Item 1: Financial Statements

		THREE MONTHS ENDED

		October 28,		October 29,
		2018		2017
Net sales	$	77,006		80,698
Cost of sales		63,680		64,894
Gross profit		13,326		15,804

Selling, general and
administrative expenses		10,103		9,415
Restructuring credit		(1,061	)	-
Income from operations		4,284		6,389

Interest expense		18		37
Interest income		(151	)	(128	)
Other expense		142		321
Income before income taxes		4,275		6,159

Income taxes		1,276		2,108

Loss from investment in unconsolidated joint venture		55		75
Net income	$	2,944		3,976
Less: Net income attributable to non-controlling interest		(11	)	-
Net income attributable to Culp, Inc. common shareholders	$	2,933		3,976

Net income attributable to Culp Inc. common shareholders per share - basic	$	0.23		0.32
Net income attributable to Culp Inc. common shareholders per share - diluted	$	0.23		0.32
Average shares outstanding, basic		12,515		12,440
Average shares outstanding, diluted		12,551		12,580


		SIX MONTHS ENDED

		October 28,		October 29,
		2018		2017

Net sales	$	148,479		160,230
Cost of sales		124,594		127,962
Gross profit		23,885		32,268

Selling, general and
administrative expenses		18,136		18,916
Restructuring credit		(610	)	-
Income from operations		6,359		13,352

Interest expense		38		37
Interest income		(301	)	(259	)
Other expense		399		674
Income before income taxes		6,223		12,900

Income taxes		2,182		3,748

Loss from investment in unconsolidated joint venture		132		193
Net income	$	3,909		8,959
Less: Net income attributable to non-controlling interest		(19	)	-
Net income attributable to Culp, Inc. common shareholders	$	3,890		8,959

Net income attributable to Culp Inc. common shareholders per share - basic	$	0.31		0.72
Net income attributable to Culp Inc. common shareholders per share - diluted	$	0.31		0.71
Average shares outstanding, basic		12,512		12,420
Average shares outstanding, diluted		12,612		12,613

See accompanying notes to consolidated financial statements.

THREE MONTHS ENDED

January 28, January 29,
2018 2017

Net sales $ 85,310 76,169
Cost of sales 67,707 59,410
Gross profit 17,603 16,759

Selling, general and
administrative expenses 9,959 9,824
Income from operations 7,644 6,935

Interest expense 31 -
Interest income (132 ) (124 )
Other expense 229 69
Income before income taxes 7,516 6,990

Income taxes 8,208 643

Loss from investment in unconsolidated joint venture 56 -
Net (loss) income $ (748 ) 6,347

Net (loss) income per share, basic $ (0.06 ) 0.52
Net (loss) income per share, diluted $ (0.06 ) 0.51
Average shares outstanding, basic 12,436 12,313
Average shares outstanding, diluted 12,436 12,544

NINE MONTHS ENDED

January
28, January
29,
2018 2017

Net sales $ 245,541 232,194
Cost of sales 195,668 180,115
Gross profit 49,873 52,079

Selling, general and
administrative expenses 28,876 29,171
Income from operations 20,997 22,908

Interest expense 69 -
Interest income (391 ) (164 )
Other expense 903 376
Income before income taxes 20,416 22,696

Income taxes 11,956 6,560

Loss from investment in unconsolidated joint venture 249 -
Net income $ 8,211 16,136

Net income per share, basic $ 0.66 1.31
Net income per share, diluted $ 0.65 1.29
Average shares outstanding, basic 12,425 12,302
Average shares outstanding, diluted 12,626 12,517

See accompanying notes to consolidated financial statements.

I - 1

CULP, INC.

~~CULP, INC.~~

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~(LOSS)~~ INCOME

~~FOR THE THREE AND NINE MONTHS ENDED JANUARY 28, 2018 AND JANUARY 29, 2017~~

~~(UNAUDITED)~~

~~(AMOUNTS IN THOUSANDS)~~

FOR THE THREE AND SIX MONTHS ENDED OCTOBER 28, 2018 AND OCTOBER 29, 2017

THREE MONTHS ENDED

January 28, January 29,
2018 2017

Net (loss) income $ (748 ) $ 6,347

Other comprehensive loss

Unrealized holding loss on investments (4 ) (13 )

Total other comprehensive loss (4 ) (13 )

Comprehensive (loss) income $ (752 ) $ 6,334

NINE MONTHS ENDED

January 28, January 29,
2018 2017

Net income $ 8,211 $ 16,136

Other comprehensive income

Unrealized gains on investments

Unrealized holding gains on investments 60 75

Reclassification adjustment for realized loss included in net income - 12

Total other comprehensive income 60 87

Comprehensive income $ 8,271 $ 16,223

See accompanying notes to consolidated financial statements.
(UNAUDITED)

(AMOUNTS IN THOUSANDS)

		THREE MONTHS ENDED

		October 28,			October 29,
		2018			2017

Net income	$	2,944		$	3,976

Other comprehensive (loss) income

Unrealized (loss) gain on investments, net of tax

Unrealized holding (losses) gains on investments		(43	)		20
Reclassification adjustment for realized loss (gain) on investments		-			-

Total unrealized (loss) gain on investments		(43	)		20

Unrealized gain on foreign currency cash flow hedge, net of tax

Unrealized holding gain on foreign currency cash flow hedge		17			-
Reclassification adjustment for realized loss on foreign currency cash flow hedge		24			-

Total unrealized gain on foreign currency cash flow hedge		41			-

Total other comprehensive (loss) income		(2	)		20

Comprehensive income	$	2,942		$	3,996
Less: Comprehensive income attributable to non-controlling interest		(11	)		-
Comprehensive income attributable to Culp, Inc. common shareholders	$	2,931		$	3,996



		SIX MONTHS ENDED

		October 28,			October 29,
		2018			2017

Net income	$	3,909		$	8,959

Other comprehensive income

Unrealized gain on investments, net of tax

Unrealized holding (losses) gains on investments		(3	)		64
Reclassification adjustment for realized loss on investments		94			-

Total unrealized gain on investments		91			64

Unrealized gain on foreign currency cash flow hedge, net of tax

Unrealized holding loss on foreign currency cash flow hedge		(8	)		-
Reclassification adjustment for realized loss on foreign currency cash flow hedge		64			-

Total unrealized gain on foreign currency cash flow hedge		56			-

Total other comprehensive income		147			64

Comprehensive income	$	4,056		$	9,023
Less: Comprehensive income attributable to non-controlling interest		(19	)		-
Comprehensive income attributable to Culp, Inc. common shareholders	$	4,037		$	9,023

See accompanying notes to consolidated financial statements.

I - 2

CULP, INC.
CONSOLIDATED BALANCE SHEETS

JANUARY 28, 2018, JANUARY 29, 2017 AND APRIL 30, 2017
UNAUDITED
(Amounts in Thousands)

January 28, January 29, * April 30,
2018 2017 2017
Current assets:
Cash and cash equivalents $ 22,428 15,659 20,795
Short-term investments - Available for Sale 2,472 2,410 2,443
Short-term investments - Held-To-Maturity 17,206 - -
Accounts receivable, net 26,097 22,726 24,577
Inventories 55,651 46,193 51,482
Other current assets 3,114 2,514 2,894
Total current assets 126,968 89,502 102,191

Property, plant and equipment, net 51,838 50,333 51,651
Goodwill 11,462 11,462 11,462
Deferred income taxes 1,942 422 419
Long-term investments - Held-To-Maturity 13,625 30,832 30,945
Long-term investments - Rabbi Trust 7,176 5,488 5,466
Investment in unconsolidated joint venture 1,518 600 1,106
Other assets 2,315 2,417 2,394
Total assets $ 216,844 191,056 205,634

Current liabilities:
Accounts payable-trade $ 32,434 22,352 29,101
Accounts payable - capital expenditures 1,554 4,886 4,767
Accrued expenses 8,842 10,511 11,947
Income taxes payable - current 1,580 217 287
Total current liabilities 44,410 37,966 46,102

Accounts payable - capital expenditures - 708 1,322
Income taxes payable - long-term 10,940 1,817 467
Deferred income taxes 2,096 2,924 3,593
Deferred compensation 7,216 5,327 5,520

Total liabilities 64,662 48,742 57,004

Commitments and Contingencies (Note 15)

Shareholders' equity
Preferred stock, $0.05 par value, authorized
10,000,000 - - -
Common stock, $0.05 par value, authorized
40,000,000 shares, issued and outstanding
12,450,276 at January 28, 2018; 12,314,756
at January 29, 2017; and 12,356,631 at
April 30, 2017 623 615 618
Capital contributed in excess of par value 48,413 46,365 47,415
Accumulated earnings 103,090 95,391 100,601
Accumulated other comprehensive income (loss) 56 (57 ) (4 )
Total shareholders' equity 152,182 142,314 148,630

Total liabilities and shareholders' equity $ 216,844 191,056 205,634

* Derived from audited financial statements.

See accompanying notes to consolidated financial statements.
CULP, INC.

CONSOLIDATED BALANCE SHEETS

OCTOBER 28, 2018, OCTOBER 29, 2017 AND APRIL 29, 2018

UNAUDITED

(Amounts in Thousands)

	October 28,		October 29,		April 29,
	2018		2017		2018
Current assets:
Cash and cash equivalents	$	14,768		15,739		21,228
Short-term investments - Available for Sale		-		2,478		2,451
Short-term investments - Held-To-Maturity		26,719		4,015		25,759
Accounts receivable, net		24,362		24,220		26,307
Inventories		50,601		50,209		53,454
Assets held for sale		237		-		-
Other current assets		2,461		2,263		2,870
Total current assets		119,148		98,924		132,069

Property, plant and equipment, net		51,325		52,530		51,794
Goodwill		27,222		11,462		13,569
Intangible assets		10,636		1,428		4,275
Deferred income taxes		3,614		491		1,458
Long-term investments - Held-To-Maturity		-		26,853		5,035
Long-term investments - Rabbi Trust		7,851		6,921		7,326
Investment in unconsolidated joint venture		1,470		1,522		1,501
Other assets		945		912		957
Total assets	$	222,211		201,043		217,984

Current liabilities:
Accounts payable-trade	$	24,007		24,600		27,237
Accounts payable - capital expenditures		114		3,209		1,776
Deferred revenue		649		-		809
Accrued expenses		8,670		7,364		9,325
Accrued restructuring costs		260		-		-
Deferred compensation		714		-		-
Income taxes payable - current		2,044		692		1,437
Total current liabilities		36,458		35,865		40,584

Accrued expenses - long-term		-		-		763
Contingent consideration - earn-out obligation		5,706		-		-
Income taxes payable - long-term		3,233		487		3,758
Deferred income taxes		2,225		4,641		2,150
Deferred compensation		7,120		6,970		7,353
Total liabilities		54,742		47,963		54,608

Commitments and Contingencies (Notes 13 and 22)

Shareholders' equity
Preferred stock, $0.05 par value, authorized
10,000,000		-		-		-
Common stock, $0.05 par value, authorized
40,000,000 shares, issued and outstanding
12,491,956 at October 28, 2018; 12,435,276
at October 29, 2017; and 12,450,276 at
April 29, 2018		625		622		623
Capital contributed in excess of par value		45,959		47,441		48,203
Accumulated earnings		116,272		104,957		114,635
Accumulated other comprehensive income (loss)		62		60		(85	)
Total shareholders' equity attributable to Culp Inc.		162,918		153,080		163,376
Non-controlling interest		4,551		-		-
Total equity		167,469		153,080		163,376
Total liabilities and shareholders' equity	$	222,211		201,043		217,984

* Derived from audited financial statements.

See accompanying notes to consolidated financial statements.

I - 3

CULP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JANUARY 28, 2018 AND JANUARY 29, 2017
UNAUDITED
(Amounts in Thousands)

NINE MONTHS ENDED

January 28, January 29,
2018 2017

Cash flows from operating activities:
Net income $ 8,211 16,136
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 5,679 5,304
Amortization of assets 248 162
Stock-based compensation 2,422 2,619
Deferred income taxes (3,020 ) 3,533
Realized loss on sale of short-term investments (Available for Sale) - 12
Gain on sale of equipment - (71 )
Loss from investment in unconsolidated joint venture 249 -
Foreign currency exchange loss (gain) 133 (18 )
Changes in assets and liabilities:
Accounts receivable (923 ) 340
Inventories (3,275 ) (137 )
Other current assets (27 ) 90
Other assets (37 ) 51
Accounts payable - trade 1,715 (946 )
Accrued expenses and deferred compensation (1,608 ) (668 )
Income taxes 11,702 (1,695 )
Net cash provided by operating activities 21,469 24,712

Cash flows from investing activities:
Capital expenditures (6,657 ) (9,253 )
Investment in unconsolidated joint venture (661 ) (600 )
Proceeds from the sale of equipment 6 80
Proceeds from the sale of short-term investments (Available for Sale) - 2,000
Purchase of short-term investments (Available for Sale) (37 ) (8 )
Purchase of long-term investments (Held-To-Maturity) - (31,050 )
Proceeds from the sale of long-term investments (Rabbi Trust) 57 -
Purchase of long-term investments (Rabbi Trust) (1,699 ) (1,431 )
Premium payment on life insurance policy (18 ) (18 )
Net cash used in investing activities (9,009 ) (40,280 )

Cash flows from financing activities:
Proceeds from line of credit 10,000 7,000
Payments on line of credit (10,000 ) (7,000 )
Payments on vendor-financed capital expenditures (3,750 ) (1,050 )
Dividends paid (5,722 ) (5,292 )
Common stock surrendered for withholding taxes payable (1,530 ) (280 )
Payments on debt issuance costs - (2 )
Proceeds from common stock issued 111 37
Net cash used in financing activities (10,891 ) (6,587 )

Effect of exchange rate changes on cash and cash equivalents 64 27

Decrease in cash and cash equivalents 1,633 (22,128 )

Cash and cash equivalents at beginning of period 20,795 37,787

Cash and cash equivalents at end of period $ 22,428 15,659

See accompanying notes to consolidated financial statements.

CULP, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED OCTOBER 28, 2018 AND OCTOBER 29, 2017

UNAUDITED

(Amounts in Thousands)

	SIX MONTHS ENDED

	October 28,			October 29,
	2018			2017

Cash flows from operating activities:
Net income	$	3,909			8,959
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation		4,056			3,713
Amortization		391			166
Stock-based compensation		(106	)		1,558
Deferred income taxes		(2,081	)		976
Realized loss on sale of short-term investments (Available for Sale)		94			-
Gain on sale of equipment		(1,079	)		-
Loss from investment in unconsolidated joint venture		132			193
Foreign currency exchange (gain) loss		(102	)		42
Changes in assets and liabilities, net of effects of acquisition of businesses
Accounts receivable		1,639			561
Inventories		3,767			1,597
Other current assets		379			723
Other assets		(10	)		(35	)
Accounts payable - trade		(3,264	)		(5,074	)
Deferred revenue		(160	)		-
Accrued expenses and deferred compensation		(1,472	)		(3,607	)
Accrued restructuring costs		260			-
Income taxes		247			406
Net cash provided by operating activities		6,600			10,178

Cash flows from investing activities
Net cash paid for acquisition of businesses		(12,096	)		-
Capital expenditures		(2,096	)		(4,978	)
Proceeds from the sale of equipment		1,280			6
Investment in unconsolidated joint venture		(100	)		(609	)
Proceeds from the sale of short-term investments (Held to Maturity)		4,000			-
Proceeds from the sale of short-term investments (Available for Sale)		2,458			-
Purchase of short-term investments (Available for Sale)		(10	)		(24	)
Proceeds from the sale of long-term investments (Rabbi Trust)		-			54
Purchase of long-term investments (Rabbi Trust)		(526	)		(1,457	)
Net cash used in investing activities		(7,090	)		(7,008	)

Cash flows from financing activities:
Proceeds from line of credit		12,000			10,000
Payments on line of credit		(12,000	)		(10,000	)
Payments on vendor-financed capital expenditures		(1,412	)		(2,500	)
Dividends paid		(2,253	)		(4,603	)
Common stock surrendered for withholding taxes payable		(1,292	)		(1,147	)
Common stock repurchased		(844	)		-
Proceeds from common stock issued		-			5
Net cash used in financing activities		(5,801	)		(8,245	)

Effect of exchange rate changes on cash and cash equivalents		(169	)		19

Decrease in cash and cash equivalents		(6,460	)		(5,056	)

Cash and cash equivalents at beginning of period		21,228			20,795

Cash and cash equivalents at end of period	$	14,768			15,739

See accompanying notes to consolidated financial statements.

Culp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Time Vested Restricted Stock Units~~

Fiscal 2018 Grant

On July 13, 2017, an employee was granted 1,200 shares of time vested restricted stock units which ~~will vest~~vested over the requisite service period of 11 months. This award was measured at its fair market value, which was $32.50 per share, and represented the closing price of our common stock on the date of grant.

During the first quarter of fiscal 2019, 1,200 shares of common stock associated with this grant vested and had a weighted average grant date fair value of $39,000 or $32.50 per share.

Fiscal 2017 Grant

On July 14, 2016, an employee was granted 1,200 shares of time vested restricted stock units which vested over the requisite service period of 11 months. This award was measured at its fair market value, which was $28 per share, and represented the closing price of our common stock on the date of grant.

During the first quarter of fiscal 2018, 1,200 shares of common stock associated with this grant vested and had a weighted average grant date fair value of $34,000 or $28 per share.

Overall

We recorded compensation expense of ~~$28,000~~$26,000 and ~~$20,000~~$17,000 within selling, general, and administrative expense associated with our time vested restricted stock unit awards for the ~~nine month~~six-month periods ending ~~January~~October 28, 2018 and ~~January~~October 29, 2017, respectively.

At ~~January~~October 28, 2018, the remaining unrecognized compensation cost related to ~~unvested~~our time vested restricted stock ~~awards~~units was ~~$16,000,~~$252,000, which is expected to be recognized over a weighted average vesting period of 4.3 years. At October 28, 2018, the ~~next 4.5 months.~~

~~4. Accounts Receivable~~

~~A summary of accounts receivable follows:~~

(dollars in thousands)
January 28, 2018 January 29, 2017 April 30, 2017
Customers $ 27,666 $ 24,339 $ 26,211
Allowance for doubtful accounts (357 ) (397 ) (414 )
Reserve for returns and allowances and discounts (1,212 ) (1,216 ) (1,220 )
$ 26,097 $ 22,726 $ 24,577

~~A summary of the activity in the allowance for doubtful accounts follows:~~

Nine months ended
(dollars in thousands) January 28, 2018 January 29, 2017
Beginning balance $ (414 ) $ (1,088 )
Provision for bad debts 57 239
Net write-offs, net of recoveries - 452
Ending balance $ (357 ) $ (397 )

~~I - 12~~

~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

Nine months ended
(dollars in thousands) January 28, 2018 January 29, 2017
Beginning balance $ (1,220 ) $ (962 )
Provision for returns, allowances and discounts (2,332 ) (2,357 )
Credits issued 2,340 2,103
Ending balance $ (1,212 ) $ (1,216 )
time vested restricted stock awards that were expected to vest had a fair value totaling $250,000.

~~5. Inventories~~

~~Inventories are carried at the lower of cost or market. Cost is determined using the FIFO (first-in, first-out) method.~~

~~A summary of inventories follows:~~

dollars in thousands) January 28, 2018 January 29, 2017 April 30, 2017
Raw materials $ 6,654 $ 6,977 $ 6,456
Work-in-process 3,151 3,161 3,095
Finished goods 45,846 36,055 41,931
$ 55,651 $ 46,193 $ 51,482
Common Stock Awards

~~6. Other Noncurrent Assets~~

~~A summary~~We granted a total of ~~other noncurrent assets follows:~~

(dollars in thousands) January 28, 2018 January 29, 2017 April 30, 2017
Cash surrender value – life insurance $ 394 $ 376 $ 376
Non-compete agreement, net 772 847 828
Customer relationships, net 625 677 664
Other 524 517 526
$ 2,315 $ 2,417 $ 2,394

~~Non-Compete Agreement~~

~~We recorded our non-compete agreement at its fair value based on a discounted cash flow valuation model. Our non-compete agreement is amortized on a straight-line basis over the fifteen year life~~3,600 and 4,800 shares of ~~the respective agreement.~~

The gross carrying amount of our non-compete agreement was $2.0 million at January 28, 2018, January 29, 2017 and April 30, 2017, respectively. Accumulated amortization for our non-compete agreement was $1.2 million at January 28, 2018, January 29, 2017, and April 30, 2017, respectively.

Amortization expense for our non-compete agreement was $56,000 for the nine month periods ending January 28, 2018 and January 29, 2017. The remaining amortization expense for the next five fiscal years and thereafter follows: FY 2018 - $19,000; FY 2019 - $75,000; FY 2020 - $75,000; FY 2021 - $75,000; FY 2022 - $75,000 and Thereafter - $453,000.

~~I - 13~~

~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The weighted average amortization period for our non-compete agreement is 10.3 years as of January 28, 2018.~~

~~Customer Relationships~~

We recorded our customer relationships at their fair value based on a multi-period excess earnings valuation model. Our customer relationships are amortized on a straight-line basis over its seventeen year useful life.

The gross carrying amount of our customer relationships was $868,000 at January 28, 2018, January 29, 2017, and April 30, 2017, respectively. Accumulated amortization for our customer relationships was $243,000, $191,000, and $204,000 at January 28, 2018, January 29, 2017, and April 30, 2017, respectively.

Amortization expense for our customer relationships was $38,000 for the nine months ended January 28, 2018 and January 29, 2017. The remaining amortization expense for the next five fiscal years and thereafter follows: FY 2018 - $12,000; FY 2019 - $51,000; FY 2020 - $51,000; FY 2021 - $51,000; FY 2022 - $51,000; and Thereafter - $409,000.

~~The weighted average amortization period for our customer relationships is 12.3 years as of January 28, 2018.~~

~~Cash Surrender Value – Life Insurance~~

~~At January 28, 2018, January 29, 2017, and April 30, 2017, we had one life insurance contract with a death benefit of $1.4 million.~~

Our cash surrender value – life insurance balances totaling $394,000, $376,000 and $376,000 at January 28, 2018, January 29, 2017, and April 30, 2017, respectively, are collectible upon death of the respective insured.

~~7. Accrued Expenses~~

~~A summary of accrued expenses follows:~~

(dollars in thousands) January 28, 2018 January 29, 2017 April 30, 2017
Compensation, commissions and related benefits $ 6,288 $ 9,205 $ 10,188
Advertising rebates 482 118 468
Interest 5 11 51
Other accrued expenses 2,067 1,177 1,240
$ 8,842 $ 10,511 $ 11,947

~~I - 14~~

~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~8. Lines of Credit~~

~~Revolving Credit Agreement – United States~~

Our Credit Agreement with Wells Fargo Bank, N.A. (“Wells Fargo”) provides a revolving loan commitment of $30 million. Interest was charged at a rate (applicable interest rate of 3.02%, 2.23%, and 2.45% at January 28, 2018, January 29, 2017, and April 30, 2017) as a variable spread over LIBOR based on our ratio of debt to EBITDA. The Credit Agreement contains certain financial and other covenants as defined in the agreement and is set to expire on August 15, 2018.

The purposes of our revolving credit line is to support potential short term cash needs in different jurisdictions within our global operations, mitigate our risk associated with foreign currency exchange rate fluctuations, and ultimately repatriate earnings and profits from our foreign subsidiaries to the U.S. for various strategic purposes

~~Outstanding borrowings are secured by a pledge of 65% of the~~ common stock of Culp International Holdings Ltd. (our subsidiary located in the Cayman Islands), as required by the Credit Agreement. There were no borrowings outstanding under the Credit Agreement at January 28, 2018, January 29, 2017, and April 30, 2017.

~~At January 28, 2018, January 29, 2017, and April 30, 2017, there were $250,000 in outstanding letters of credit (all of which related to workers compensation) provided by the Credit Agreement.~~

~~Effective August 1, 2016, we entered into a Third Amendment~~ to our Credit Agreement that allows us to issue letters of credit not to exceed $7.5 million. On August 3, 2016, we issued a $5.0 million letter of credit ($2.5 million was outstanding at January 28, 2018 in addition to the $250,000 letter of credit noted above) for the construction of a new building associated with our mattress fabrics segment (see Note 15 for further details). The $2.5 million outstanding letter of credit was automatically reduced by $1.25 millionoutside directors on ~~February~~October 1, 2018, and ~~will be automatically reduced by an additional $1.25 million on May 15, 2018.~~

~~Revolving Credit Agreement – China~~

~~At January 28, 2018, our unsecured credit agreement associated with our operations in China provided for a line~~October 2, 2017, respectively. These shares of ~~credit up to 40 million Chinese Yuan Renminbi (approximately $6.4 million USD at January 28, 2018),~~common stock vested immediately and ~~was set to expire on February 15, 2018. This agreement bears interest at a rate determined by the Chinese government and there~~ were ~~no borrowings outstanding as of January 28, 2018, January 29, 2017, and April 30, 2017. On March 2, 2018, we renewed this unsecured agreement to extend the expiration date to March 2, 2019.~~

~~Overalls~~

~~Our loan agreements require, among other things, that we maintain compliance with certain financial covenants. At January 28, 2018, the company was in compliance with these financial covenants.~~

~~9. Fair Value of Financial Instruments~~

~~ASC Topic 820 establishes a fair value hierarchy that distinguishes between assumptions~~valued 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. An adjustment to the pricing method used within either level 1 or level 2 inputs could generate a fair value measurement that effectively falls in a lower level in the hierarchy. The hierarchy consists of three broad levels as follows:

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

~~I - 15~~

~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~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.~~

~~Recurring Basis~~

~~The following table presents information about assets measured at fair value on a recurring basis:~~

Fair value measurements at January 28, 2018 using:

Quoted prices
in active
markets for
identical assets
Significant other
observable inputs

Significant
unobservable
inputs

(amounts in thousands) Level 1 Level 2 Level 3 Total

Assets:
Premier Money Market Fund $ 6,287 N/A N/A $ 6,287
Low Duration Bond Fund 1,085 N/A N/A 1,085
Intermediate Term Bond Fund 759 N/A N/A 759
Strategic Income Fund 628 N/A N/A 628
Large Blend Fund 431 N/A N/A 431
Growth Allocation Fund 171 N/A N/A 171
Moderate Allocation Fund 114 N/A N/A 114
Other 173 N/A N/A 173

Fair value measurements at January 29, 2017 using:

Quoted prices
in active
markets for
identical assets
Significant other
observable inputs

Significant
unobservable
inputs

(amounts in thousands) Level 1 Level 2 Level 3 Total

Assets:
Premier Money Market Fund $ 4,888 N/A N/A $ 4,888
Low Duration Bond Fund 1,073 N/A N/A 1,073
Intermediate Term Bond Fund 739 N/A N/A 739
Strategic Income Fund 598 N/A N/A 598
Large Blend Fund 343 N/A N/A 343
Growth Allocation Fund 113 N/A N/A 113
Moderate Allocation Fund 83 N/A N/A 83
Other 61 N/A N/A 61

~~I - 16~~

~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Fair value measurements at April 30, 2017 using:

Quoted prices
in active
markets for
identical assets
Significant other
observable inputs

Significant
unobservable
inputs

(amounts in thousands) Level 1 Level 2 Level 3 Total

Assets:
Premier Money Market Fund $ 4,811 N/A N/A $ 4,811
Low Duration Bond Fund 1,081 N/A N/A 1,081
Intermediate Term Bond Fund 751 N/A N/A 751
Strategic Income Fund 611 N/A N/A 611
Large Blend Fund 365 N/A N/A 365
Growth Allocation Fund 126 N/A N/A 126
Moderate Allocation Fund 88 N/A N/A 88
Other 76 N/A N/A 76

The determination of where an asset or liability falls in the hierarchy requires significant judgment. We evaluate our hierarchy disclosures each quarter based on various factors and it is possible that an asset or liability may be classified differently from quarter to quarter. However, we expect that changes in classifications between different levels will be rare.

~~Short-Term Investments – Available for Sale~~

At January 28, 2018, January 29, 2017, and April 30, 2017, our short-term investments classified as available for sale totaled $2.5 million, $2.4 million, and $2.4 million, respectively, and consisted of short-term bond funds. Since these short-term bond funds are classified as available for sale, these investments are recorded at their fair market value and their unrealized gains or losses are included in other comprehensive income (loss). Our short-term bond investments had an accumulated unrealized loss totaling $57,000, $68,000, and $47,000 at January 28, 2018, January 29, 2017, and April 30, 2017, respectively. At January 28, 2018, January 29, 2017, and April 30, 2017,on the ~~fair value~~date of ~~our short-term bond funds approximated its cost basis.~~

~~Short-Term and Long-Term Investments - Held-To-Maturity~~

During the second quarter of fiscal 2017, management decided to invest approximately $31.0 million in investment grade U.S. Corporate bonds with maturities that ranged from 2 to 2.5 years. The purpose of this investment was to earn a higher rate of return on our excess cash located in the Cayman Islands. These investments are classified as held-to-maturity as we have the positive intent and ability to hold these investments until maturity. Our held-to-maturity investments will be recorded as either current or noncurrent on our Consolidated Balance Sheets, based on contractual maturity date as of a respective reporting period and recorded at amortized cost.

At January 28, 2018, January 29, 2017 and April 30, 2017, our held-to-maturity investments recorded at amortized cost totaled $30.8 million, $30.8 million, and $30.9 million, respectively, and consisted of U.S. Corporate bonds.grant. The fair value of ~~our held-to-maturity investments at January 28,~~these awards were $23.45 and $33.20 per share, on October 1, 2018, ~~January 29,~~and October 2, 2017, ~~and April 30, 2017 totaled $30.7 million, $30.7 million, and $30.8 million, respectively.~~

~~Our U.S. corporate bonds were classified as level 2 as they are traded over~~which represents the ~~counter within a broker network and not on an active market. The fair value~~closing price of our ~~U.S. corporate bonds is determined based~~common stock on ~~a published source that provides an average bid price. The average bid price is based on various broker prices that are determined based on market conditions, interest rates, and~~ the ~~rating~~date of ~~the respective U.S. corporate bond.~~

~~I - 17~~

~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Long-Term Investments - Rabbi Trust~~grant.

We ~~have a Rabbi Trust to set aside funds~~recorded $84,000 and $159,000 of compensation expense within selling, general, and administrative expense for participants of our deferred compensation plan (the “Plan”) which allows the participants to credit their contributions to various investment options of the Plan. The investments associated with the Rabbi Trust consist of a money market fund and various mutual funds that are classified as available for sale.

These long-term investments are recorded at their fair values of $7.2 million, $5.5 million, and $5.5 million at January 28, 2018, January 29, 2017, and April 30, 2017, respectively. Our long-term investments had an accumulated unrealized gain of $113,000, $11,000 and $43,000 at January 28, 2018, January 29, 2017, and April 30, 2017, respectively. The fair value of our long-term investments associated with our Rabbi Trust approximates its cost basis.

~~Other~~

The carrying amount of our cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued expenses, and line of credit approximates fair value because of the short maturity of these ~~financial instruments.~~

~~10. Cash Flow Information~~

Interest and income taxes paid are as follows:
Nine months ended
(dollars in thousands) January 28, 2018 January 29, 2017
Interest $ 181 $ 110
Income taxes 3,426 4,704

~~Interest costs charged to operations were $168,000 and $97,000~~common stock awards for the ~~nine months ended January~~six-month periods ending October 28, 2018 and ~~January~~October 29, 2017, respectively.

Interest costs of $99,000 and $97,000 for the construction of qualifying fixed assets were capitalized for the nine months ended January 28, 2018 and January 29, 2017, respectively. As a result, these interest costs will be amortized over the related assets’ useful lives.

~~11. 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 follows:

~~I - 18~~

~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Three months ended
(amounts in thousands) January 28, 2018 January 29, 2017
Weighted average common shares outstanding, basic 12,436 12,313
Dilutive effect of stock-based compensation - 231
Weighted average common shares outstanding, diluted 12,436 12,544

All options to purchase shares of common stock were included in the computation of diluted net (loss) income for the three months ended January 28, 2018 and January 29, 2017, as the exercise price of the options was less than the average market price of the common shares. Stock-based compensation awards totaling 160,743 shares of common stock were not included in the computation of diluted net loss per share for the three months ended January 28, 2018 as we incurred a net loss for that reporting period.

Nine months ended
(amounts in thousands) January 28, 2018 January 29, 2017
Weighted average common shares outstanding, basic 12,425 12,302
Dilutive effect of stock-based compensation 201 215
Weighted average common shares outstanding, diluted 12,626 12,517

All options to purchase shares of common stock were included in the computation of diluted net income for the nine months ended January 28, 2018 and January 29, 2017, as the exercise price of the options was less than the average market price of the common shares.

~~12. Segment Information~~

Our operations are classified into two business segments: mattress fabrics and upholstery fabrics. The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers to bedding manufacturers. The upholstery fabrics segment manufactures, sources, develops, and sells fabrics primarily to residential and commercial furniture manufacturers.

We evaluate the operating performance of our segments based upon income from operations before certain unallocated corporate expenses and other non-recurring items. Cost of sales in both segments include costs to manufacture, develop, 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 executive officers, all costs related to being a public company, and other miscellaneous expenses. Segment assets include assets used in the operations of each segment and primarily consist of accounts receivable, inventories, and property, plant and equipment. The mattress fabrics segment also includes in segment assets, goodwill, investment in an unconsolidated joint venture, a non-compete agreement, and customer relationships associated with an acquisition.

~~I - 19~~

~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Financial information for the company’s operating segments follows:~~

Three months ended
January 28, 2018 January 29, 2017
Net sales:

Mattress Fabrics $ 49,042 $ 45,920
Upholstery Fabrics 36,268 30,249
$ 85,310 $ 76,169
Gross profit:

Mattress Fabrics $ 10,146 $ 9,758
Upholstery Fabrics 7,457 7,001
$ 17,603 $ 16,759
Selling, general, and administrative expenses

Mattress Fabrics $ 3,309 $ 3,391
Upholstery Fabrics 3,947 3,901
Total segment selling, general, and administrative expenses $ 7,256 $ 7,292
Unallocated corporate expenses 2,703 2,532
$ 9,959 $ 9,824
Income from operations:

Mattress Fabrics $ 6,837 $ 6,367
Upholstery Fabrics 3,510 3,100
Total segment income from operations $ 10,347 $ 9,467
Unallocated corporate expenses (2,703 ) (2,532 )
Total income from operations $ 7,644 $ 6,935
Interest expense (31 ) -
Interest income 132 124
Other expense (229 ) (69 )
Income before income taxes $ 7,516 $ 6,990

Nine months ended
(dollars in thousands)
January 28, 2018 January 29, 2017
Net sales:

Mattress Fabrics $ 146,072 $ 141,977
Upholstery Fabrics 99,469 90,217
$ 245,541 $ 232,194
Gross profit:

Mattress Fabrics $ 29,641 $ 32,414
Upholstery Fabrics 20,232 19,665
$ 49,873 $ 52,079
Selling, general, and administrative expenses:

Mattress Fabrics $ 9,868 $ 10,185
Upholstery Fabrics 11,458 11,086
Total segment selling, general, and administrative expenses 21,326 21,271
Unallocated corporate expenses 7,550 7,900
$ 28,876 $ 29,171
Income from operations:

Mattress Fabrics $ 19,774 $ 22,229
Upholstery Fabrics 8,773 8,579
Total segment income from operations 28,547 30,808
Unallocated corporate expenses (7,550 ) (7,900 )
Total income from operations 20,997 22,908
Interest expense (69 ) -
Interest income 391 164
Other expense (903 ) (376 )
Income before income taxes $ 20,416 $ 22,696

~~I - 20~~

~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Balance sheet information for the company’s operating segments follows:~~

(dollars in thousands)
January 28, 2018 January 29, 2017 April 30, 2017
Segment assets:
Mattress Fabrics
Current assets (1) $ 42,195 $ 41,498 $ 47,038
Non-compete agreement 772 847 828
Customer relationships 625 677 664
Investment in unconsolidated joint venture 1,518 600 1,106
Goodwill 11,462 11,462 11,462
Property, plant and equipment (2) 49,289 47,755 48,916
Total mattress fabrics assets 105,861 102,839 110,014
Upholstery Fabrics
Current assets (1) 39,553 27,421 29,021
Property, plant and equipment (3) 2,101 1,826 1,879
Total upholstery fabrics assets 41,654 29,247 30,900
Total segment assets 147,515 132,086 140,914
Non-segment assets:
Cash and cash equivalents 22,428 15,659 20,795
Short-term investments (Available for Sale) 2,472 2,410 2,443
Short-term investments (Held-to-Maturity) 17,206 - -
Deferred income taxes 1,942 422 419
Other current assets 3,114 2,514 2,894
Property, plant and equipment (4) 448 752 856
Long-term investments (Held-to-Maturity) 13,625 30,832 30,945
Long-term investments (Rabbi Trust) 7,176 5,488 5,466
Other assets 918 893 902
Total assets $ 216,844 $ 191,056 $ 205,634

Nine months ended
(dollars in thousands) January 28, 2018 January 29, 2017
Capital expenditures (5):
Mattress Fabrics $ 5,445 $ 14,957
Upholstery Fabrics 379 645
Unallocated Corporate 47 72
Total capital expenditures $ 5,871 $ 15,674
Depreciation expense:
Mattress Fabrics $ 5,068 $ 4,673
Upholstery Fabrics 611 631
Total depreciation expense $ 5,679 $ 5,304

~~(1)~~

~~Current assets represent accounts receivable and inventory for the respective segment.~~

~~(2)~~

The $49.3 million at January 28, 2018, represents property, plant, and equipment of $35.6 million and $13.7 million located in the U.S. and Canada, respectively. The $47.8 million at January 29, 2017, represents property, plant, and equipment of $32.6 million and $15.2 million located in the U.S. and Canada, respectively. The $48.9 million at April 30, 2017, represents property, plant, and equipment of $34.0 million and $14.9 million located in the U.S. and Canada, respectively.

~~(3)~~

The $2.1 million at January 28, 2018, represents property, plant, and equipment of $1.4 million and $711 located in the U.S. and China, respectively. The $1.8 million at January 29, 2017, represents property, plant, and equipment of $1.1 million and $711 located in the U.S. and China, respectively. The $1.9 million at April 30, 2017, represents property, plant, and equipment of $1.2 million and $655 located in the U.S. and China, respectively.

~~I - 21~~

~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(4)~~

The $448, $752, and $856 at January 28, 2018, January 29, 2017 and April 30, 2017, respectively, represent property, plant, and equipment associated with unallocated corporate departments and corporate departments shared by both the mattress and upholstery fabric segments. Property, plant, and equipment associated with our corporate departments are located in the U.S.

~~(5)~~

~~Capital expenditure amounts are stated on the accrual basis. See Consolidated Statements of Cash Flows for capital expenditure amounts on a cash basis.~~

~~13. Income Taxes~~

~~Effective Income Tax Rate~~

We recorded income tax expense of $12.0 million, or 58.6% of income before income taxes, for the nine month period ended January 28, 2018, compared to income tax expense of $6.6 million or 28.9% of income before income taxes, for the nine month period ended January 29, 2017. Our effective income tax rates for the nine month periods ended January 28, 2018, and January 29, 2017, were based upon the estimated effective income tax rate applicable for the full year after giving effect to any significant items related specifically to interim periods. Those items that are associated with specific interim periods primarily relate to the income tax effects of the 2017 Tax Cuts and Jobs Act that became effective in our third quarter of fiscal 2018 and the reversal of an uncertain income tax position associated with a foreign jurisdiction in which the statute of limitations expired in the third quarter of fiscal 2017. The effective income tax rate can be affected over the fiscal year by the mix and timing of actual earnings from our U.S. operations and foreign sources versus annual projections and changes in foreign currency exchange rates in relation to the U.S. dollar.

The following schedule summarizes the factors that contribute to the difference between income tax expense at the federal income tax rate and the effective income tax rate reflected in the consolidated financial statements:

2018 2017
Federal income tax rate 30.4 % 34.0 %
Tax effects of the 2017 Tax Cuts and Jobs Act 28.4 -
Tax effects of Chinese foreign exchange (losses) gains (2.9 ) 1.9
Excess income tax benefits related to stock-based compensation (2.3 ) -
Reversal of foreign uncertain tax position - (9.1 )
Foreign income tax rate differential 3.9 -
U.S. state income tax expense 0.2 0.6
Other 0.9 1.5
58.6 % 28.9 %

~~I - 22~~

~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~2017 Tax Cuts and Jobs Act~~

On December 22, 2017 (the “Enactment Date”), the Tax Cuts and Jobs Act (H.R.1) (the “Tax Act”) was signed into law. The Tax Act contains significant changes to corporate taxation, including (i) the reduction of the corporate income tax rate to 21%, (ii) the acceleration of expensing certain business assets, (iii) a one-time mandatory repatriation tax (the “Transition Tax”) related to the transition of U.S. international tax from a worldwide tax system to a territorial tax system, (iv) limitations on the use of foreign tax credits to reduce the U.S. income tax liability, (v) the repeal of the domestic production activities deduction, (vi) additional limitations on the deductibility of interest expense and executive compensation, and (vii) the creation of new minimum taxes such as the base erosion anti-abuse tax (“BEAT”) and Global Intangible Low Taxed Income (“GILTI”) tax.

The corporate income tax rate reduction is effective as of January 1, 2018. Since we have a fiscal year rather than a calendar year, we are subject to IRS rules relating to transitional income tax rates. As a result, our fiscal 2018 federal statutory rate will be a blended income tax rate of 30.4%. For fiscal 2019 and beyond, we will utilize the enacted U.S. federal corporate income tax rate of 21%.

The key impacts of the Tax Act on our financial statements for the three-month and nine-month periods ending January 28, 2018, were the re-measurement of our U.S. deferred income tax balances to the new U.S. federal corporate income tax rate and the determination of the income tax effects of the Transition Tax on our earnings and profits associated with our foreign subsidiaries. While we have not yet completed our assessment of the effects of the Tax Act, we were able to determine reasonable estimates for the impacts of the key items specified above, and thus we reported provisional amounts for these items under guidance provided by SEC Staff Accounting Bulletin No. 118 (“SAB 118”). Our estimates may change and revisions to these estimates will be recorded during the measurement period allowed by SAB 118, which is not to extend one year from the Enactment Date.

In order to determine the effects of the new U.S. federal corporate income tax rate on our U.S. deferred income tax balances, ASC Topic 740 “Income Taxes” (ASC Topic 740), requires the re-measurement of our U.S. deferred income tax balances as of the Enactment Date of the Tax Act, based on income tax rates at which our U.S. deferred income tax balances are expected to reverse in the future. As a result, provisional estimates were required based on projections of U.S. taxable income, capital expenditures, working capital, and employee compensation. Our estimates may change based on actual versus projected results. The provisional amount determined for the re-measurement of our U.S. net deferred income taxes was a charge of $1.3 million, which represented a discrete event in which the full income tax effects were recorded in the three-month and nine-month periods ending January 28, 2018.

Additionally, we determined a provisional amount for the Transition Tax. The Transition tax is based on our total post-1986 foreign earnings and profits (“E&P”) that were previously deferred from U.S. income tax and applicable income tax rates associated with E&P held in cash and other specified assets (the “aggregate foreign cash position”). Also, all of our E&P was not permanently reinvested prior to the Tax Act. In order to calculate the Transition Tax, provisional estimates were required based on (i) projections of the aggregate foreign cash position of our foreign subsidiaries as of the end of our fiscal year 2018, (ii) the applicable tax rates using the aggregate foreign cash position, (iii) utilization of foreign tax credits, and (iv) the effective settlement of certain unrecognized income tax benefits. Our estimates may change based on actual versus projected results. The provisional amount determined for the income tax effects of the Transition Tax was a net charge of $4.8 million, which related to a charge for the write-off and the establishment of a valuation allowance against our unused foreign tax credits totaling $25.8 million, partially offset by an income tax benefit for the release of deferred income tax liabilities related to E&P not permanently reinvested of $21.0 million. This $4.8 million net charge mostly represented a discrete event in which the full income tax effects were recorded in the three-month and nine-month periods ending January 28, 2018. The Transition Tax may be paid over a period of eight years at the election of the taxpayer, and we intend to make this election.

~~I - 23~~

~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

In addition to the above mentioned key impacts of the Tax Act on fiscal 2018, the Tax Act also establishes new tax laws that will be effective for our fiscal 2019 which include the creation of new minimum taxes such as the BEAT and GILTI taxes. We have not yet made a policy election with respect to the accounting treatment of these taxes. We can either account for these taxes as expensed when incurred or factor such amounts in the measurement of our U.S. deferred income taxes. We are currently evaluating our selection of an accounting policy, which will depend, in part, on analyzing our facts to determine what the impact is expected to be under each method.

~~Deferred Income Taxes~~

~~Valuation Allowance~~

In accordance with ASC Topic 740, we evaluate our deferred income taxes to determine if a valuation allowance is required. ASC Topic 740 requires that companies 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, taking into account the effects of local tax law. Based on our assessment at January 28, 2018, we recorded a partial valuation allowance of $2.9 million, of which $2.3 million pertained to unused foreign tax credits associated with the Tax Act, $495,000 pertained to certain U.S. state net operating loss carryforwards and credits and $73,000 pertained to loss carryfowards associated with our Culp Europe operation located in Poland. Based on our assessment at January 29, 2017, we recorded a partial valuation allowance of $557,000, of which $473,000 pertained to certain U.S. state net operating loss carryforwards and credits and $84,000 pertained to loss carryfowards associated with our Culp Europe operation located in Poland. Based on our assessment at April 30, 2017, we recorded a partial valuation allowance of $536,000, of which $464,000 pertained to certain U.S. state net operating loss carryforwards and credits and $72,000 pertained to loss carryfowards associated with our Culp Europe operation located in Poland.

No valuation allowance was recorded against our net deferred income tax assets associated with our operations located in China and Canada at January 28, 2018, January 29, 2017, and April 30, 2017, respectively. The recorded valuation allowance of $2.9 million at January 28, 2018, has no effect on our loan covenant compliance.

~~Undistributed Earnings~~

In accordance with ASC Topic 740, we assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S. parent company. ASC Topic 740 requires that a deferred tax liability should be recorded for undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely. Based on our assessment as of January 28, 2018, it is our intention not to permanently invest our undistributed earnings from our foreign subsidiaries. Also, we assess the recognition of U.S. foreign income tax credits associated with foreign withholding and income tax payments and whether it is more-likely-than-not that our foreign income tax credits will not be realized. If it is determined that any foreign income tax credits need to be recognized or it is more-likely-than-not our foreign income tax credits will not be realized, an adjustment to our provision for income taxes will be recognized at that time.

~~I - 24~~

~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Fiscal 2018~~

During the third quarter, the Tax Act required a Transition Tax on our undistributed E&P associated with our foreign subsidiaries. The Tax Act required us to determine E&P as of November 2, 2017 and December 31, 2017 (the “Measurement Dates”), in which the greater E&P amount of the Measurement Dates is subject to the Transition Tax. As a result, we had provisional estimates of E&P totaling $156.7 million subject to the Transition Tax and provisional estimates totaling $42.2 million for foreign tax credits that could be used to reduce the Transition Tax subject to certain limitations as defined in the Tax Act.

For fiscal 2019 and beyond, the Tax Act allows a U.S. corporation a 100% dividends received deduction for E&P received from a 10% owned foreign corporation. Therefore, a deferred tax liability will only be required for withholding taxes that are incurred by our foreign subsidiaries at the time E&P is distributed. As a result, at January 28, 2018, we recorded a deferred tax liability of $3.1 million for withholding taxes on undistributed E&P from our foreign subsidiaries.

~~Fiscal 2017~~

At January 29, 2017, we had E&P totaling $143.2 million. At the same date, the deferred tax liability associated with our undistributed earnings from our foreign subsidiaries totaled $405,000, which included U.S. income and foreign withholding taxes totaling $42.5 million, offset by U.S. foreign income tax credits of $42.1 million.

At April 30, 2017, we had E&P totaling $146.9 million. At the same date, the deferred tax liability associated with our undistributed earnings from our foreign subsidiaries totaled $497,000, which included U.S. income and foreign withholding taxes totaling $44.0 million, offset by U.S. foreign income tax credits of $43.5 million.

~~Overall~~

At January 28, 2018, our non-current deferred tax asset of $1.9 million represented $1.5 million and $461,000 from our operations located in the U.S and China, respectively. At January 29, 2017, our non-current deferred tax asset of $422,000 pertained to our operations located in China. At April 30, 2017, our non-current deferred tax asset of $419,000 pertained to our operations located in China.

At January 28, 2018, our non-current deferred tax liability of $2.1 million pertained to our operations located in Canada. At January 29, 2017, our non-current deferred tax liability of $2.9 million represented $1.7 million and $1.2 million from our operations located in Canada and the U.S., respectively. At April 30, 2017, our non-current deferred tax liability of $3.6 million represented $2.1 million and $1.5 million from our operations located in Canada and the U.S., respectively.

~~Uncertainty In Income Taxes~~

At January 28, 2018, we had a $12.4 million total gross unrecognized income tax benefit, of which $9.9 million and $2.5 million were classified as income taxes payable- long-term and non-current deferred income taxes, respectively, in the accompanying Consolidated Balance Sheets. At January 29, 2017, we had a $13.4 million total gross unrecognized income tax benefit, of which $11.6 million and $1.8 million were classified as non-current deferred income taxes and income taxes payable – long-term, respectively, in the accompanying Consolidated Balance Sheets. At April 30, 2017, we had a $12.2 million total gross unrecognized income tax benefit, of which $11.8 million and $467,000 were classified as non-current deferred income taxes and income taxes payable – long-term, respectively, in the accompanying Consolidated Balance Sheets.

~~I - 25~~

~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

At January 28, 2018, our $12.4 million total gross unrecognized income tax benefit included $9.9 million that, if recognized, would favorably affect the income tax rate in future periods. At January 29, 2017, our $13.4 million total gross unrecognized income tax benefit, included $1.8 million that, if recognized, would favorably affect the income tax rate in future periods. At April 30, 2017, our $12.2 million total gross unrecognized income tax benefit included $467,000 that, if recognized, would favorably affect the income tax rate in future periods.

United States federal and state income tax returns filed by us remain subject to examination for income tax years 2005 and subsequent due to loss carryforwards. Canadian federal returns are subject to examination for income tax years 2014 and subsequent and Canadian provincial (Quebec) returns filed by us remain subject to examination for income tax years 2016 and subsequent. Income tax returns associated with our operations located in China are subject to examination for income tax year 2012 and subsequent.

The Internal Revenue Service is examining our U.S. federal income tax returns for fiscal years 2014 through 2016. As a result of this examination, the IRS proposed an adjustment approximating $12.5 million of income taxes that relates to our transfer pricing with certain foreign subsidiaries. Management does not agree with the adjustment proposed by the IRS and intends to vigorously defend its position. Currently, the ultimate outcome of this proposed adjustment and any potential cash settlement cannot be determined as it is dependent upon potential legal and competent authority proceedings, interpretation of income tax law, and utilization of available loss carryforwards and certain income tax credits associated with the fiscal years under exam. Currently, we expect this examination to be completed during fiscal 2019.

During the third quarter of fiscal 2017, Revenue Quebec commenced an examination of our Canadian provincial (Quebec) income tax returns for fiscal years 2013 through 2015. This examination was completed during the fourth quarter of fiscal 2018 with final adjustments that were immaterial.

In accordance with ASC Topic 740, 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 reporting period, or is effectively settled through examination, negotiation, or litigation, or the statue 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 benefits will be recorded at that time.

During the third quarter of fiscal 2017, we recognized an income tax benefit of $2.1 million for the reversal of an uncertain income tax position associated with a foreign jurisdiction in which the statute of limitations expired. The income tax benefit was treated as a discrete event in which the full income tax effects of the adjustment was recorded in the three-month and nine-month periods ending January 29, 2017.

~~14.~~21. Statutory Reserves

Our subsidiaries located in China are required to transfer 10% of their 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 reaches 50% of the company’s registered capital.

The transfer to this reserve must be made before distributions of any dividend to shareholders. As of ~~January~~October 28, 2018, the company’s statutory surplus reserve was ~~$4.6~~$4.2 million, representing 10% of accumulated earnings and profits determined in accordance with PRC accounting rules and regulations. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and 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.

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Culp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Our subsidiaries located in China can transfer funds to the parent company with the exception of the statutory surplus reserve of ~~$4.6~~$4.2 million to assist with debt repayment, capital expenditures, and other expenses of the company’s business.

~~15.~~22. Commitments and Contingencies

Litigation

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

Accounts Payable – Capital Expenditures

At ~~January~~October 28, 2018, ~~January 29, 2017, and April 30, 2017,~~ we had total amounts due regarding capital expenditures totaling ~~$1.6 million, $5.6~~$114,000, which pertained to outstanding vendor invoices, none of which were financed. The total amount outstanding of $114,000 is required to be paid based on normal credit terms.

At October 29, 2017, and April 29, 2018, we had total amounts due regarding capital expenditures totaling $3.2 million and ~~$6.1~~$1.8 million, respectively, of which ~~$1.4 million, $4.5~~$2.7 million and ~~$5.1~~$1.4 million was financed and pertained to completed work for the construction of a new building (see below). ~~The total outstanding amount of $1.4 million due at January 28, 2018 is required to be paid in May 2018 (our fiscal 2019).~~

Purchase Commitments – Capital Expenditures

At ~~January~~October 28, 2018, we had open purchase commitments to ~~construct a building and~~ acquire equipment for our mattress fabrics segment totaling ~~$4.1 million. The $4.1 million includes $1.4 million (all of which represents completed work) associated with the construction of a new building discussed below.~~$826,000.

Mattress Fabric Building

Effective May 16, 2016, we entered into an agreement with a contractor to construct a new building located in North Carolina to expand our distribution capabilities and office space at a cost of $11.3 million. This agreement required an installment payment of $1.9 million that was made in April 2016, with additional installment payments ~~to be~~of $4.3 million that were made in ~~the following~~ fiscal ~~years: Fiscal 2017- $4.3 million; Fiscal 2018-~~2017, $3.7 ~~million;~~million that were made in fiscal 2018, and ~~Fiscal 2019 -~~a final installment payment of $1.4 ~~million.~~million made in May 2018 (first quarter of fiscal 2019). Interest iswas charged on the required outstanding installment payments for services that were previously rendered at a rate of $2.25% plus the current ~~30 day~~30-day LIBOR rate.

Also, we were required to issue a letter of a credit totaling $5.0 million with the contractor’s bank being the beneficiary. In addition to the interest charged on the outstanding installment payments noted above, there iswas a 0.1% unused fee calculated on the balance of the $5.0 million letter of credit less the amount outstanding per month (see Note 813 for further details).

This new building was placed into service in July ~~2017.~~

~~16. Investment in Unconsolidated Joint Venture~~

~~Effective January 1,~~ 2017 Culp International Holdings, Ltd. (Culp), a wholly-owned subsidiary of Culp, Inc., entered into a joint venture agreement, pursuant to which Culp owns fifty percent of CLASS International Holdings, Ltd (CLIH). CLIH produces cut and sewn mattress covers, and its operations are located in a modern industrial park in northeastern Haiti, which borders the Dominican Republic. CLIH commenced production during the second(first quarter of fiscal 2018 (October 2017) and complements our existing U.S. mattress fabric operations with a mirrored platform that further enhances our ability to meet customer demand while adding a lower cost operation to our platform.

2018).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the nine month period ended January 28, 2018, CLIH incurred a net loss totaling $498,000. Our equity interest in this net loss was $249,000, which represents the company’s fifty percent ownership in CLIH.

~~The following table summarizes information on assets, liabilities and members’ equity of our equity method investment in CLIH:~~

January 28, January 29, April 30,
(dollars in thousands) 2018 2017 2017
Total assets $ 3,186 $ 1,200 $ 2,258
Total liabilities $ 150 $ - $ 46
Total members’ equity $ 3,036 $ 1,200 $ 2,212

At January 28, 2018, January 29, 2017 and April 30, 2017, our investment in CLIH totaled $1.5 million, $600,000, and $1.1 million, respectively, which represents the company’s fifty percent ownership interest in CLIH.

~~17.~~23. Common Stock Repurchase Program

On June 15, 2016, we announced that 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 from time to time in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise. The amount of shares purchased and the timing of such purchases will be based on working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities.

During the ~~nine months~~six-month period ended ~~January~~October 28, 2018, ~~and January~~we purchased 36,880 shares of our common stock at a cost of $844,000. During the six-month period ended October 29, 2017, we did not purchase any shares of our common stock.

At ~~January~~October 28, 2018, we had ~~$5.0~~$4.2 million available for repurchases of our common stock.

~~18.~~24. Dividend Program

On ~~February 28,~~November 29, 2018, we announced that our board of directors approved aan increase in the quarterly cash dividend offrom $0.09 to $0.10 per ~~share, a 12.5% increase compared with $0.08 per share announced for the same period last year.~~share. This payment will be made on or about ~~April~~January 16, ~~2018,~~2019, to shareholders of record as of ~~April~~January 2, ~~2018.~~2019.

During the nine months ended January 29, 2017, dividend payments totaled $5.3 million, of which $2.6 million represented a special cash dividend payment of $0.21 per share, and $2.7 million represented quarterly dividend payments ranging from $0.07 per share to $0.08 per share.

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~~Culp, Inc.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Future dividend payments are subject to board approval and may be adjusted at the board’s discretion as business needs or market conditions change.

~~19. Business Combination - Upholstery Fabrics Segment~~

~~On March 8, 2018, we reached a definitive agreement to acquire Read Window Products, Inc. (Read), a source for custom window treatments for the hospitality and commercial industries. B~~ased in Knoxville, Tennessee, Read is a turn-key provider of window treatments offering measuring, sourcing, fabrication and installation services. Read’s custom product line includes motorization, shades, drapery, upholstered headboards and shower curtains. In addition, they supply soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, holsters and pillows, for leading hospitality brands worldwide. Read has been in business since 1981, with annual revenues of approximately $11.0 million in 2017. We currently expect to fund the acquisition with cash and investments on hand without incurring any additional debt, with closing expected to occur by the end of March, subject to the satisfaction of customary closing conditions.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This report and the exhibits attached hereto contain “forward-looking statements” within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934). Such statements are inherently subject to risks and uncertainties. Further, forward looking statements are intended to speak only as of the date on which they are made, and we disclaim any duty to update or alter such statements ~~whether as a result of~~due to new information, future events, or otherwise. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often but not always characterized by qualifying words such as “expect,” “believe,” “estimate,” “plan,” and “project,” ~~“anticipate,” “depend”~~ and their derivatives, and include but are not limited to statements about expectations for our future operations, production levels, sales, profit margins, profitability, operating income, capital expenditures, working capital levels, income taxes, SG&A or other expenses, pre-tax income, earnings, cash flow, and other performance or liquidity measures, as well as any statements regarding potential acquisitions, future economic or industry trends or future developments. Factors that could influence the matters discussed in such statements include the level of housing starts and sales of existing homes, consumer confidence, trends in disposable income, and general economic conditions, as well as our success in finalizing acquisition ~~negotiations.~~negotiations and integrating acquired business into our existing operations. Decreases in these economic indicators could have a negative effect on our business and prospects. Likewise, increases in interest rates, particularly home mortgage rates, and increases in consumer debt or the general rate of inflation, could affect us adversely. Changes in consumer tastes or preferences toward products not produced by us could erode demand for our products. Changes in tariffs or trade policy, or changes in the value of the U.S. dollar versus other currencies ~~can~~could affect our financial results because a significant portion of our operations are located outside the United States. Strengthening of the U.S. dollar against other currencies could make our products less competitive on the basis of price in markets outside the United States, and strengthening of currencies in Canada and China can have a negative impact on our sales of products produced in those places. Also, economic and political instability in international areas could affect our operations or sources of goods in those areas, as well as demand for our products in international markets. Finally, increases in market prices for petrochemical products can significantly affect the prices we pay for raw materials, and in turn, increase our operating costs and decrease our profitability. Further information about these factors, as well as other factors that could affect our future operations or financial results and the matters discussed in forward-looking statements, are included in Item 1A “Risk Factors” section in our Form 10-K filed with the Securities and Exchange Commission on July ~~14, 2017,~~13, 2018, for the fiscal year ended April ~~30, 2017.~~29, 2018.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following analysis of financial condition and results of operations should be read in conjunction with the Financial Statements and Notes and other exhibits included elsewhere in this report.

General

Our fiscal year is the 52 or ~~53 week~~53-week period ending on the Sunday closest to April 30. The ~~nine months~~six-months ended ~~January~~October 28, 2018, and ~~January~~October 29, 2017, each represent ~~39-week~~26-week periods. Our operations are classified into two business segments: mattress fabrics and upholstery fabrics. The mattress fabrics segment ~~manufacturers,~~manufactures, sources and sells fabrics and mattress covers to bedding manufacturers. ~~The upholstery fabrics segment develops, manufacturers, and sells fabrics primarily to residential and commercial furniture manufacturers.~~ We have wholly owned mattress fabric operations ~~that are~~ located in Stokesdale, NC, High Point, NC, and Quebec, Canada, and a fifty percent owned cut and sew mattress cover operation located in Haiti. Additionally, with the recent acquisition of eLuxury, LLC (eLuxury), we now have a majority owned company located in Evansville, IN, that offers bedding accessories and home goods directly to consumers. The upholstery fabrics segment develops, manufactures, and sells fabrics primarily to residential and commercial furniture manufacturers. We have wholly owned upholstery fabric operations ~~that are~~ located in Shanghai, China and Burlington, ~~NC,~~NC. With the recent acquisition of Read, we now have a wholly owned company located in Knoxville, TN, that provides window treatments that Read offers sourcing of upholstery fabrics and other products, measuring, as well as installation services of their own products to customers in the hospitality and commercial industries. The company operated an upholstery fabrics plant facility in Anderson, ~~SC.~~SC during the first quarter of fiscal 2019, which has since been closed during the second quarter of fiscal 2019.

We evaluate the operating performance of our segments based upon income from operations before certain unallocated corporate expenses, restructuring expense (credit) and related charges, and other non-recurring items. Cost of sales in both segments include costs to manufacture, ~~source,~~develop, or ~~develop~~source our products, including costs such as raw material costs and finished goods purchases, direct and indirect labor, overhead and incoming freight charges. Unallocated corporate expenses primarily represent ~~primarily~~ compensation and benefits for certain executive officers, all costs ~~related to~~associated with being a public company, and other miscellaneous expenses.

~~Executive Summary~~

~~Results of Operations~~

Three Months Ended
(dollars in thousands) January 28, 2018 January 29, 2017 Change
Net sales $ 85,310 $ 76,169 12.0 %
Gross profit 17,603 16,759 5.0 %
Gross profit margin 20.6 % 22.0 % (140 )bp
SG&A expenses 9,959 9,824 1.4 %
Income from operations 7,644 6,935 10.2 %
Operating margin 9.0 % 9.1 % (10 )bp
Income before income taxes 7,516 6,990 7.5 %
Income taxes 8,208 643 N.M.
Net (loss) income (748 ) 6,347 N.M.

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Nine Months Ended
(dollars in thousands) January 28, 2018 January 29, 2017 Change
Net sales $ 245,541 $ 232,194 5.7 %
Gross profit 49,873 52,079 (4.2 )%
Gross profit margin 20.3 % 22.4 % (210 )bp
SG&A expenses 28,876 29,171 (1.0 )%
Income from operations 20,997 22,908 (8.3 )%
Operating margin 8.6 % 9.9 % (130 )bp
Income before income taxes 20,416 22,696 (10.0 )%
Income taxes 11,956 6,560 82.3 %
Net income 8,211 16,136 (49.1 )%

Executive Summary

Results of Operations

	Three Months Ended
(dollars in thousands)	October 28, 2018			October 29, 2017			Change
Net sales	$	77,006		$	80,698			(4.6	)%
Gross profit		13,326			15,804			(15.7	)%
Gross profit margin		17.3	%		19.6	%		(230	)bp
SG&A expenses		10,103			9,415			7.3	%
Income from operations		4,284			6,389			(32.9	)%
Operating margin		5.6	%		7.9	%		(230	)bp
Income before income taxes		4,275			6,159			(30.6	)%
Income taxes		1,276			2,108			(39.5	)%
Net income		2,944			3,976			(26.0	)%
Net income attributable to Culp Inc common shareholders		2,933			3,976			(26.2	)%

	Six Months Ended
(dollars in thousands)	October 28, 2018			October 29, 2017			Change
Net sales	$	148,479		$	160,230			(7.3	)%
Gross profit		23,885			32,268			(26.0	)%
Gross profit margin		16.1	%		20.1	%		(400	)bp
SG&A expenses		18,136			18,916			(4.1	)%
Income from operations		6,359			13,352			(52.4	)%
Operating margin		4.3	%		8.3	%		(400	)bp
Income before income taxes		6,223			12,900			(51.8	)%
Income taxes		2,182			3,748			(41.8	)%
Net income		3,909			8,959			(56.4	)%
Net income attributable to Culp Inc common shareholders		3,890			8,959			(56.6	)%

Net Sales

Overall, our net sales ~~increased during our third~~for the second quarter ~~and year-to-date period~~ of fiscal ~~2018~~2019 decreased by 4.6% compared with the same ~~periods~~period a year ~~ago. These results reflect our strategic focus on product innovation~~ago, with mattress fabric sales declining 13.6% and ~~creativity and ability to provide a diverse product mix that can meet the changing demands of our customers in both business segments. Net~~upholstery fabrics increasing 9.1%. Our net sales for ~~our~~the first half of fiscal 2019 decreased by 7.3% compared with the same period a year ago, with mattress fabrics ~~segment showed year-over-year improvement, in spite of a more challenging marketplace~~decreasing 18.6% and ~~weather-related disruptions. Net sales for our~~ upholstery fabrics ~~segment~~increasing 10.0%.

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The decrease in mattress fabrics sales reflects the ongoing challenges facing the bedding industry, related to the significant increase of low-priced imported mattresses from China. In anticipation of both increased astariffs on mattresses and the ~~Chinese New Year holiday occurred entirely in February this fiscal year.~~anti-dumping petition that was approved by the United States International Trade Commission (ITC) on November 1, 2018, we believe that a number of companies and retailers accelerated orders and promotions of low-priced imported mattresses. As a result, ~~many of~~we experienced reduced demand for mattress fabric and sewn covers from our ~~customers shifted more of their purchases into January,~~customers.

The increase in ~~advance of plant shutdowns~~upholstery fabric net sales for fiscal 2019 primarily relates to the net sales contribution from Read, acquired on April 1, 2018, partially offset by a decrease in ~~order to meet anticipated demand. We currently expect this pace to slow down~~sales associated with our closed facility located in ~~the fourth quarter with the disruption of February production in China.~~Anderson, SC.

See the Segment Analysis section below for further details.

Income Before Income Taxes

~~Although our net sales were higher in the third quarter and year-to-date period of fiscal 2018, our~~Overall, income before income taxes ~~was relatively flat in~~decreased for the ~~third~~second quarter and ~~we experienced a~~first half of fiscal 2019, due primarily to the decrease in ~~our~~ sales of mattress fabrics noted above.

Additionally, income before income taxes ~~for~~ was affected by a non-recurring credit of $543,000 in the ~~year-to-date period. These results reflect higher operating costs associated with our upholstery fabric operations located~~second quarter and a charge of $1.5 million in China due to unfavorable foreign currency exchange rates that mostly occurred during our third quarter of fiscal 2018 and disruptions from the consolidation of our U.S. mattress fabric production facilities that occurred during the first half of fiscal ~~2018.~~2019, both of which related to the closure of our upholstery fabrics operation located in Anderson, SC, and other non-recurring charges associated with the mattress fabrics segment.

See the Segment Analysis section below for further details.

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Income Taxes

~~The increases in our~~We recorded income tax expense ~~and~~of $2.2 million, or 35.1% of income before income taxes, for the first half of fiscal 2019 compared with income tax expense of $3.7 million, or 29.1% of income before income taxes, for the same period a year ago. The increase in our effective income tax rate ~~for the third quarter and the year-to-date period of fiscal 2018 are mostly~~was primarily due to ~~a provisional charge~~the mix of $5.9 million, or $0.48 per diluted share, related to the 2017 Tax Cuts and Jobs Act (the “Tax Act”). The $5.9 million charge includes a provisional $4.8 million charge for the mandatory repatriation tax on undistributedpre-tax earnings ~~associated with~~favoring our foreign ~~subsidiaries,~~jurisdictions that are taxed at higher income and ~~a $1.1 million provisional charge that pertains~~withholding tax rates compared to ~~the revaluation of our U.S. deferred income taxes and reduction in~~ the U.S. federal ~~corporate income tax~~statutory rate ~~pursuant the Tax Act. In order to determine the $5.9 million charge associated with the Tax Act, estimates were required based on projections~~ of our U.S. taxable income, capital expenditures, working capital, employee compensation and cash flow requirements of the company’s U.S. parent and foreign subsidiaries. These estimates may change based on actual versus projected results. Revisions to the company’s estimates will be recorded during the measurement period allowed by the Securities and Exchange Commission, which is not to extend beyond one year from the enactment date of December 22, 2017.

Additionally, income tax expense in the third quarter and year-to-date period of fiscal 2017 included an income tax benefit of $2.1 million for the reversal of an uncertain income tax position associated with a foreign jurisdiction in which the statute of limitations expired.21%.

Refer to Note 1319 located in the notes to the consolidated financial statements for further details regarding our provision for income taxes.

Liquidity

At ~~January~~October 28, 2018, our cash and investments (which ~~comprises~~comprise cash and cash equivalents, short-term investments (available for sale)), and short-term and long-term investments (held-to-maturity), totaled ~~$55.7~~$41.5 million at October 28, 2018, compared with ~~$54.2~~$54.5 million at April ~~30, 2017.~~29, 2018. Additionally, ~~there were no~~we did not have any outstanding borrowings ~~outstanding under~~on our ~~revolving~~lines of credit ~~agreements~~ as of ~~January~~October 28, ~~2018, and April 30, 2017, respectively.~~2018.

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The ~~increase~~decrease in our cash and investments from the end of fiscal ~~2017~~2018 was primarily due to ~~net~~ cash ~~provided by operating activities~~payments of ~~$21.5~~$12.1 million ~~partially offset by~~for acquisitions, capital expenditures ~~of $10.4~~totaling $3.5 million (of which ~~$3.8~~$1.4 million was vendor-financed) that were mostly associated with our mattress ~~fabric~~fabrics segment, ~~returning $5.7~~$3.1 million returned to our shareholders primarily in the form of ~~regularly~~our regular quarterly ~~and special~~cash dividend payments ~~$1.7 million in long-term investment purchases associated with our Rabbi Trust that funds our deferred compensation plan,~~ and ~~$1.5~~common stock share repurchases, and $1.3 million in employee withholding tax payments associated with the vesting of certain stock-based compensation ~~awards.~~awards, partially offset by net cash provided by operating activities totaling $6.6 million.

Our net cash provided by operating activities of ~~$21.5~~$6.6 million during the ~~year-to-date period~~first half of fiscal ~~2018~~2019 decreased from ~~$24.7~~$10.2 million during the same period a year ago. ~~The~~This decrease ~~was~~is primarily due to ~~decreased income from operations and increased inventory~~the decrease in earnings, partially offset by a decrease in working capital requirements ~~associated with higher net sales and timing~~as of result of the ~~Chinese New Year holiday experienced by our China operations during the third quarter of fiscal 2018.~~

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decreased business volume noted above.

See the Liquidity section below for further details.

Dividend and Common Stock Repurchase Programs

On ~~February 28,~~November 29, 2018, we announced that our board of directors approved aan increase in the quarterly cash dividend offrom $0.09 to $0.10 per ~~share, a 12.5% increase, compared with $0.08 per share announced for the same period last year.~~share. This payment will be made on or about ~~April~~January 16, ~~2018,~~2019, to shareholders of record as of ~~April~~January 2, ~~2018.~~2019.

During the ~~nine months~~six-months ended ~~January~~October 28, 2018, dividend payments totaled ~~$5.7~~$2.3 million, which represented quarterly dividend payments of $0.09 per share. During the six months ended October 29, 2017, dividend payments totaled $4.6 million, of which $2.6 million represented a special cash dividend payment of $0.21 per share, and ~~$3.1~~$2.0 million represented quarterly dividend payments ~~ranging from $0.08 per share to $0.09 per share. During the nine months ended January 29, 2017, dividend payments totaled $5.3 million,~~ of ~~which $2.6 million represented a special cash dividend payment of $0.21 per share, and $2.7 million represented quarterly dividend payments ranging from $0.07 per share to~~ $0.08 per share.

During the ~~nine months~~six month period ended ~~January~~October 28, 2018, ~~and January~~we purchased 36,880 shares of our common stock at a cost of $844,000. During the six month period ended October 29, 2017, we did not purchase any shares of our common stock. At ~~January~~October 28, 2018, we had ~~$5.0~~$4.2 million available ~~under the share repurchase program approved by~~for repurchases of our ~~board of directors in June 2016.~~common stock.

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Segment Analysis

Mattress Fabrics Segment

Three Months Ended
(dollars in thousands) January 28, 2018 January 29, 2017 Change

Net sales $ 49,042 $ 45,920 6.8 %
Gross profit 10,146 9,758 4.0 %
Gross profit margin 20.7 % 21.3 % (60 )bp
SG&A expenses 3,309 3,391 (2.4 )%
Income from operations 6,837 6,367 7.4 %
Operating margin 13.9 % 13.9 % -

	Nine Months Ended									Three Months Ended
(dollars in thousands)	January 28, 2018			January 29, 2017			Change			October 28, 2018			October 29, 2017			Change

Net sales	$	146,072		$	141,977			2.9	%	$	41,989		$	48,601			(13.6	)%
Gross profit		29,641			32,414			(8.6	)%		7,498			9,730			(22.9	)%
Gross profit margin		20.3	%		22.8	%		(250	)bp		17.9	%		20.0	%		(210	)bp
SG&A expenses		9,868			10,185			(3.1	)%		4,566			3,168			44.1	%
Non-recurring charges											248			-			100.0	%
Income from operations		19,774			22,229			(11.0	)%		2,932			6,562			(55.3	)%
Operating margin		13.5	%		15.7	%		(220	)bp		7.0	%		13.5	%		(650	)bp

	Six Months Ended
(dollars in thousands)	October 28, 2018			October 29, 2017			Change

Net sales	$	78,972		$	97,030			(18.6	)%
Gross profit		13,470			19,495			(30.9	)%
Gross profit margin		17.1	%		20.1	%		(300	)bp
SG&A expenses		7,714			6,559			17.6	%
Non-recurring charges		248			-			100.0	%
Income from operations		5,755			12,936			(55.5	)%
Operating margin		7.3	%		13.3	%		(600	)bp

Net Sales

~~Net sales associated with our~~The decreases in mattress fabrics ~~segment increased during~~sales for the ~~third~~second quarter and ~~the year-to-date periods~~first half of fiscal 2019 reflect the ongoing challenges facing the bedding industry related to the significant increase of low-priced imported mattresses from China. In anticipation of both increased tariffs on mattresses and the anti-dumping petition that was approved by the United States International Trade Commission (ITC) on November 1, 2018, ~~compared with the same periods~~we believe that a ~~year ago. These results reflect our strategic focus on product innovation~~number of companies and ~~creativity~~retailers accelerated orders and ~~ability to provide a diverse product mix that meets the changing demands~~promotions of ~~our customers.~~low-priced imported mattresses. As a result, we ~~have been able~~experienced reduced demand for mattress fabric and sewn covers from our customers.

Currently, we expect the ongoing challenges in the mattress industry continue to ~~increase~~affect short-term demand trends and operating performance. While we are pleased to see the anti-dumping petition approved, and we are beginning to see some positive developments, it is uncertain when demand trends will return to normal levels. We believe expected punitive measures against Chinese importers will ultimately benefit our ~~net sales in spite of an uncertain marketplace, seasonal holiday plant closures,~~customers and ~~some additional weather-related disruptions that occurred at the end of the third quarter.~~

our business.

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Our net sales for fiscal 2018 reflected continued growth in our mattress cover business known as CLASS. The growth in CLASS has allowed us to expand our business with both traditional customers and also reach new customer markets, especially the fast growing boxed bedding space.

Our recent joint venture (known as Class International Holdings Ltd.) produces mattress covers in a facility located in Haiti and complements our existing U.S. mattress fabric operations with a mirrored platform that enhances our ability to meet customer demand and remain cost-competitive. We have commenced production and started to ship products from Haiti, and we plan to gradually add more capacity to meet expected customer demand. (Refer to Note 16 located in the notes to the consolidated financial statements for further details regarding the investment in our unconsolidated joint venture).

We also have the ability to utilize our fabric and cut and sew platform located in China to expand our mattress cover business to new markets. We believe with the transformation of our North American operations (see discussion below in the Gross Profit and Operating Income section) and our global production facilities for both fabric and sewn covers, we are well positioned to meet expected demand in all segments of the mattress fabric marketplace.

Gross Profit and Operating Income

~~Operational performance improved during~~Our operating profits declined in the third quarter following the completion of a period of major transformation across our North American manufacturing operations, which included significant capital investment projects and supply chain enhancements. With our capital improvement projects and facility equipment relocations behind us, we have started to realize improved operating efficiencies with favorable results. Operating margins sequentially improved during fiscal 2018 as operating margins were 13.1%, 13.5%, and $13.9% for the first quarter, second quarter and ~~third quarter, respectively.~~first half of fiscal 2019 compared with the same periods a year ago, due primarily to the decrease in net sales noted above. In addition, we had a non-recurring charge of $248,000 relating to employee termination benefits and other operational reorganization costs.

Over the past several years, we have invested substantially in creating a sustainable and efficient platform with enhanced capacity and distribution capabilities. We are focused on maximizing the efficiency of our operations and aligning our costs with current and expected demand trends. We have reduced our capital expenditure budget and deferred certain capital projects that were originally expected to be completed in fiscal 2019.

eLuxury, LLC (eLuxury)

Overview

Effective June 22, 2018, we entered an Equity Purchase Agreement (Equity Agreement) pursuant to which we acquired an initial 80% ownership interest in 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 and, cotton bed sheets, as well as other bedding items. Their products are available on eLuxury’s own branded website, eLuxury.com, Amazon, and other leading online retailers for specialty home goods.

We believe this acquisition will provide a new sales channel for bedding accessories and will expand our opportunity to participate in the e-commerce direct-to-consumer space. This business combination brings together eLuxury’s experience in e-commerce, online brand building, and direct-to-consumer shopping and fulfillment expertise with our global production, sourcing, and distribution capabilities. We also have an opportunity to market our new line of bedding accessories, marketed under the brand name, “Comfort Supply Company by Culp”, as well as other finished products that we may develop, through this e-commerce platform.

The estimated consideration given for the initial 80% ownership interest in eLuxury totaled $18.1 million, of which $12.5 million represents the estimated purchase price and $5.6 million represents the fair value for contingent consideration associated with an earn-out obligation (see below for further details). Of the $12.5 million estimated purchase price, $11.6 million was paid at closing on June 22, 2018, $185,000 was paid in August 2018, and $749,000 is to be paid in September 2019, subject to certain conditions as defined in the Equity Agreement.

I - 48

Assets Acquired and Liabilities Assumed

The following table presents the preliminary allocation of the acquisition cost to the assets acquired and liabilities assumed based on their fair values.

(dollars in thousands)	Fair Value
Goodwill	$	13,653
Tradename		6,549
Equipment		2,179
Inventory		1,804
Accounts receivable and other current assets		108
Accounts payable		(1,336	)
Accrued expenses		(295	)
Non-controlling interest in eLuxury		(4,532	)
	$	18,130

The estimated fair values of goodwill and tradename are provisional and are based on the information that was currently available to estimate their fair values. We believe that information provides a reasonable basis for estimating the fair values of goodwill and tradename, but we are waiting for additional information necessary to finalize those fair values. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.

As mentioned above, the Equity Agreement contains a contingent consideration arrangement that requires us to pay the seller, who is also the shareholder of the noncontrolling interest, an earn-out payment based on a multiple of adjusted EBITDA for the twelve-month period ending August 31, 2021, less $12.0 million, as defined in the Equity Agreement. 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.

Consolidation and Non-Controlling Interest

As result of the acquisition of our 80% controlling interest, we included all the accounts of eLuxury in our consolidated financial statements and have eliminated all significant intercompany balances and transactions. Net income (loss) attributable to the minority interest in eLuxury is excluded from total consolidated net income (loss) to arrive at net income (loss) attributable to Culp Inc. common shareholders.

Other

Acquisitions costs totaling $270,000 were in included in selling, general, and administrative expenses in our Consolidated Statement of Net Income for the six-month period ending October 28, 2018.

I - 49

Segment assets

Segment assets consist of accounts receivable, inventory, property, plant and equipment, and our investment in an unconsolidated joint ~~venture, goodwill, a non-compete agreement and customer relationships associated with an acquisition.~~venture.

(dollars in thousands)	October 28, 2018		October 29, 2017		April 29, 2018
Accounts receivable	$	10,740	$	13,645	$	15,195
Inventory		29,836		29,083		28,740
Property, plant & equipment Investment in unconsolidated joint venture		48,825 1,470		49,965 1,522		48,797 1,501

~~I - 36~~

Refer to Note 18 located in the notes to the consolidated financial statements for disclosures regarding determination of our segment assets.

NORTH CAROLINA	56-1001967
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or other organization)

1823 Eastchester Drive
High Point, North Carolina	27265-1402
(Address of principal executive offices)	(zip code)

~~1823 Eastchester Drive~~
~~High Point, North Carolina~~	~~27265-1402~~
~~(Address of principal executive offices)~~	~~(zip code)~~


~~Item 1.~~	~~Financial Statements: (Unaudited)~~
	Consolidated Statements of Net ~~(Loss)~~ Income — Three and ~~Nine~~Six Months Ended October 28, 2018 and October 29, 2017	I-1
	~~Ended January 28, 2018 and January 29, 2017~~	~~I-1~~

	Consolidated Statements of Comprehensive ~~(Loss)~~ Income – Three and ~~Nine~~Six Months Ended October 28, 2018 and October 29, 2017	I-2
	~~Months Ended January 28, 2018 and January 29, 2017~~	~~I-2~~

	Consolidated Balance Sheets — ~~January~~October 28, 2018, ~~January~~October 29, 2017, and
	April ~~30, 2017~~29, 2018	I-3

	Consolidated Statements of Cash Flows — ~~Nine~~Six Months Ended ~~January~~October 28, 2018 and October 29, 2017	I-4
	~~2018 and January 29, 2017~~

	Consolidated Statements of Shareholders’ Equity	I-5

	Notes to Consolidated Financial Statements	I-6

	Cautionary Statement Concerning Forward-Looking Information	~~I-30~~ I-42

Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	I-43
	~~Operations~~	~~I-31~~

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	~~I-50~~

~~Item 4.~~I-62	~~Controls and Procedures~~	~~I-50~~


Item 4. Controls and Procedures		I-62

	Part II - Other Information

Item 1. Legal Proceedings		II-1

Item 1.1A. Risk Factors		~~Legal Proceedings~~	II-1

Item ~~1A.~~		~~Risk Factors~~	~~II-1~~

~~Item 2~~	2. Unregistered Sales of Equity Securities and Use of Proceeds	~~II-1~~

~~Item 6.~~	~~Exhibits~~	~~II-2~~

~~Signatures~~II-2		~~II-3~~


Item 6. Exhibits		II-3

Signatures		II-4


(dollars in thousands)	October 28, 2018			October 29, 2017			April 29, 2018
Customers	$	24,956		$	25,593		$	28,097
Allowance - doubtful accounts		(388	)		(374	)		(357	)
Allowance - cash discounts		(164	)		(188	)		(245	)
Allowance - sales returns & allowances (1)		(42	)		(811	)		(1,188	)
	$	24,362		$	24,220		$	26,307


	Six months ended
(dollars in thousands)	October 28, 2018			October 29, 2017
Beginning balance	$	(1,433	)	$	(1,220	)
Adoption of ASC Topic 606 (1)		1,145			-
Provision for returns, allowances and discounts		(1,080	)		(1,330	)
Credits issued		1,162			1,551
Ending balance	$	(206	)	$	(999	)


				Adjustments Due to				Balances Without
(dollars in thousands)	October 28, 2018			ASC 606 Adoption (1)				ASC 606 Adoption

Balance Sheet
Assets:
Accounts Receivable		$	24,362		$	(1,094	)		$	23,268
Other Current Assets			2,461			(30	)			2,431

Liabilities:
Accrued Expenses		$	8,670			(1,124	)		$	7,546


	THREE MONTHS ENDED

	January 28,				January 29,
	2018				2017

Net sales		$	85,310			76,169
Cost of sales			67,707			59,410
Gross profit			17,603			16,759

Selling, general and
administrative expenses			9,959			9,824
Income from operations			7,644			6,935

Interest expense			31			-
Interest income			(132	)		(124	)
Other expense			229			69
Income before income taxes			7,516			6,990

Income taxes			8,208			643

Loss from investment in unconsolidated joint venture			56			-
Net (loss) income		$	(748	)		6,347

Net (loss) income per share, basic		$	(0.06	)		0.52
Net (loss) income per share, diluted		$	(0.06	)		0.51
Average shares outstanding, basic			12,436			12,313
Average shares outstanding, diluted			12,436			12,544


	NINE MONTHS ENDED

			January 28,			January 29,
			2018			2017

Net sales		$	245,541			232,194
Cost of sales			195,668			180,115
Gross profit			49,873			52,079

Selling, general and
administrative expenses			28,876			29,171
Income from operations			20,997			22,908

Interest expense			69			-
Interest income			(391	)		(164	)
Other expense			903			376
Income before income taxes			20,416			22,696

Income taxes			11,956			6,560

Loss from investment in unconsolidated joint venture			249			-
Net income		$	8,211			16,136

Net income per share, basic		$	0.66			1.31
Net income per share, diluted		$	0.65			1.29
Average shares outstanding, basic			12,425			12,302
Average shares outstanding, diluted			12,626			12,517

See accompanying notes to consolidated financial statements.

CULP, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 28, 2018, JANUARY 29, 2017 AND APRIL 30, 2017
UNAUDITED
(Amounts in Thousands)

	January 28,		January 29,			* April 30,
	2018		2017			2017
Current assets:
Cash and cash equivalents	$	22,428		15,659			20,795
Short-term investments - Available for Sale		2,472		2,410			2,443
Short-term investments - Held-To-Maturity		17,206		-			-
Accounts receivable, net		26,097		22,726			24,577
Inventories		55,651		46,193			51,482
Other current assets		3,114		2,514			2,894
Total current assets		126,968		89,502			102,191

Property, plant and equipment, net		51,838		50,333			51,651
Goodwill		11,462		11,462			11,462
Deferred income taxes		1,942		422			419
Long-term investments - Held-To-Maturity		13,625		30,832			30,945
Long-term investments - Rabbi Trust		7,176		5,488			5,466
Investment in unconsolidated joint venture		1,518		600			1,106
Other assets		2,315		2,417			2,394
Total assets	$	216,844		191,056			205,634

Current liabilities:
Accounts payable-trade	$	32,434		22,352			29,101
Accounts payable - capital expenditures		1,554		4,886			4,767
Accrued expenses		8,842		10,511			11,947
Income taxes payable - current		1,580		217			287
Total current liabilities		44,410		37,966			46,102

Accounts payable - capital expenditures		-		708			1,322
Income taxes payable - long-term		10,940		1,817			467
Deferred income taxes		2,096		2,924			3,593
Deferred compensation		7,216		5,327			5,520

Total liabilities		64,662		48,742			57,004

Commitments and Contingencies (Note 15)

Shareholders' equity
Preferred stock, $0.05 par value, authorized
10,000,000		-		-			-
Common stock, $0.05 par value, authorized
40,000,000 shares, issued and outstanding
12,450,276 at January 28, 2018; 12,314,756
at January 29, 2017; and 12,356,631 at
April 30, 2017		623		615			618
Capital contributed in excess of par value		48,413		46,365			47,415
Accumulated earnings		103,090		95,391			100,601
Accumulated other comprehensive income (loss)		56		(57	)		(4	)
Total shareholders' equity		152,182		142,314			148,630

Total liabilities and shareholders' equity	$	216,844		191,056			205,634

* Derived from audited financial statements.

See accompanying notes to consolidated financial statements.

CULP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 28, 2018 AND JANUARY 29, 2017
UNAUDITED
(Amounts in Thousands)

	NINE MONTHS ENDED

	January 28,			January 29,
	2018			2017

Cash flows from operating activities:
Net income	$	8,211			16,136
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation		5,679			5,304
Amortization of assets		248			162
Stock-based compensation		2,422			2,619
Deferred income taxes		(3,020	)		3,533
Realized loss on sale of short-term investments (Available for Sale)		-			12
Gain on sale of equipment		-			(71	)
Loss from investment in unconsolidated joint venture		249			-
Foreign currency exchange loss (gain)		133			(18	)
Changes in assets and liabilities:
Accounts receivable		(923	)		340
Inventories		(3,275	)		(137	)
Other current assets		(27	)		90
Other assets		(37	)		51
Accounts payable - trade		1,715			(946	)
Accrued expenses and deferred compensation		(1,608	)		(668	)
Income taxes		11,702			(1,695	)
Net cash provided by operating activities		21,469			24,712

Cash flows from investing activities:
Capital expenditures		(6,657	)		(9,253	)
Investment in unconsolidated joint venture		(661	)		(600	)
Proceeds from the sale of equipment		6			80
Proceeds from the sale of short-term investments (Available for Sale)		-			2,000
Purchase of short-term investments (Available for Sale)		(37	)		(8	)
Purchase of long-term investments (Held-To-Maturity)		-			(31,050	)
Proceeds from the sale of long-term investments (Rabbi Trust)		57			-
Purchase of long-term investments (Rabbi Trust)		(1,699	)		(1,431	)
Premium payment on life insurance policy		(18	)		(18	)
Net cash used in investing activities		(9,009	)		(40,280	)

Cash flows from financing activities:
Proceeds from line of credit		10,000			7,000
Payments on line of credit		(10,000	)		(7,000	)
Payments on vendor-financed capital expenditures		(3,750	)		(1,050	)
Dividends paid		(5,722	)		(5,292	)
Common stock surrendered for withholding taxes payable		(1,530	)		(280	)
Payments on debt issuance costs		-			(2	)
Proceeds from common stock issued		111			37
Net cash used in financing activities		(10,891	)		(6,587	)

Effect of exchange rate changes on cash and cash equivalents		64			27

Decrease in cash and cash equivalents		1,633			(22,128	)

Cash and cash equivalents at beginning of period		20,795			37,787

Cash and cash equivalents at end of period	$	22,428			15,659

See accompanying notes to consolidated financial statements.

																								Shareholders' equity attributable to Culp Inc.
								Capital						Accumulated
								Contributed						Other			Total										Capital						Accumulated
		Common Stock						in Excess			Accumulated			Comprehensive			Shareholders’										Contributed						Other						Non-
		Shares			Amount			of Par Value			Earnings			(Loss) Income			Equity				Common Stock						in Excess			Accumulated			Comprehensive						Controlling		Total
Balance, May 1, 2016			12,265,489		$	614			43,795			84,547			(144	)	$	128,812
Net income			-			-			-			22,334			-			22,334
Stock-based compensation			-			-			3,358			-			-			3,358
Unrealized gain on investments			-			-			-			-			140			140
Excess tax benefit related to stock
based compensation			-			-			657			-			-			657
Common stock issued in connection with vesting
of performance based restricted stock units			49,192			2			(2	)		-			-			-
Fully vested common stock award			4,800			-			-			-			-			-
Common stock issued in connection with exercise															.
of stock options			68,000			3			585			-			-			588
Common stock surrendered for the cost of stock option
excercises and withholding taxes payable			(30,850	)		(1	)		(978	)		-			-			(979	)
Dividends paid			-			-			-			(6,280	)		-			(6,280	)
																					Shares			Amount			of Par Value			Earnings			(Loss) Income			Total			Interest		Equity
Balance, April 30, 2017 *			12,356,631			618			47,415			100,601			(4	)		148,630				12,356,631		$	618			47,415			100,601			(4	)	$	148,630		$	-	$	148,630
Net income			-			-			-			8,211			-			8,211				-			-			-			20,877			-			20,877			-		20,877
Stock-based compensation			-			-			2,422			-			-			2,422				-			-			2,212			-			-			2,212			-		2,212
Unrealized gain on investments			-			-			-			-			60			60
Unrealized loss on foreign currency cash flow hedge																						-			-			-			-			(55	)		(55	)		-		(55	)
Unrealized loss on investments																						-			-			-			-			(26	)		(26	)		-		(26	)
Common stock issued in connection with vesting	Common stock issued in connection with vesting
of performance based restricted stock units			118,845			6			(6	)		-			-			-				118,845			6			(6	)		-			-			-			-		-
Fully vested common stock award			4,800			-			-			-			-			-				4,800			-			-			-			-			-			-		-
Common stock issued in connection with vesting	Common stock issued in connection with vesting
of time- based restricted stock unit			1,200			-			-			-			-			-
of time- based restricted stock units																						1,200			-			-			-			-			-			-		-
Common stock issued in connection with exercise	Common stock issued in connection with exercise																																	.
of stock options			15,600			1			110			-			-			111				15,600			1			110			-			-			111			-		111
Common stock surrendered for the cost of stock option
exercises and withholding taxes payable																						(46,800	)		(2	)		(1,528	)		-			-			(1,530	)		-		(1,530	)
Dividends paid																						-			-			-			(6,843	)		-			(6,843	)		-		(6,843	)
Balance, April 29, 2018 *																						12,450,276			623			48,203			114,635			(85	)		163,376			-		163,376
Net income																						-			-			-			3,890			-			3,890			19		3,909
Acquisition of subsidiary with non-controlling interest																						-			-			-			-			-			-			4,532		4,532
Stock-based compensation																						-			-			(106	)		-			-			(106	)		-		(106	)
Unrealized gain on foreign currency cash flow hedge																						-			-			-			-			56			56			-		56
Unrealized gain on investments																						-			-			-			-			91			91			-		91
Common stock issued in connection with vesting
of performance based restricted stock units																						115,917			6			(6	)		-			-			-			-		-
Common stock issued in connection with vesting
of time- based restricted stock units																						1,200			-			-			-			-			-			-		-
Fully vested common stock award																						3,600			-			-			-			-			-			-		-
Common stock surrendered for
withholding taxes payable			(46,800	)		(2	)		(1,528	)		-			-			(1,530	)			(42,157	)		(2	)		(1,290	)		-			-			(1,292	)		-		(1,292	)
Common stock repurchased																						(36,880	)		(2	)		(842	)		-			-			(844	)		-		(844	)
Dividends paid			-			-			-			(5,722	)		-			(5,722	)			-			-			-			(2,253	)		-			(2,253	)		-		(2,253	)
Balance, January 28, 2018			12,450,276		$	623			48,413			103,090			56		$	152,182

Balance, October 28, 2018																						12,491,956		$	625			45,959			116,272			62		$	162,918		$	4,551	$	167,469

* Derived from audited financial statements.	* Derived from audited financial statements.																			* Derived from audited financial statements.

See accompanying notes to consolidated financial statements.	See accompanying notes to consolidated financial statements.																			See accompanying notes to consolidated financial statements.

(dollars in thousands)	Fair Value
Customer relationships	$	2,247
Goodwill		2,107
Inventory		1,128
Accounts receivable		897
Tradename		683
Property, plant & equipment		379
Other assets		35
Deferred revenue		(903	)
Accounts payable		(719	)
Accrued expenses		(174	)
	$	5,680


	Three Months Ended
(dollars in thousands, except per share data)	October 28, 2018				October 29, 2017
Net Sales		$	77,006			$	88,760
Income from operations			4,284				6,675
Net income			2,944				4,100
Net income - noncontrolling interest			(11	)			(57	)
Net income – Culp Inc. common shareholders			2,933				4,043

Net income per share (basic) –
Culp Inc. common shareholders			0.23				0.33

Net income per share (diluted) –
Culp Inc. common shareholders			0.23				0.32



	Six Months Ended
(dollars in thousands, except per share data)	October 28, 2018				October 29, 2017
Net Sales		$	151,604			$	177,498
Income from operations			6,357				13,540
Net income			3,883				8,973
Net (income) loss - noncontrolling interest			(11	)			28
Net income – Culp Inc. common shareholders			3,872				9,001

Net income per share (basic) –
Culp Inc. common shareholders			0.31				0.72

Net income per share (diluted) –
Culp Inc. common shareholders			0.31				0.71


	Balance at			Adjustments Due to			Balance at
(dollars in thousands)	April 29, 2018			ASC 606 Adoption (1)			April 30, 2018
Balance Sheet
Assets:
Accounts Receivable		$	26,307		$	1,145		$	27,452
Other Current Assets			2,870			27			2,897
Liabilities:
Accrued Expenses			9,325			1,172			10,497

Net Sales

(dollars in thousands)	Mattress Fabrics			Upholstery Fabrics			Total
Products transferred at a point in time		$	41,989		$	31,877		$	73,866

Services transferred over time			-			3,140			3,140

Total Net Sales		$	41,989			35,017		$	77,006


	Six months ended October 28,
(dollars in thousands)	2018
Inventory markdowns	$	1,565
Employee termination benefits		513
Other operating costs associated with a closed facility		270
Gain on sale of equipment		(1,123	)
	$	1,225


	Six months ended October 28,
(dollars in thousands)	2018
Accrual established in fiscal 2019	$	451
Paid in fiscal 2019		(253	)
Adjustments in fiscal 2019		62
	$	260

		~~Page~~

	~~Part I - Financial Statements~~Page

	(Amounts in Thousands)
	Fair Values of Derivative Instruments
	October 28, 2018				April 29, 2018

Derivatives designated as hedging instruments under ASC Topic 815	Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
Euro Foreign Exchange Contract		Accrued Expenses		$-		Accrued Expenses		$55

Derivatives in ASC Topic 815 Net Investment Hedging Relationships	Amt of Gain (Loss) (net of tax) Recognized in OCI on Derivative (Effective Portion) and recorded in Accrued Expenses at Fair Value						Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)							Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain (loss) (net of tax) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)

	Six Months Ended October 28, 2018			Six Months Ended October 29, 2017				Six Months Ended October 28, 2018				Six Months Ended October 29, 2017				Six Months Ended October 28, 2018			Six Months Ended October 29, 2017

EURO Foreign Exchange Contract		$	56		$	-	Other Expense		$	(64	)		$	-	Other Expense		$	-		$	-


	Three months ended
	Otober 28, 2018			Otober 29, 2017
Net sales:
Mattress Fabrics	$	41,989		$	48,601
Upholstery Fabrics		35,017			32,097
	$	77,006		$	80,698
Gross profit:
Mattress Fabrics	$	7,498		$	9,730
Upholstery Fabrics		6,257			6,074
Total segment gross profit	$	13,755		$	15,804
Other non-recurring charges (1)		(159	)		-
Restructuring related charges (2)		(270	)		-
	$	13,326		$	15,804
Selling, general, and administrative expenses
Mattress Fabrics	$	4,566		$	3,168
Upholstery Fabrics		3,535			3,700
Total segment selling, general, and administrative expenses		8,101			6,868
Other non-recurring charges (1)		89			-
Unallocated corporate expenses		1,913			2,547
	$	10,103		$	9,415
Income from operations:
Mattress Fabrics	$	2,932		$	6,562
Upholstery Fabrics		2,722			2,374
Total segment income from operations		5,654			8,936
Unallocated corporate expenses		(1,913	)		(2,547	)
Other non-recurring charges (1)		(248	)		-
Restructuring credit and related charges (3)		791			-
Total income from operations		4,284			6,389
Interest expense		(18	)		(37	)
Interest income		151			128
Other expense		(142	)		(321	)
Income before income taxes	$	4,275		$	6,159


	Six months ended
	October 28,2018			October 29, 2017
Net sales:
Mattress Fabrics	$	78,972		$	97,030
Upholstery Fabrics		69,507			63,200
	$	148,479		$	160,230
Gross profit:
Mattress Fabrics	$	13,470		$	19,495
Upholstery Fabrics		12,410			12,773
Total segment gross profit	$	25,880		$	32,268
Other non-recurring charges (1)		(159	)		-
Restructuring related charges (4)		(1,836	)		-
	$	23,885		$	32,268
Selling, general, and administrative expenses
Mattress Fabrics	$	7,714		$	6,559
Upholstery Fabrics		7,161			7,511
Total segment selling, general, and administrative expenses		14,875			14,070
Other non-recurring charges (1)		89			-
Unallocated corporate expenses		3,172			4,846
	$	18,136		$	18,916
Income from operations:
Mattress Fabrics	$	5,755		$	12,936
Upholstery Fabrics		5,249			5,262
Total segment income from operations		11,004			18,198
Unallocated corporate expenses		(3,172	)		(4,846	)
Other non-recurring charges (1)		(248	)		-
Restructuring credit and related charges (5)		(1,225	)		-
Total income from operations		6,359			13,352
Interest expense		(38	)		(37	)
Interest income		301			259
Other expense		(399	)		(674	)
Income before income taxes	$	6,223		$	12,900

	2019	2018
Federal income tax rate	21.0%	34.0%
Foreign income tax rate differential	7.8	1.1
Tax effects of Chinese foreign exchange (losses) gains	2.8	(1.5)
Global Intangible Low Taxed Income Tax (GILTI)	2.1	-
Change in estimate of valuation allowance	1.2	0.7
Excess income tax deficiency (benefits)
related to stock-based compensation	0.5	(4.3)
Other	(0.3)	(0.9)
	35.1%	29.1%

				Fiscal 2019			Fiscal 2018
Closing price of our common stock	$	32.50		$	24.35		$	32.50
Expected volatility of our common stock		31.0	%		33.5	%		31.0	%
Expected volatility of peer companies		16.5	%		16.0	%		16.5	%
Risk-free interest rate		1.56	%		2.74	%		1.56	%
Dividend yield		1.66	%		1.35	%		1.66	%
Correlation coefficient of peer companies		0.46			0.47			0.46

		(3)
	Restricted Stock		Price Per		Vesting
Date of Grant	Units Awarded		Share		Period
July 13, 2017 (1)		78,195		$31.85(4)	3 years
July 13, 2017 (2)		44,000		$32.50(5)	3 years
July 14, 2016 (1) (2)		107,880		$28.00(5)	3 years
July 15, 2015 (1) (2)		107,554		$32.23(5)	3 years

	(3) Restricted Stock		Price Per				Vesting
Date of Grant	Units Awarded		Share				Period
August 2, 2018 (1)		86,599	$	18.51	(4	)	3 years
August 2, 2018 (2)		47,800	$	24.35	(6	)	3 years
July 13, 2017 (1)		78,195	$	31.85	(5	)	3 years
July 13, 2017 (2)		44,000	$	32.50	(6	)	3 years
July 14, 2016 (1) (2)		107,880	$	28.00	(6	)	3 years

			(3)
	Common Stock	Weighted Average		Price
Fiscal Year	Shares Vested	Fair Value		Per Share
Fiscal 2018 (1)	102,845		$1,820		$17.70 (4)
Fiscal 2018 (2)	16,000		$520		$32.50 (5)
Fiscal 2017 (1)	37,192		$637		$17.12 (4)
Fiscal 2017 (2)	12,000		$345		$28.77 (5)


Fiscal Year	Common Stock Shares Vested		(3) Weighted Average Fair Value		Price Per Share
Fiscal 2019 (1)		107,553	$	3,466	$	32.23	(4	)
Fiscal 2019 (2)		10,364	$	320	$	30.90	(5	)
Fiscal 2018 (1)		102,845	$	1,820	$	17.70	(4	)
Fiscal 2018 (2)		16,000	$	520	$	32.50	(5	)


dollars in thousands)	January 28, 2018		January 29, 2017		April 30, 2017
Raw materials	$	6,654	$	6,977	$	6,456
Work-in-process		3,151		3,161		3,095
Finished goods		45,846		36,055		41,931
	$	55,651	$	46,193	$	51,482

	January 28,			January 29,			April 30,
(dollars in thousands)	2018			2017			2017
Total assets		$	3,186		$	1,200		$	2,258
Total liabilities		$	150		$	-		$	46
Total members’ equity		$	3,036		$	1,200		$	2,212

(dollars in thousands)	January 28, 2018		January 29, 2017		April 30, 2017
Accounts receivable and inventory	$	42,195	$	41,498	$	47,038
Property, plant & equipment		49,289		47,755		48,916
Goodwill		11,462		11,462		11,462
Investment in unconsolidated joint venture		1,518		600		1,106
Non-compete agreement		722		847		828
Customer relationships		625		677		664

(dollars in thousands)	Three months ended October 28, 2018
Gain on sale of equipment	$	(1,124	)
Employee termination benefits		63
Other operating costs associated with a closed facility		270
	$	(791	)

(dollars in thousands)	Six months ended October 28, 2018
Inventory markdowns	$	1,566
Employee termination benefits		513
Other operating costs associated with a closed facility		270
Gain on sale of equipment		(1,124	)
	$	1,225

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
October 30, 2017 to December 3, 2017		-		-		-	$	5,000,000
December 4, 2017 to December 31, 2017		-		-		-	$	5,000,000
January 1, 2018 to January 28, 2018		-		-		-	$	5,000,000
Total		-		-		-	$	5,000,000

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 30, 2018 to September 2, 2018		2,603		24.03		2,603	$	4,865,640
September 3, 2018 to September 30, 2018		8,000		23.55		8,000	$	4,677,221
October 1, 2018 to October 28, 2018		23,287		22.45		23,287	$	4,154,528
Total		33,890		22.83		33,890	$	4,154,528

	~~The following exhibits are submitted as part of this report.~~

	31.1	Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

	31.2	Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

	32.1	Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

	32.2	Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

	101.INS	XBRL Instance Document

	101.SCH	XBRL Taxonomy Extension Schema Document

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

			CULP, ~~INC~~INC.
			(Registrant)


Date: ~~March 9,~~December 7, 2018	By:	/s/ Kenneth R. Bowling
		Kenneth R. Bowling
		Senior Vice President and Chief Financial Officer
		~~(Authorized~~(Authorized to sign on behalf of the registrant
		and also signing as principal financial officer)



	By:	/s/ Thomas B. Gallagher, JrJr.
		Thomas B. Gallagher, Jr.
		Corporate Controller
		(Authorized to sign on behalf of the registrant
		and also signing as principal accounting officer)

CULP, INC.

CONSOLIDATED STATEMENTS OF NET ~~(LOSS)~~ INCOME

FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~JANUARY~~OCTOBER 28, 2018 AND ~~JANUARY~~OCTOBER 29, 2017

(Amounts in Thousands, Except for Per Share Data)