000 , $ 212,000 , and $ 143,000 in fiscal years 2023, 2022, and 2021, respectively.

Our nonqualified deferred compensation plan liability was $ 9.3 million and $ 8.4 million as of May 1, 2022, and May 2, 2021, respectively.

We have a rabbi trust (the “Trust”) to set aside funds for the participants of the Plan and that allows the participants to direct their contributions to various investment options in the Plan.

The investment options of the Plan consist of a money market fund and various mutual funds.

The funds set aside in the Trust are subject to the claims of our general creditors in the event of the company’s insolvency, as defined in the Plan.

The investment assets of the Trust are recorded at their fair value of $ 9.4 million and $ 8.4 million as of May 1, 2022, and May 2, 2021, respectively.

Our nonqualified deferred compensation plan liability was $ 8.2 million and $ 9.3 million as of April 30, 2023, and May 1, 2022, respectively.

We have a rabbi trust (the “Trust”) to set aside funds for the participants of the Plan that allows the participants to direct their contributions to various investment options in the Plan.

The investment options in the Plan consist of a money market fund and various mutual funds.

The funds set aside in the Trust are subject to the claims of our general creditors in the event of the company’s insolvency, as defined in the Plan.

The investment assets of the Trust are recorded at their fair value of $ 8.5 million and $ 9.4 million as of April 30, 2023, and May 1, 2022, respectively.

The investment assets of the Trust are classified as available for sale and accordingly, changes in their fair values are recorded in other comprehensive (loss) income.

SEGMENT INFORMATION

Continuing Operations

Our continuing operations are classified into two business segments:

Our operations are classified into two business segments:

mattress fabrics and upholstery fabrics.

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The upholstery fabrics segment develops, manufactures, sources, and sells fabrics primarily to residential and commercial furniture manufacturers.

In addition, this segment includes Read, which provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation services of Read’s products, to customers in the hospitality and commercial industries.

In addition, this segment includes Read, which provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation services for Read’s products, to customers in the hospitality and commercial industries.

Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.

Discontinued Operation – Home Accessories Segment

As disclosed in Note 3 of the consolidated financial statements, we sold our entire ownership interest in eLuxury on March 31, 2020, and consequently our home accessories segment was eliminated at such time.

Additionally, the results of operations associated with our home accessories segment were excluded from our continuing operations and presented as a discontinued operation in our consolidated financial statements for fiscal year 2020.

Our former home accessories segment was our finished products business that manufactured, sourced, and sold bedding accessories and home goods directly to consumers and businesses through global e-commerce, business-to-business, and other sales channels.

See Note 3 of the consolidated financial statements for detailed financial information of our former home accessories segment.

A reconciliation is provided in Note 3 that contains detailed income statement information and is reconciled to net loss from discontinued operation presented in the Consolidated Statement of Net Loss for fiscal year 2020.

Net Sales Geographic Concentration

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One customer within the upholstery fabrics segment represented 15 %, 13 %, and 13 % of consolidated net sales during fiscal 2023, 2022, and 2021, respectively.

No customers within the upholstery fabrics segment accounted for greater than 10 % of the consolidated net accounts receivable balance as of May 1, 2022, or May 2, 2021.

No customers within the upholstery fabrics segment accounted for greater than 10 % of the consolidated net accounts receivable balance as of April 30, 2023, or May 1, 2022.

No customers within the mattress fabrics segment represented greater than 10 % of consolidated net sales during fiscal 2023, 2022, or fiscal 2021.

No customers within the mattress fabrics segment accounted for greater than 10 % of the consolidated net accounts receivable balance as of May 1, 2022.

One customer within the mattress fabrics segment accounted for 12 % of the consolidated net accounts receivable balance as of May 2, 2021.

No customers within the mattress fabrics segment accounted for greater than 10 % of the consolidated net accounts receivable balance as of April 30, 2023, or May 1, 2022.

Employee Workforce Concentration

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Financial Information

We evaluate the operating performance of our business segments based upon income (loss) from continuing operations before certain unallocated corporate expenses, asset impairment charges, restructuring credit, and other items that are not expected to occur on a regular basis.

Cost of sales in each of our current business segments include costs to develop, manufacture, or source our products, including costs such as raw material and finished goods purchases, direct and indirect labor, overhead and incoming freight charges.

We evaluate the operating performance of our business segments based upon (loss) income from operations before certain unallocated corporate expenses and other items that are not expected to occur on a regular basis, such as restructuring expense and restructuring related charges.

Cost of sales in each of our business segments include costs to develop, manufacture, or source our products, including costs such as raw material and finished goods purchases, direct and indirect labor, overhead and incoming freight charges.

Unallocated corporate expenses primarily represent compensation and benefits for certain senior executives and their support staff, all costs associated with being a public company, amortization of intangible assets, and other miscellaneous expenses.

Segment assets include assets used in operations of each segment and primarily consist of accounts receivable, inventories, property, plant, and equipment, and right of use assets.

Statements of operations for our current operating segments are as follows:

Segment assets include assets used in the operations of each segment and consist of accounts receivable, inventories, property, plant, and equipment, and right of use assets.

Statements of operations for our business segments are as follows:

(dollars in thousands)

net sales by segment:

upholstery fabrics

mattress fabrics

total net sales

gross profit from continuing operations by segment:

upholstery fabrics

gross (loss) profit:

mattress fabrics

total gross profit from continuing operations

selling, general, and administrative expenses by segment:

upholstery fabrics

total segment gross profit

restructuring related charge (2)

selling, general, and administrative expenses by segment:

mattress fabrics

unallocated corporate

total selling, general, and administrative expenses

income (loss) from continuing operations:

upholstery fabrics

unallocated corporate

selling, general, and administrative expenses

(loss) income from operations by segment:

mattress fabrics

upholstery fabrics

unallocated corporate expenses

total segment income from continuing operations

asset impairments (1)

restructuring credit

total income (loss) from continuing operations

total segment (loss) income from operations

restructuring expense (1)

restructuring related charge (2)

(loss) income from operations

interest expense

interest income

gain on bargain purchase (2)

other expense

(loss) income before income taxes from continuing operations

During fiscal 2020, we incurred asset impairment charges totaling $ 13.7 million, of which $ 13.6 million and $ 143,000 pertained to goodwill and a tradename associated with Read, respectively.

Of this $ 13.7 million, $ 11.5 million and $ 2.2 million pertained to the mattress fabrics segment and upholstery fabrics segment, respectively.

gain on bargain purchase (3)

(loss) income before income taxes

(1) Restructuring expense totaling $ 1.4 million for fiscal 2023 relates to both our restructuring activities for our cut and sew upholstery fabrics operations (i) located in Shanghai, China, which occurred during the second quarter of fiscal 2023, and (ii) located in Ouanaminthe, Haiti, which occurred during the third and fourth quarters of fiscal 2023.

Restructuring expense represents employee termination benefits of $ 507,000 , lease termination costs of $ 481,000 , impairment losses totaling $ 357,000 that relate to leasehold improvements and equipment, and $ 51,000 for other associated costs.

(2) Cost of sales for fiscal 2023 includes a restructuring related charge totaling $ 98,000 , which pertained to a loss on disposal and markdowns of inventory related to the exit of our cut and sew upholstery fabrics operation located in Shanghai, China.

(3) Effective February 1, 2021, we acquired the remaining fifty percent ownership interest in our former unconsolidated joint venture located in Haiti.

1 unchanged sentence

The gain on bargain purchase represents the net assets acquired from this transaction that exceeded the fair value of our previously held 50 % ownership interest of $ 1.7 million and the $ 954,000 total purchase price for the remaining 50% ownership interest.

Balance sheet information for our current operating segments follow:

Balance sheet information for our business segments follow:

(dollars in thousands)

13 unchanged sentences

cash and cash equivalents

short-term investments – available for sale

short-term investments – held-to-maturity

short-term investments –

short-term note receivable

current income taxes receivable

deferred income taxes

other current assets

long-term note receivable

deferred income taxes

property, plant, and equipment (9)

1 unchanged sentence

intangible assets

long-term investments - held-to-maturity

long-term investments - rabbi trust

Capital expenditures and depreciation expense information for our business segments follow:

(dollars in thousands)

2 unchanged sentences

upholstery fabrics

discontinued operation

unallocated corporate

3 unchanged sentences

upholstery fabrics

discontinued operation

total depreciation expense

The $ 38.7 million as of May 1, 2022, represents property, plant, and equipment of $ 25.6 million, $ 12.4 million, and $ 757,000 located in the U.S., Canada, and Haiti, respectively.

(1) The $ 33.7 million as of April 30, 2023, represents property, plant, and equipment of $ 22.7 million, $ 10.4 million, and $ 608,000 located in the U.S., Canada, and Haiti, respectively.

(2) The $ 38.7 million as of May 1, 2022, represents property, plant, and equipment of $ 25.6 million, $ 12.4 million, and $ 757,000 located in the U.S., Canada, and Haiti, respectively.

The $ 3.5 million as of May 1, 2022, represents right of use assets of $ 2.0 million, $ 1.2 million, and $ 291,000 located in Haiti, the U.S., and Canada, respectively.

(3) The $ 2.3 million as of April 30, 2023, represents right of use assets of $ 1.5 million and $ 776,000 located in Haiti and Canada, respectively.

(4) The $ 3.5 million as of May 1, 2022, represents right of use assets of $ 2.0 million, $ 1.2 million, and $ 291,000 located in Haiti, the U.S., and Canada, respectively.

(5) The $ 1.7 million as of April 30, 2023, represents property, plant, and equipment of $ 974,000 , $ 592,000 , and $ 105,000 located in the U.S., Haiti, and China, respectively

(6) The $ 2.0 million as of May 1, 2022, represents property, plant, and equipment of $ 1.0 million, $ 756,000 , and $ 255,000 located in the U.S., Haiti, and China, respectively.

The $ 1.5 million as of May 2, 2021, represents property, plant, and equipment of $ 1.1 million and $ 420,000 located in the U.S.

and China, respectively.

(7) The $ 2.6 million as of April 30, 2023, represents right of use assets of $ 1.5 million and $ 1.1 million located in China and the U.S., respectively.

(8) The $ 8.1 million as of May 1, 2022, represents right of use assets of $ 3.7 million, $ 2.6 million, and $ 1.8 million located in China, Haiti, and the U.S., respectively.

The $ 5.9 million as of May 2, 2021, represents right of use assets of $ 5.0 million and $ 952,000 located in China and the U.S., respectively.

The $ 941,000 as of May 1, 2022, and $ 814,000 as of May 2, 2021, represent property, plant, and equipment associated with unallocated corporate departments and corporate departments shared by both the mattress fabrics and upholstery fabrics segments located in the U.S.

The $ 4.0 million as of May 1, 2022, and $ 1.5 million as of May 2, 2021, represents right of use assets located in the U.S.

(9) The $ 691,000 as of April 30, 2023, and $ 941,000 as of May 1, 2022, represent property, plant, and equipment associated with unallocated corporate departments and corporate departments shared by both the mattress fabrics and upholstery fabrics segments located in the U.S.

(10) The $ 3.3 million as of April 30, 2023, and $ 4.0 million as of May 1, 2022, represent right of use assets located in the U.S.

associated with unallocated corporate departments and corporate departments shared by both the mattress fabrics and upholstery fabrics segments located in the U.S.

2 unchanged sentences

STATUTORY RESERVES

Our subsidiary located in China was required to transfer 10 % of its net income, as determined in accordance with the People’s Republic of China (PRC) accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reached 50 % of the company’s registered capital.

As of May 1, 2022, the statutory surplus reserve fund represents the 50 % registered capital requirement, and therefore, our subsidiary located in China is no longer required to transfer 10% of its net income in accordance with PRC accounting rules and regulations.

As of April 30, 2023, the statutory surplus reserve fund represents the 50 % registered capital requirement, and therefore, our subsidiary located in China is no longer required to transfer 10% of its net income in accordance with PRC accounting rules and regulations.

The transfer to this reserve must be made before distributions of any dividend to shareholders.

As of May 1, 2022, the company’s statutory surplus reserve was $ 4.4 million.

The statutory surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any.

As of April 30, 2023, the company’s statutory surplus reserve was $ 4.2 million.

The statutory surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’

losses, if any.

The statutory surplus reserve fund may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them provided that the remaining reserve balance after such issue is not less than 25 % of the registered capital.

The company’s subsidiary located in China can transfer funds to the parent company, except for the statutory surplus reserve of $ 4.4 million, to assist with debt repayment, capital expenditures, and other expenses of the company’s business.

The company’s subsidiary located in China can transfer funds to the parent company, except for the statutory surplus reserve of $ 4.2 million, to assist with debt repayment, capital expenditures, and other expenses of the company’s business.

COMMON STOCK REPURCHASE PROGRAM

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 in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise.

The number and timing of share purchases are based on working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities.

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.

During fiscal 2023 and 2021, we did no t repurchase any shares of our common stock.

During fiscal 2022, we repurchased 121,688 shares of our common stock at a cost of $ 1.8 million.

As a result, as of May 1, 2022, $ 3.2 million is available for additional repurchases of our common stock.

During fiscal 2021, we did no t repurchase any shares of our common stock.

During fiscal 2020, we repurchased 142,496 shares of our common stock at a cost of $ 1.7 million pursuant to the authorization approved by our board of directors on September 5, 2019.

As of April 30, 2023, $ 3.2 million was available for additional repurchases of our common stock.

DIVIDEND PROGRAM

On June 29, 2022, our board of directors announced the decision to suspend the company’s quarterly cash dividend.

Considering the current and expected macroeconomic conditions, we believe that preserving capital and managing our liquidity is in the company’s best interest to support future growth and the long-term interests of our shareholders.

During fiscal 2022, dividend payments totaled $ 5.5 million, which represented quarterly dividend payments ranging from $ 0.11 per share to $ 0.115 per share.

On June 29, 2022, our board of directors announced the decision to suspend the company’s quarterly cash dividend.

Accordingly, we did no t make any dividend payments during fiscal 2023.

During fiscal 2022, dividend payments totaled $ 5.5 million, which represented quarterly dividend payments ranging from $ 0.11 per share to $ 0.115 per share.

During fiscal 2021, dividend payments totaled $ 5.3 million, which represented quarterly dividend payments ranging from $ 0.105 per share to $ 0.11 per share.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

CHANGES IN AND DISA GREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

During the three years ended May 1, 2022, there were no disagreements on any matters of accounting principles or practices or financial statement disclosures.

During the three years ended April 30, 2023, there were no disagreements on any matters of accounting principles or practices or financial statement disclosures.

CONTROL S AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have conducted an evaluation of the effectiveness of our disclosure controls and procedures as of April 30, 2023.

This evaluation was conducted under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer.

Based upon that evaluation, we have concluded that these disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports filed by us and submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported as and when required.

Further, we concluded that our disclosure controls and procedures have been designed to ensure that information required to be disclosed in reports filed by us under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, in a manner to allow timely decisions regarding the required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting includes:

(1) maintaining records that in reasonable detail accurately and fairly reflect the transactions and disposition of assets;

(2) providing reasonable assurance that the transactions are recorded as necessary for preparation of financial statements, and that receipts and expenditures are made in accordance with authorizations of management and directors;

and (3) providing reasonable assurance that unauthorized acquisition, use, disposition of assets that could have a material effect on financial statements would be prevented or detected on a timely basis.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of financial statements would be prevented or detected.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal Control –

Integrated Framework.

Based on this assessment, management concluded that our internal control over financial reporting was effective as of April 30, 2023.

Grant Thornton LLP, an independent registered public accounting firm, has audited the consolidated financial statements as of and for the years ended April 30, 2023, May 1, 2022, and May 2, 2021, and has audited the company’s effectiveness of internal controls over financial reporting as of April 30, 2023, as stated in their reports, which are included in Item 8 and Item 9A hereof.

During the quarter ended April 30, 2023, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of Culp, Inc.

(a North Carolina corporation) and subsidiaries (“the Company”) as of April 30, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended April 30, 2023, and our report dated July 14, 2023, expressed an unqualified opinion on those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

/s/ GRANT THORNTON LLP

Charlotte, North Carolina

July 14, 2023

OTHE R INFORMATION

On July 12, 2013, the board of directors of the company designated Kenneth R.

Bowling, the company's existing chief financial officer and treasurer, as the company’s principal accounting officer as defined by the Securities and Exchange Commission.

This appointment is effective July 21, 2023, following the last day of employment for Thomas B.

Gallagher, Jr., who served as the company’s principal accounting officer prior to Mr.

Bowling's designation.

Bowling joined the company in 1997 as controller for the Culp Velvets/Prints division.

He was promoted to corporate controller in 2001 and was named corporate controller and assistant treasurer in 2002.

In 2004, he was promoted to vice president, finance and treasurer.

Bowling became the company’s chief financial officer in 2007 and corporate secretary in 2008, and he was named senior vice president in 2016.

Bowling was named executive vice president.

On July 12, 2023, the compensation committee of the company's board of directors (the “Committee”) reviewed achievement of the applicable performance measures established under the company’s annual incentive program for the fiscal 2023 year, as previously described in the section titled “Consideration of Shareholder Advisory Vote and Changes for Fiscal 2023”

of the Company’s Proxy Statement filed with the Securities and Exchange Commission on August 24, 2022, in order to determine the bonus payments, if any, payable to the company's named executive officers under such program.

The committee determined that bonuses would be due to executive officers in each of the executive shared services reporting unit and the upholstery fabrics reporting unit, based on the attainment of free cash flow-based targets, but no bonus had been achieved by the mattress fabrics reporting unit.

With respect to the bonus payable to executive officers in the upholstery fabrics reporting unit, the Committee also reviewed other factors it deemed relevant to the bonus determination, including the company's significant consolidated operating loss for fiscal 2023.

Specifically, the Committee noted that the annual incentive bonus program for the upholstery fabrics reporting unit was tied to measures of adjusted operating income and adjusted free cash flow, with an allocation between the two performance measures of 20% operating income and 80% free cash flow, but for the executive shared services reporting unit, the fiscal 2023 annual incentive bonus program was tied solely to the measure of adjusted free cash flow, with a negative moderator of 20% applied against any bonus earned as a result of the company's consolidated operating loss for fiscal 2023.

Based on the company's significant consolidated operating loss for fiscal 2023, the Committee determined that a negative moderator of 20% should also be applied against any bonus earned by the upholstery fabrics reporting unit.

As a result, the Committee determined that the upholstery fabrics reporting unit had achieved a level of adjusted free cash flow for fiscal 2023 that, absent the 20% negative moderator, would have resulted in the payment of a bonus to Mr.

Boyd Chumbley, president of the upholstery fabrics division, in the amount of $318,474.24, but with the application of the 20% negative moderator, the amount of Mr.

Chumbley's bonus would now be $254,779.92, a reduction of $63,694.32 from what would have otherwise been payable to Mr.

Chumbley without the addition of the 20% negative moderator.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not Applicable.

DIRECTORS, EXECUTIVE OF FICERS, AND CORPORATE GOVERNANCE

Information with respect to executive officers and directors of the company is included in the company’s definitive Proxy Statement to be filed within 120 days after the end of the company’s fiscal year pursuant to Regulation 14A of the Securities and Exchange Commission, under the captions “Nominees, Directors, and Executive Officers,”

“Delinquent Section 16(a) Reports,”

“Corporate Governance –

Code of Business Conduct and Ethics,”

and “Board Committees and Attendance –

Audit Committee,”

which information is herein incorporated by reference.

EXECUT IVE COMPENSATION

Information with respect to executive compensation is included in the company’s definitive Proxy Statement to be filed within 120 days after the end of the company’s fiscal year pursuant to Regulation 14A of the Securities and Exchange Commission, under the captions “Executive Compensation”

and “Compensation Committee Interlocks and Insider Participation,”

which information is herein incorporated by reference.

SECURITY OWNERS HIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information with respect to the security ownership of certain beneficial owners and management is included in the company’s definitive Proxy Statement to be filed within 120 days after the end of the company’s fiscal year pursuant to Regulation 14A of the Securities and Exchange Commission, under the captions “Executive Compensation Plan Information,”

“Beneficial Owners of 5% or More of Our Common Stock,”

and “Nominees, Directors, and Executive Officers,”

which information is herein incorporated by reference.

The following table sets forth information as of the end of fiscal 2023 regarding shares of our common stock that may be issued upon the exercise of equity awards previously granted and currently outstanding equity awards under the company’s equity incentive and stock option plans, as well as the number of shares available for the grant of equity awards that had not been granted as of that date.

EQUITY COMPENSATION PLAN INFORMATION

securities to be

outstanding options,

warrants and rights

Weighted-average

exercise price of

outstanding options,

warrants and rights (2)

Number of securities

remaining available

for future issuance

compensation plan

(excluding securities

Plan Category

Equity compensation plans approved by security

Equity compensation plans not approved by

security holders

(1) For performance-based restricted stock unit awards, the number of shares shown represents the maximum number of shares that could be issued if certain performance targets are met.

None of these performance-based restricted stock unit shares (i.e., 321,690 shares) are currently expected to vest and be issued due to challenging financial performance measures that are unlikely to be met.

For time-based restricted stock unit awards, the number of shares shown represents the number of shares to be issued upon completion of the time-based vesting period for such restricted stock units.

(2) All of the shares shown in column (a) are issueable under restricted stock units that do not require the payment of consideration by the recipient upon vesting of the award and issuance of the shares, and therefore there is no exercise price information shown in column (b).

CERTAIN RELATIONSHIPS AND RELATE D TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information with respect to certain relationships and related transactions is included in the company’s definitive Proxy Statement to be filed within 120 days after the end of the company’s fiscal year pursuant to Regulation 14A of the Securities and Exchange Commission, under the captions “Corporate Governance –

Director Independence”

and “Certain Relationships and Related Transactions,”

which information is herein incorporated by reference.

PRINCIPAL ACCO UNTANT FEES AND SERVICES

Information with respect to accountants fees and services is included in the company’s definitive Proxy Statement to be filed within 120 days after the end of the company’s fiscal year pursuant to Regulation 14A of the Securities and Exchange Commission, under the caption “Fees Paid to Independent Auditors,”

which information is herein incorporated by reference.

EXHIBITS AND FIN ANCIAL STATEMENT SCHEDULES

a) DOCUMENTS FILED AS PART OF THIS REPORT:

Consolidated Financial Statements

The following consolidated financial statements of Culp, Inc.

and its subsidiaries are filed as part of this report.

Page of Annual

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 )

Consolidated Balance Sheets –

April 30, 2023, and May 1, 2022

Consolidated Statements of Net (Loss) Income - for the years ended April 30, 2023, May 1, 2022, and May 2, 2021

Consolidated Statements of Comprehensive (Loss) Income - for the years ended April 30, 2023, May 1, 2022, and May 2, 2021

Consolidated Statements of Shareholders’

Equity –

for the years ended April 30, 2023, May 1, 2022, and May 2, 2021

Consolidated Statements of Cash Flows –

for the years ended April 30, 2023, May 1, 2022, and May 2, 2021

Notes to Consolidated Financial Statements

Financial Statement Schedules

All financial statement schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto.

The following exhibits are attached at the end of this report or incorporated by reference herein.

Management contracts, compensatory plans, and arrangements are marked with an asterisk (*).

Articles of Incorporation of the company, as amended, were filed as Exhibit 3(i) to the company’s Form 10-Q for the quarter ended July 28, 2002, filed September 11, 2002 (Commission File No.

001-12597), and are incorporated herein by reference.

Restated and Amended Bylaws of the company, as amended July 10, 2019, were filed as Exhibit 3(ii) to the company’s Form 10-K for the year ended April 28, 2019, filed July 12, 2019 (Commission File No.

001-12597), and are incorporated herein by reference.

Description of Capital Stock of the company was filed as Exhibit 4.1 to the company’s Form 10-K for the year ended May 3, 2020, filed July 17, 2020 (Commission File No.

001-12597), and is incorporated herein by reference.

Second Amended and Restated Credit Agreement dated as of January 19, 2023, by and among Culp, Inc., as Borrower, Read Window Products, LLC, as Guarantor, and Wells Fargo Bank, National Association, as Lender, was filed as exhibit 10.1 to the company’s Form 8-K filed January 23, 2023 (Commission File No.

001-12597), and is incorporated herein by reference.

First Amendment to Second Amended and Restated Credit Agreement dated as of February 21, 2023, by and among Culp, Inc., as Borrower, Read Window Products, LLC, as Guarantor, and Wells Fargo Bank, National Association, as Lender, was filed as exhibit 10.1 to the company's Form 10-Q filed March 9, 2023 (Commission File No.

001-12597), and is incorporated herein by reference.

Form of Annual Incentive Award Agreement was filed as Exhibit 10.1 to the company’s Form 10-Q dated December 9, 2022 (Commission File No.

001-12597), and is incorporated herein by reference.

Form of restricted stock unit agreement for restricted stock units granted to executive officers pursuant to the 2015 Equity Incentive Plan was filed as Exhibit 10.2 to the company’s Form 10-Q dated September 9, 2021 (Commission File No.

001-12597), and is incorporated herein by reference.

Written description of Non-Employee Director Compensation was filed as Exhibit 10.2 to the company’s Form 10-Q dated March 8, 2019 (Commission File No.

001-12597), and incorporated herein by reference.

2015 Equity Incentive Plan, filed as Annex A to the company’s 2015 Proxy Statement, filed on August 12, 2015 (Commission File No.

001-12597), and incorporated herein by reference.

Deferred Compensation Plan For Certain Key Employees Amendment No.

1, was filed as Exhibit 10.2 to the company’s Form 10-K for the year ended May 3, 2015, dated July 17, 2015, and incorporated herein by reference.

Form of change in control and noncompetition agreement.

This agreement was filed as Exhibit 10.3 to the company’s Form 10-Q for the quarter ended October 28, 2007, filed on December 12, 2007 (Commission File No.

001-12597) and incorporated herein by reference.

Amended and Restated Deferred Compensation Plan for Certain Key Employees was filed as Exhibit 10.1 to the company’s Form 10-Q for the quarter ended January 26, 2014, filed on March 7, 2014, and is incorporated herein by reference.

List of subsidiaries of the company

Consent of Independent Registered Public Accounting Firm in connection with the registration statements of Culp, Inc.

on Form S-8 (File Nos.

333-207195 and 33‑13310).

Power of Attorney of John A.

Baugh, dated July 14, 2023

Power of Attorney of Perry E.

Davis, dated July 14, 2023

Power of Attorney of Sharon A.

Decker, dated July 14, 2023

Power of Attorney of Kimberly B.

Gatling, dated July 14, 2023

Power of Attorney of Fred A.

Jackson, dated July 14, 2023

Power of Attorney of Jonathan L.

Kelly, dated July 14, 2023

Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

Certification of Principal Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

Certification of Principal Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

b) Exhi bits:

The exhibits to this Form 10-K are filed at the end of this Form 10-K immediately preceded by an index.

A list of the exhibits begins on page 99 under the subheading “Exhibit Index.”

c) Financial Stat ement Schedules:

FORM 10-K SUMMARY

EXHIBIT INDEX

Exhibit Number Exhibit

List of subsidiaries of the company

Consent of Independent Registered Public Accounting Firm in connection with the registration statements of Culp, Inc.

on Form S-8 (File Nos.

333-207195 and 33-13310).

Power of Attorney of John A.

Baugh, dated July 14, 2023

Power of Attorney of Perry E.

Davis, dated July 14, 2023

Power of Attorney of Sharon A.

Decker, dated July 14, 2023

Power of Attorney of Kimberly B.

Gatling, dated July 14, 2023

Power of Attorney of Fred A.

Jackson, dated July 14, 2023

Power of Attorney of Jonathan L.

Kelly, dated July 14, 2023

Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

Certification of Principal Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

Certification of Principal Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, CULP, INC.

has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14 th day of July 2023.

Chief Executive Officer

(principal executive officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 14 th day of July 2023.

(Chairman of the Board of Directors)

(Lead Independent Director)

Chief Financial Officer

(principal financial officer)

Gallagher, Jr.

Vice President of Finance

(principal accounting officer)

* By Kenneth R.

Bowling, Attorney-in-Fact, pursuant to Powers of Attorney filed with the Securities and Exchange Commission.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk