What changed in this filing

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Item 1. Financial Statements

2021-12-10 compared with 2021-09-10 · 598 added, 411 removed, 884 unchanged (53% of the section changed)

1 unchanged sentence

CONSOLIDATED STATEMENTS OF NET INCOME (LOSS)

FOR THE THREE MONTHS ENDED AUGUST 1, 2021, AND AUGUST 2, 2020

FOR THE THREE AND SIX MONTHS ENDED OCTOBER 31, 2021, AND NOVEMBER 1, 2020

(Amounts in Thousands, Except for Per Share Data)

3 unchanged sentences

Income from operations

Interest income

Other expense

Income before income taxes

Income tax expense

Income from investment in unconsolidated joint venture

Net income per share - basic

Net income per share - diluted

Average shares outstanding, basic

Average shares outstanding, diluted

SIX MONTHS ENDED

Cost of sales

Selling, general and administrative expenses

Income from operations

Interest expense

11 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED AUGUST 1, 2021, AND AUGUST 2, 2020

FOR THE THREE AND SIX MONTHS ENDED OCTOBER 31, 2021, AND NOVEMBER 1, 2020

(Amounts in Thousands)

THREE MONTHS ENDED

Unrealized holding losses on investments, net of tax

Reclassification adjustment for realized (gain) loss on sale of investments

Comprehensive income

SIX MONTHS ENDED

Net income (loss)

Unrealized holding gains on investments, net of tax

Reclassification adjustment for realized (gain) loss on investments

Comprehensive income (loss)

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

AUGUST 1, 2021, AUGUST 2, 2020, AND MAY 2, 2021

OCTOBER 31, 2021, NOVEMBER 1, 2020, AND MAY 2, 2021

(Amounts in Thousands)

8 unchanged sentences

Property, plant and equipment, net

Right of use assets

Intangible assets

1 unchanged sentence

Long-term investments - held-to-maturity

Right of use assets

Deferred income taxes

8 unchanged sentences

Total current liabilities

Accrued expenses - long-term

Operating lease liability - long-term

7 unchanged sentences

Common stock, $ 0.05 par value, authorized 40,000,000 shares, issued

and outstanding 12,276,286 at August 1, 2021;

12,291,946 at August 2,

and outstanding 12,209,710 at October 31, 2021;

12,303,023 at November 1,

and 12,312,822 at May 2, 2021

7 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED AUGUST 1, 2021, AND AUGUST 2, 2020

FOR THE SIX MONTHS ENDED OCTOBER 31, 2021, AND NOVEMBER 1, 2020

(Amounts in Thousands)

THREE MONTHS ENDED

SIX MONTHS ENDED

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by

operating activities:

Adjustments to reconcile net income (loss) to net cash (used in)

provided by operating activities:

Stock-based compensation

Deferred income taxes

Realized (gain) loss from the sale of short-term investments

(Available for Sale)

Income from investment in unconsolidated joint venture

6 unchanged sentences

Accrued expenses and deferred compensation

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

Capital expenditures

Proceeds from the sale of equipment

Investment in unconsolidated joint venture

2 unchanged sentences

Purchase of short-term investments (Available for Sale)

Proceeds from the sale of short-term investments (Available for Sale)

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

14 unchanged sentences

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE-MONTH PERIOD ENDED AUGUST 1, 2021

SIX-MONTHS ENDED OCTOBER 31, 2021

(Dollars in thousands, except share data)

8 unchanged sentences

taxes payable

Fully vested common stock award

Immediately vested common stock award

Common stock repurchased

1 unchanged sentence

Balance, August 1, 2021

Stock-based compensation

Unrealized loss on investments

Immediately vested common stock award

Common stock repurchased

Dividends paid

Balance, October 31, 2021

Derived from audited financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE-MONTH PERIOD ENDED AUGUST 2, 2020

SIX-MONTHS ENDED NOVEMBER 1, 2020

(Dollars in thousands, except share data)

5 unchanged sentences

Unrealized gain on investments

Fully vested common stock award

Immediately vested common stock award

Dividends paid

Balance, August 2, 2020

Stock-based compensation

Unrealized loss on investments

Immediately vested common stock award

Common stock issued in connection with

vesting of performance-based restricted

Common stock surrendered for withholding

taxes payable

Dividends paid

Balance, November 1, 2020

Derived from audited financial statements.

7 unchanged sentences

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, which are included in the company’s annual report on Form 10-K filed with the Securities and Exchange Commission on July 16, 2021, for the fiscal year ended May 2, 2021.

The company’s three-months ended August 1, 2021, and August 2, 2020, each represent 13-week periods.

The company’s six-months ended October 31, 2021, and November 1, 2020, each represent 26-week periods.

Significant Accounting Policies

As of August 1, 2021, there were no changes in the nature of our significant accounting policies or the application of those policies from those reported in our annual report on Form 10-K for the year then ended May 2, 2021.

As of October 31, 2021, there were no changes in the nature of our significant accounting policies or the application of those policies from those reported in our annual report on Form 10-K for the year then ended May 2, 2021.

Recently Adopted Accounting Pronouncements

1 unchanged sentence

2019-12, Income Taxes (Topic 740):

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

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

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

11 unchanged sentences

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

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

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

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

10 unchanged sentences

Gain on bargain purchase

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

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

Gain on Bargain Purchase

8 unchanged sentences

Supply and Rebate Agreements

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

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

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

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

During the first quarter of fiscal 2022, shipments pursuant to the supply agreement were $ 455,000 .

During the first quarter of fiscal 2022, a charge of $ 21,000 pursuant to the rebate agreement was included in net sales in the Consolidated Statement of Net Income for the three months ended August 1, 2021.

During the three-month and six-month periods ending October 31, 2021, shipments pursuant to the supply agreement were $ 398,000 and $ 853,000 , respectively.

Pursuant to the rebate agreement, charges of $ 15,000 and $ 37,000 were included in net sales in the Consolidated Statements of Net Income (Loss) for the three-month and six-month periods ended October 31, 2021.

Pro Forma Financial Information

The following unaudited pro forma consolidated results of operations for the three-month periods ending August 1, 2021, and August 2, 2020, have been prepared as if this acquisition had occurred on April 29, 2019.

The following unaudited pro forma consolidated results of operations for the three-month and six-month periods ending October 31, 2021, and November 1, 2020, have been prepared as if this acquisition had occurred on May 4, 2020.

Three Months Ended

(dollars in thousands, except per share data)

Income from operations

Net income per share - basic

Net income per share - diluted

Six Months Ended

(dollars in thousands, except per share data)

Income from operations

Net income (loss)

4 unchanged sentences

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

Our 50% proportionate share of the net income of the unconsolidated joint venture was $ 67,000 during the first quarter of fiscal 2021.

Our 50% proportionate share of the net income of the unconsolidated joint venture was $ 167,000 for the six-month period ending November 1, 2020.

The following table summarizes assets, liabilities, and members’ equity for our equity method investment in CIH:

2 unchanged sentences

total members’ equity

As of August 2, 2020, our investment in unconsolidated joint venture totaled $ 1.8 million, which represents our 50 % ownership interest in our investment in CIH.

As of November 1, 2020, our investment in unconsolidated joint venture totaled $ 1.9 million, which represents our 50 % ownership interest in our investment in CIH.

Allowance for Doubtful Accounts

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

Three Months Ended

Six Months Ended

(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Beginning balance

Provision for bad debts

Write-offs, net of recoveries

Ending balance

During the three-month periods ended August 1, 2021, and August 2, 2020, we assessed the credit risk of our customers within our accounts receivable portfolio.

During the six-month periods ended October 31, 2021, and November 1, 2020, we assessed the credit risk of our customers within our accounts receivable portfolio.

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

3 unchanged sentences

as well as (v) any other ongoing economic conditions (i.e., COVID-19).

After our risk assessment was completed, we assigned credit grades to our customers, which in turn, were used to determine our allowance for doubtful accounts totaling $ 580,000 and $ 552,000 as of August 1, 2021 and August 2, 2020, respectively.

After our risk assessment was completed, we assigned credit grades to our customers, which in turn, were used to determine our allowance for doubtful accounts totaling $ 534,000 and $ 595,000 as of October 31, 2021, and November 1, 2020, respectively.

Revenue from Contracts with Customers

4 unchanged sentences

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

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

In addition, the upholstery fabrics segment includes Read Window Products LLC (“Read”), which provides window treatments and sourcing

of upholstery fabrics and other products, as well as measuring and installation services for Read’s products , to customers in the hospitality and commercial industries.

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

3 unchanged sentences

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

During the first quarter of fiscal 2021, extended terms were granted to certain customers in response to the challenging business conditions resulting from the COVID-19 global pandemic.

For a limited time, extended terms were granted to certain customers in response to the challenging business conditions resulting from the COVID-19 global pandemic.

Our customary terms, as well as any limited extended terms, are common within the industries in which we operate and are not considered financing arrangements.

There were no contract assets recognized as of August 1, 2021, August 2, 2020, and May 2, 2021.

There were no contract assets recognized as of October 31, 2021, November 1, 2020, and May 2, 2021.

A summary of the activity associated with deferred revenue follows:

Three months ended

Six months ended

(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Beginning balance

3 unchanged sentences

Disaggregation of Revenue

The following table presents our disaggregated revenue by segment, timing of revenue recognition, and product sales versus services rendered for the three-month period ending August 1, 2021:

The following table presents our disaggregated revenue by segment, timing of revenue recognition, and product sales versus services rendered for the three-month period ending October 31, 2021:

(dollars in thousands)

2 unchanged sentences

Total Net Sales

The following table presents our disaggregated revenue by segment, timing of revenue recognition, and product sales versus services rendered for the three-month period ending August 2, 2020:

The following table presents our disaggregated revenue by segment, timing of revenue recognition, and product sales versus services rendered for the six-month period ending October 31, 2021:

(dollars in thousands)

2 unchanged sentences

Total Net Sales

The following table presents our disaggregated revenue by segment, timing of revenue recognition, and product sales versus services rendered for the three-month period ending November 1, 2020:

(dollars in thousands)

Products transferred at a point in time

Services transferred over time

Total Net Sales

The following table presents our disaggregated revenue by segment, timing of revenue recognition, and product sales versus services rendered for the six-month period ending November 1, 2020:

(dollars in thousands)

Products transferred at a point in time

Services transferred over time

Total Net Sales

Inventories are carried at the lower of cost or net realizable value.

8 unchanged sentences

(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Customer relationships, net

Non-compete agreement, net

Our tradename totaling $ 540,000 as of August 1, 2021, pertained to Read, a separate reporting unit within the upholstery fabrics segment.

Our tradename totaling $ 540,000 as of October 31, 2021, pertained to Read, a separate reporting unit within the upholstery fabrics segment.

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

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

Based on our assessment as of August 1, 2021, no indicators of impairment existed and therefore, no asset impairment charges associated with Read’s tradename were recorded during the first quarter of fiscal 2022.

Based on our assessment as of October 31, 2021, no indicators of impairment existed and therefore, no asset impairment charges associated with Read’s tradename were recorded through the second quarter of fiscal 2022.

Customer Relationships

A summary of the change in the carrying amount of our customer relationships follows:

Three months ended

Six months ended

(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Beginning balance

2 unchanged sentences

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

The gross carrying amount of our customer relationships was $ 3.1 million as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively.

Accumulated amortization for these customer relationships was $ 1.3 million, $ 953,000 , and $ 1.2 million as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively.

The gross carrying amount of our customer relationships was $ 3.1 million as of October 31, 2021, November 1, 2020, and May 2, 2021, respectively.

Accumulated amortization for these customer relationships was $ 1.3 million, $ 1.0 million, and $ 1.2 million as of October 31, 2021, November 1, 2020, and May 2, 2021, respectively.

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

3 unchanged sentences

FY 2025 - $ 301,000 ;

FY 2026 - $ 301,000 ;

and thereafter - $ 432,000 .

The weighted average amortization period for our customer relationships was 6.4 years as of August 1, 2021.

FY 2026 - $ 301,000 and thereafter - $ 432,000 .

The weighted average amortization period for our customer relationships was 6.2 as of October 31, 2021.

Non-Compete Agreement

A summary of the change in the carrying amount of our non-compete agreement follows:

Three months ended

Six months ended

(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Beginning balance

2 unchanged sentences

Our non-compete agreement is amortized on a straight-line basis over the fifteen-year life of the agreement.

The gross carrying amount of our non-compete agreement was $ 2.0 million as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively.

Accumulated amortization for our non-compete agreement was $ 1.6 million, $ 1.5 million, and $ 1.5 million as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively.

The gross carrying amount of our non-compete agreement was $ 2.0 million as of October 31, 2021, November 1, 2020, and May 2, 2021, respectively.

Accumulated amortization for our non-compete agreement was $ 1.5 million as of October 31, 2021, November 1, 2020, and May 2, 2021, respectively.

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

4 unchanged sentences

FY 2026 - $ 76,000 , and thereafter - $ 148,000 .

The weighted average amortization period for the non-compete agreement was 6.8 years as of August 1, 2021.

The weighted average amortization period for the non-compete agreement was 6.5 years as of October 31, 2021.

Accrued Expenses

1 unchanged sentence

(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Compensation, commissions and related benefits

Other accrued expenses

Our entire accrued expense balances totaling $ 10.0 million as of August 1, 2021, and $ 14.8 million as of May 2, 2021, were classified as current accrued expenses in the accompanying Consolidated Balance Sheets.

As of August 2, 2020, we had accrued

expenses totaling $ 8.0 million, of which $ 7.9 million , and $ 117,000 , were classified as current accrued expenses and long-term accrued expenses, r espectively, in the accompanying Consolidated Balance Sheets.

Lines of Credit

2 unchanged sentences

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

Interest is charged at a rate (applicable interest rate of 1.69 %, 1.75 %, and 1.71 % as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively) calculated using a variable spread over LIBOR based on our ratio of debt to EBITDA.

Interest is charged at a rate (applicable interest rate of 1.74 %, 1.74 %, and 1.71 % as of October 31, 2021, November 1, 2020, and May 2, 2021, respectively) calculated using a variable spread over LIBOR based on our ratio of debt to EBITDA.

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 of August 1, 2021, August 2, 2020, and May 2, 2021, there were $ 275,000 , $ 250,000 , and $ 275,000 , respectively, in outstanding letters of credit provided by the Credit Agreement.

As of August 1, 2021, we had $ 725,000 remaining for the issuance of additional letters of credit.

There were no borrowings outstanding under the Credit Agreement as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively.

As of October 31, 2021, November 1, 2020, and May 2, 2021, there were $ 275,000 , $ 250,000 , and $ 275,000 , respectively, in outstanding letters of credit provided by the Credit Agreement.

As of October 31, 2021, we had $ 725,000 remaining for the issuance of additional letters of credit.

There were no borrowings outstanding under the Credit Agreement as of October 31, 2021, November 1, 2020, and May 2, 2021, respectively.

Revolving Credit Agreements – China Operations

Denominated in Chinese Yuan Renminbi (“RMB”)

We have an unsecured credit agreement denominated in RMB with a bank located in China that provides for a line of credit of up to 40 million RMB ($ 6.2 million USD as of August 1, 2021).

This agreement has an interest rate determined by the Chinese government at the time of borrowing and is set to expire on December 1, 2021 .

There were no borrowings outstanding under this agreement as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively.

We have an unsecured credit agreement denominated in RMB with a bank located in China that provides for a line of credit of up to 40 million RMB ($ 6.3 million USD as of October 31, 2021).

This agreement has an interest rate determined by the Chinese government at the time of borrowing.

and expired on December 1, 2021 .

On November 15, 2021, we renewed this agreement, which renewal maintains our borrowing capacity of 40 million RMB and extends the expiration date to November 15, 2022 .

There were no borrowings outstanding under this agreement as of October 31, 2021, November 1, 2020, and May 2, 2021, respectively.

Denominated in United States Dollar (“USD”)

1 unchanged sentence

On August 30, 2021, we renewed this agreement, which maintains our borrowing capacity of $ 2.0 million and extends the expiration date to August 30, 2022 .

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

There were no borrowings outstanding under this agreement as August 1, 2021, August 2, 2021, and May 2, 2021, respectively.

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

There were no borrowings outstanding under this agreement as October 31, 2021, November 1, 2020, and May 2, 2021, respectively.

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

As of August 1, 2021, we complied with our financial covenants.

No interest payments were made during the first quarter of fiscal 2022.

Interest paid during the first quarter of fiscal 2021 totaled $ 60,000 .

As of October 31, 2021, we complied with our financial covenants.

No interest payments were made during the first half of fiscal 2022.

Interest paid during the first half of fiscal 2021 was $ 60,000 .

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

3 unchanged sentences

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

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

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.

4 unchanged sentences

The following tables present information about assets measured at fair value on a recurring basis:

Fair value measurements as of August 1, 2021, using:

Fair value measurements as of October 31, 2021, using:

Quoted prices

7 unchanged sentences

Growth Allocation Mutual Funds

Preferred Securities Mutual Fund

Event Driven Equity Mutual Fund

Moderate Allocation Mutual Fund

Fair value measurements as of August 2, 2020, using:

Fair value measurements as of November 1, 2020, using:

Quoted prices

16 unchanged sentences

Short-Term Investments – Available for Sale

Our short-term investments classified as available for sale consisted of various types of bond and equity mutual funds and had an accumulated unrealized gain totaling $ 143,000 , $ 6,000 and $ 24,000 as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively.

Our short-term investments classified as available for sale were recorded at their fair values of $ 9.7 million, $ 983,000 , and $ 5.5 million as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively.

As of August 1, 2021, August 2, 2020, and May 2, 2021, the fair value of our short-term investments classified as available for sale approximated their cost basis.

Our short-term investments classified as available for sale consisted of various types of bond and equity mutual funds and had an accumulated unrealized gain totaling $ 116,000 and $ 24,000 as of October 31, 2021 and May 2, 2021, respectively, and an unrealized loss totaling $ 29,000 as of November 1, 2020.

Our short-term investments classified as available for sale were recorded at their fair values of $ 9.7 million, $ 5.5 million, and $ 5.5 million as of October 31, 2021, November 1, 2020, and May 2, 2021, respectively.

As of October 31, 2021, November 1, 2020, and May 2, 2021, the fair value of our short-term investments classified as available for sale approximated their cost basis.

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

Our investments classified as held-to-maturity consisted of investment grade U.S.

corporate bonds, foreign bonds, and government bonds with remaining maturities of less than 4 years as of August 1, 2021.

corporate bonds, foreign bonds, and government bonds with remaining maturities of less than 4 years as of October 31, 2021.

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

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

As of August 1, 2021, August 2, 2020, and May 2, 2021, our held-to-maturity investments recorded at amortized cost totaled $ 8.3 million, $ 6.4 million, and $ 4.3 million, respectively.

The fair value of our held-to-maturity investments as of August 1, 2021, August 2, 2020, and May 2, 2021, totaled $ 8.3 million, $ 6.5 million, and $ 4.3 million, respectively.

As of October 31, 2021, November 1, 2020, and May 2, 2021, our held-to-maturity investments recorded at amortized cost totaled $ 9.9 million, $ 5.8 million, and $ 4.3 million, respectively.

The fair value of our held-to-maturity investments as of October 31, 2021, November 1, 2020, and May 2, 2021, totaled $ 9.9 million, $ 5.8 million, and $ 4.3 million, respectively.

Our bond investments were classified as level 2 within the fair value hierarchy as they were traded over the counter within a broker network and not on an active market.

2 unchanged sentences

Current Expected Credit Loses (“CECL”)- Available for Sale and Held-To-Maturity Investments

As of August 1, 2021, August 2, 2020, and May 2, 2021, we did no t record an allowance for credit losses related to our short-term available for sale or held-to-maturity investments, which are comprised of high-grade U.S.

As of October 31, 2021, November 1, 2020, and May 2, 2021, we did no t record an allowance for credit losses related to our short-term available for sale or held-to-maturity investments, which are comprised of high-grade U.S.

and foreign corporate bonds, U.S.

2 unchanged sentences

In addition, it is not our intention to sell, and it is not likely that we will be required to sell, our held-to-maturity investments before the recovery of their amortized cost basis.

As of August 1, 2021, we reported an accumulated unrealized gain of $ 143,000 associated with our short-term investments classified as available for sale.

As of October 31, 2021, we reported an accumulated unrealized gain of $ 116,000 associated with our short-term investments classified as available for sale.

As mentioned above, it is not our intention to sell nor is it likely that we will be required to sell, our held-to-maturity investments before the recovery of their amortized cost basis.

Accordingly, we did no t record any credit loss expense during the three-month period ending August 1, 2021.

Accordingly, we did no t record any credit loss expense during the six-month period ending October 31, 2021.

In addition, we did no t record any credit loss expense during the six-month period ending November 1, 2020.

Long-Term Investments - Rabbi Trust

2 unchanged sentences

Government money market fund and various equity related mutual funds that are classified as available for sale.

Our long-term investments associated with our rabbi trust are classified as available for sale and recorded at their fair values of $ 8.8 million, $ 7.9 million, and $ 8.4 million as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively.

The long-term investments associated with our rabbi trust had an accumulated unrealized gain of $ 151,000 , $ 53,000 , and 122,000 , as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively.

Our long-term investments associated with our rabbi trust are classified as available for sale and recorded at their fair values of $ 9.0 million, $ 8.1 million, and $ 8.4 million as of October 31, 2021, November 1, 2020, and May 2, 2021, respectively.

The long-term investments associated with our rabbi trust had an accumulated unrealized gain of $ 169,000 , $ 55,000 , and $ 122,000 as of October 31, 2021, November 1, 2020, and May 2, 2021, respectively.

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

3 unchanged sentences

See Note 3 of the consolidated financial statements for further details regarding this business combination.

Fair value measurements as of May 2, 2021, using:

Fair value measurements on February 1, 2021, using:

Quoted prices

14 unchanged sentences

(amounts in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Weighted average common shares outstanding, basic

1 unchanged sentence

Weighted average common shares outstanding, diluted

During the first quarter of fiscal 2022, all unvested shares of common stock were included in the computation of diluted net income per share.

During the first quarter of fiscal 2021, 33,828 shares of unvested common stock were not included in the computation of diluted net loss per share, as their effect would be antidilutive.

Of the 33,828 shares of unvested common stock, 27,153 shares were not included in the computation as their effect would be antidilutive due to the decrease in the price per share of our common stock during the reporting period in relation to the price per share of our common stock as of the respective grant dates of the related stock-based compensation awards.

In addition, 6,675 shares of unvested common stock were not included in the computation as we incurred a net loss for the first quarter of fiscal 2021, and therefore, their effect would be antidilutive.

During the second quarter of fiscal 2022 and 2021, 13,484 and 1,101 shares, respectively, of unvested common stock were not included in the computation of diluted net income per share, as their effect would be antidilutive due to the decrease in the price per share of our common stock during the reporting period compared with the price per share of our common stock as of the respective grant dates of the related stock-based compensation awards.

Six months ended

(amounts in thousands)

October 31, 2021

November 1, 2020

Weighted average common shares outstanding, basic

Dilutive effect of stock-based compensation

Weighted average common shares outstanding, diluted

During the first half of fiscal 2022, 1,561 shares of unvested common stock were not included in the computation of diluted net income per share, as their effect would be antidilutive due to the decrease in the price per share of our common stock during the reporting period compared with the price per share of our common stock as of the respective grant dates of the related stock-based compensation awards.

During the second half of fiscal 2021, 38,313 shares of unvested common stock were not included in the computation of diluted net loss per share, as their effect would be antidilutive.

Of the 38,313 shares of unvested common stock, 26,099 shares were antidilutive due to the decrease in the price per share of our common stock during the reporting period compared with the price per share of our common stock as of the respective grant dates of the related stock-based compensation awards.

In addition, 12,214 shares of unvested common stock were not included in the computation as we incurred a net loss during the reporting period.

Segment Information

3 unchanged sentences

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

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

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

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

Financial Information

We evaluate the operating performance of our business segments based upon income (loss) from operations before certain unallocated corporate expenses, asset impairments, restructuring credit (expense) and related charges, and other non-recurring items.

Cost of sales for each segment includes costs to develop, manufacture, or source our products, including costs such as raw material and finished goods purchases, direct and indirect labor, overhead, and incoming freight charges.

1 unchanged sentence

Segment assets include assets used in the operations of each segment and primarily consist of accounts receivable, inventories, property, plant, and equipment, and right of use assets.

The mattress fabrics segment also included in segment assets its investment in an unconsolidated joint venture as of August 2, 2020.

The mattress fabrics segment also included in segment assets its investment in an unconsolidated joint venture as of November 1, 2020.

Intangible assets are not included in segment assets as these assets are not used by the Chief Operating Decision Maker to evaluate the respective segment’s operating performance, allocate resources to individual segments, or determine executive compensation.

1 unchanged sentence

Three months ended

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

net sales by segment:

14 unchanged sentences

income from operations

interest income

other expense

income before income taxes

Six months ended

October 31, 2021

November 1, 2020

net sales by segment:

mattress fabrics

upholstery fabrics

gross profit by segment:

mattress fabrics

upholstery fabrics

selling, general, and administrative expenses by segment:

mattress fabrics

upholstery fabrics

unallocated corporate expenses

selling, general, and administrative expenses

income (loss) from operations by segment:

mattress fabrics

upholstery fabrics

unallocated corporate expenses

income from operations

interest expense

4 unchanged sentences

(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Segment assets:

23 unchanged sentences

Long-term investments - held-to-maturity

Three months ended

Six months ended

(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Capital expenditures (7):

7 unchanged sentences

Total depreciation expense

The $ 40.9 million as of August 1, 2021, represents property, plant, and equipment of $ 27.6 million, $ 12.4 million, and $ 875,000 located in the U.S., Canada, and Haiti, respectively.

The $ 39.6 million as of August 2, 2020, represents property, plant, and equipment of $ 27.0 million and $ 12.6 million located in the U.S.

The $ 40.2 million as of October 31, 2021, represents property, plant, and equipment of $ 26.8 million, $ 12.6 million, and $ 836,000 located in the U.S., Canada, and Haiti, respectively.

The $ 38.8 million as of November 1, 2020, represents property, plant, and equipment of $ 26.5 million and $ 12.3 million located in the U.S.

and Canada, respectively.

The $ 41.3 million as of May 2, 2021, represents property, plant, and equipment of $ 28.4 million, $ 12.0 million, and $ 855,000 located in the U.S., Canada, and Haiti, respectively.

The $ 4.1 million as of August 1, 2021, represents right of use assets of $ 2.3 million, $ 1.4 million, and $ 355,000 located in Haiti, the U.S., and Canada, respectively.

The $ 832,000 as of August 2, 2020, represents right of use assets of $ 535,000 and $ 297,000 located in Canada and the U.S., respectively.

The $ 3.8 million as of October 31, 2021, represents right of use assets of $ 2.2 million, $ 1.3 million, and $ 309,000 located in Haiti, the U.S., and Canada, respectively.

The $ 1.2 million as of November 1, 2020, represents right of use assets of $ 696,000 and $ 490,000 located in the U.S.

and Canada, respectively.

The $ 4.3 million as of May 2, 2021, represents right of use assets of $ 2.4 million, $ 1.4 million, and $ 400,000 located in Haiti, the U.S., and Canada, respectively.

The $ 2.1 million as of August 1, 2021, represents property, plant, and equipment of $ 1.1 million, $ 830,000 , and $ 130,000 located in the U.S., China, and Haiti, respectively.

The $ 1.6 million as of August 2, 2020, represents property, plant, and equipment of $ 1.2 million and $ 456,000 located in the U.S.

The $ 2.1 million as of October 31, 2021, represents property, plant, and equipment of $ 1.1 million, $ 798,000 , and $ 242,000 located in the U.S., China, and Haiti, respectively.

The $ 2.0 million as of November 1, 2020, represents property, plant, and equipment of $ 1.1 million and $ 904,000 located in the U.S.

and China, respectively.

1 unchanged sentence

and China, respectively.

The $ 6.0 million as of August 1 , 202 1 , represents right of use assets of $ 4.6 million and $ 1.4 million located in China and the U.S., respectively.

The $ 3.8 million a s of August 2 , 20 20 , represents right of use assets of $ 3.1 million and $ 710,000 located in China and the U.S., respectively .

The $ 5.5 million as of October 31 , 202 1 , represents right of use assets of $ 4.3 million and $ 1.2 million located in China and the U.S., respectively .

The $ 3.3 million a s of November 1 , 20 20 , represents right of use assets of $ 2.7 million and $ 561,000 located in China and the U.S., respectively .

The $ 5.9 million as of May 2 , 202 1 , represents right of use assets of $ 5.0 million and $ 952,000 located in China and the U.S.

, respectively .

The $ 969,000 , $ 820,000 , and $ 814,000 as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively, represent property, plant, and equipment associated with unallocated corporate departments and corporate departments shared by our mattress fabrics and upholstery fabrics segments.

The $ 912,000 , $ 767,000 , and $ 814,000 as of October 31, 2021, November 1, 2020, and May 2, 2021, respectively, represent property, plant, and equipment associated with unallocated corporate departments and corporate departments shared by our mattress fabrics and upholstery fabrics segments.

Property, plant, and equipment associated with our corporate departments reside in the U.S.

The $ 1.4 million, $ 1.8 million, and $ 1.5 million as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively, represent right of use assets located in the U.S.

The $ 4.3 million, $ 1.7 million, and $ 1.5 million as of October 31, 2021, November1, 2020, and May 2, 2021, respectively, represent right of use assets located in the U.S.

Capital expenditure amounts are stated on the accrual basis.

1 unchanged sentence

Effective Income Tax Rate

We recorded income tax expense of $ 905,000 , or 28.7 % of income before income taxes, for the three-month period ending August 1, 2021, compared with income tax expense of $ 4.3 million, or 283.7 % of income before income taxes, for the three-month period ending August 2, 2020.

Our effective income tax rates for the three-month periods ended August 1, 2021, and August 2, 2020, 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.

When calculating the annual estimated effective income tax rate for the three-month periods ended August 1, 2021, and August 2, 2020, we were subject to a loss limitation rule in accordance with ASC Topic 740-270-30-36(a).

We recorded income tax expense of $ 1.3 million, or 30.3 % of income before income taxes, for the six-month period ending October 31, 2021, compared with income tax expense of $ 5.9 million, or 109.5 % of income before income taxes, for the six-month period ending November 1, 2020.

Our effective income tax rates for the six-month periods ended October 31, 2021, and November 1, 2020, 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.

When calculating the annual estimated effective income tax rate for the six-month periods ended October 31, 2021, and November 1, 2020, we were subject to a loss limitation rule in accordance with ASC Topic 740-270-30-36(a).

This loss limitation rule requires any taxable loss associated with our U.S.

or foreign operations to be excluded from the annual estimated effective income tax rate calculation if it was determined that no tax benefit could be recognized during the current fiscal year.

or foreign operations to be excluded from the annual estimated effective income tax rate calculation if it is determined that no income tax benefit could be recognized during the current fiscal year.

The effective income tax rate can be affected over the fiscal year by the mix and timing of actual earnings from our U.S.

1 unchanged sentence

The following schedule summarizes the principal differences between income tax expense at the U.S.

federal income tax rate and the effective income tax rate reflected in the consolidated financial statements for the three-month periods ending August 1, 2021, and August 2, 2020:

federal income tax rate and the effective income tax rate reflected in the consolidated financial statements for the six-month periods ending October 31, 2021, and November 1, 2020:

federal income tax rate

4 unchanged sentences

Global Intangible Low Taxed Income Tax ("GILTI")

Our effective income tax rate during the first quarter of fiscal 2022 was negatively affected, but not nearly to the extent as in the first quarter of fiscal 2021, by the mix of taxable income that is mostly earned by our foreign operations located in China and Canada, which have higher income tax rates than the U.S.

Tax effects of deductible foreign exchange rate losses

Our effective income tax rate during the first half of fiscal 2022 was negatively affected, but not nearly to the extent as in the first half of fiscal 2021, by the mix of taxable income that is mostly earned by our foreign operations located in China and Canada, which have higher income tax rates than the U.S.

This is due mostly to higher annual forecasted taxable income from our U.S.

operations as of the end of the first quarter of fiscal 2022, as compared with lower annual forecasted taxable as of the end of the first quarter of fiscal 2021.

The annual forecasted taxable income at the end of the first quarter of fiscal 2021 was significantly affected by the ongoing disruption and uncertain economic conditions relating to the COVID-19 pandemic.

As a result of the increase in forecasted taxable income, the principal differences in the above table are not as pronounced during the first quarter of fiscal 2022 as compared with those differences during the first quarter of fiscal 2021.

operations as of the end of the second quarter of fiscal 2022, compared with lower annual forecasted taxable from our U.S.

operations as of the end of the second quarter of fiscal 2021.

Effective July 20, 2020, the U.S.

Treasury Department finalized and enacted previously proposed regulations regarding the GILTI tax provisions of the Tax Cuts and Jobs Act of 2017 (“TCJA”).

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

With the enactment of these final regulations, we became

eligible for an exclusion from GILTI if we meet the provisions of the GILTI High-Tax exception included in these final regulations.

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

3 unchanged sentences

federal net operating loss carryforwards.

This $ 3.5 million income tax benefit was recorded as a discrete event in which its full income tax effects were recorded in the first quarter of fiscal 2021.

This $ 3.5 million income tax benefit was recorded as a discrete event in which its full income tax effects were recorded in the first quarter and the six-month year-to-date period of fiscal 2021.

Additionally, we met the requirements for the High-Tax exception for our 2021 fiscal year, and therefore, were not subject to GILTI tax.

As of the end of the first quarter of fiscal 2022, we believe we will not meet the requirements for the GILTI High-Tax exception regarding our foreign subsidiaries located in Canada and Haiti, and therefore, will be subject to GILTI tax for the 2022 fiscal year.

As of the end of the second quarter of fiscal 2022, we believe we will not meet the requirements for the GILTI High-Tax exception regarding our foreign subsidiaries located in Canada and Haiti, and therefore, will be subject to GILTI tax for the 2022 fiscal year.

Based on our assessment associated with our operation located in Canada, we expect that several significant capital projects will be placed into service during fiscal 2022, and therefore we will be eligible for a significant amount of deductible accelerated depreciation.

20 unchanged sentences

net deferred income tax assets.

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

As of August 1, 2021, we evaluated the realizability of our U.S.

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

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

taxable losses, in

that we experienced U.S.

This $ 7.0 million income tax charge was recorded as a discrete event in which its full income tax effects were recorded during the first quarter and the six-month year-to-date period of fiscal 2021.

As of October 31, 2021, we evaluated the realizability of our U.S.

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

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

taxable losses, in that we experienced U.S.

taxable losses during each of the fiscal years 2020 and 2021.

In addition, as of August 1, 2021, we are currently expecting U.S.

In addition, as of October 31, 2021, we are currently expecting U.S.

taxable income during fiscal 2022 stemming from the source of taxable income provided by GILTI noted above.

1 unchanged sentence

taxable income expected during fiscal 2022.

As a result of the significant weight of this negative evidence, we believe it is more likely than not that our U.S.

As a result of the significant weight of this negative evidence, we

believe it is more likely than not that our U.S.

deferred income tax assets w ill not be fully realizable, and therefore we provided for a full valuation allowance against our U.S.

net deferred income tax assets.

Based on our assessments as of August 1, 2021, August 2, 2020, and May 2, 2021, valuation allowances against our net deferred income taxes pertain to the following:

Based on our assessments as of October 31, 2021, November 1, 2020, and May 2, 2021, valuation allowances against our U.S.

net deferred income taxes pertain to the following:

(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

federal and state net deferred income tax assets

4 unchanged sentences

ASC Topic 740 requires that a deferred income tax liability should be recorded for undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely.

As of August 1, 2021, we assessed the liquidity requirements of our U.S.

As of October 31, 2021, we assessed the liquidity requirements of our U.S.

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

5 unchanged sentences

parent company.

As a result, as of August 1, 2021, August 2, 2020, and May 2, 2021, we recorded a deferred income tax liability of $ 3.2 million, $ 3.6 million, and $ 3.5 million, respectively, for withholding taxes associated with undistributed earnings and profits from our foreign subsidiaries.

As a result, as of October 31, 2021, November 1, 2020, and May 2, 2021, we recorded a deferred income tax liability of $ 3.4 million, $ 3.9 million, and $ 3.5 million, respectively, for withholding taxes associated with undistributed earnings and profits from our foreign subsidiaries.

Uncertain Income Tax Positions

1 unchanged sentence

If it is determined that any of the above conditions occur regarding our uncertain income tax positions, an adjustment to our unrecognized income tax benefit will be recorded at that time.

As of August 1, 2021, August 2, 2020, and May 2, 2021, we had a $ 1.4 million total gross unrecognized income tax benefit, of which $ 1.1 million and $ 380,000 were recorded to income taxes payable-long-term and noncurrent deferred income taxes, respectively, in the accompanying Consolidated Balance Sheets.

As of October 31, 2021, November 1, 2020, and May 2, 2021, we had a $ 1.4 million total gross unrecognized income tax benefit, of which $ 1.1 million and $ 380,000 were recorded to income taxes payable-long-term and noncurrent deferred income taxes, respectively, in the accompanying Consolidated Balance Sheets.

Of this $ 1.4 million total gross unrecognized income tax benefit, $ 1.1 million would favorably affect the income tax rate in future periods.

1 unchanged sentence

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

Income Taxes Paid

Income Taxes Paid (Refunded)

The following table sets forth taxes paid (refunded) by jurisdiction:

Three Months Ended

Six Months Ended

(dollars in thousands)

October 31, 2021

November 1, 2020

United States Federal - Alternative Minimum Tax

(AMT) credit refunds (1)

In accordance with the provisions of the TCJA, corporate taxpayers were eligible to treat prior AMT credit carryforwards as refundable.

Accordingly, we elected to treat our prior AMT credit carryforward balance of $ 1.5 million as refundable, and as

a result, 50 % of the $ 1.5 million refundable balance was received during the first quarter of fiscal 2021, with the remaining balance expected to be received in fiscal 2022.

In accordance with the provisions of the U.S.

federal Coronavirus Aid, Relief, and Economic Security (CARES) Act (2020), 100 % of AMT credit carryforwards for years beginning in the 2019 tax year were immediately refundable.

Accordingly, we claimed credit for the remaining 50 % installment of our refundable AMT credit carryforward in May 2020.

We received our remaining 50 % installment, plus interest, totaling $ 764,000 during the second quarter of fiscal 2021.

United States Transition Tax Payment

China - Income Taxes

China - Withholding Taxes Associated with Earnings

and Profits Distribution to U.S.

Canada - Income Taxes

In accordance with the provisions of the TCJA, we elected to treat our prior AMT credit carryforward balance of $1.5 million as refundable.

We received our $ 1.5 million refundable balance in two separate installments totaling $ 746,000 and $ 764,000 during the first and second quarters of fiscal 2021, respectively.

Stock-Based Compensation

4 unchanged sentences

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

As of August 1, 2021, there were 474,575 shares available for future equity-based grants under the 2015 Plan.

As of October 31, 2021, there were 470,947 shares available for future equity-based grants under the 2015 Plan.

Performance-Based Restricted Stock Units

Senior Executives

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

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

The number of shares of common stock that are earned based on performance targets that have been achieved may be adjusted based on a market-based total shareholder return component as defined in the related restricted stock unit agreements.

1 unchanged sentence

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

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

Closing price of our common stock

Expected volatility of our common stock

Expected volatility of peer companies (1)

45.7% - 101.5%

Risk-free interest rate

Dividend yield

Correlation coefficient of peer companies (1)

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

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

Key Employees

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

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

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

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

The following table summarizes information related to our grants of performance-based restricted stock units associated with senior executives and key employees that are unvested as of August 1, 2021:

Performance-Based

14 unchanged sentences

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

These amounts represent the number of shares that were expected to vest as of August 1, 2021.

These amounts represent the number of shares that were expected to vest as of October 31, 2021.

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

Price per share represents the fair market value per share ($ 1.03 per $1, or an increase of $ 0.55 to the closing price of our common stock on the date of grant) determined using the Monte Carlo simulation model for the market-based total shareholder return component and the closing price of our common stock ($ 18.49 ) for the performance-based component of the performance-based restricted stock units granted to senior executives on July 18, 2019.

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

The following table summarizes information related to our performance-based restricted stock units that vested during the three-month periods ending August 1, 2021, and August 2, 2020:

The following table summarizes information related to our performance-based restricted stock units that vested during the six-month periods ending October 31, 2021, and November 1, 2020:

Performance-Based

8 unchanged sentences

Price per share is derived from the closing price of our common stock on the date the respective performance-based restricted stock units vested.

We recorded a charge or a (credit) to compensation expense of $ 20,000 and $( 11,000 ) within selling, general, and administrative expenses for the three-month periods ending August 1, 2021, and August 2, 2020, respectively.

We recorded compensation expense of $ 109,000 and $ 89,000 within selling, general, and administrative expenses for the six-month periods ending October 31, 2021, and November 1, 2020, respectively.

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

If certain performance goals are not expected to be achieved, compensation cost would not be recorded, and any previously recognized compensation cost would be reversed.

As of August 1, 2021, the remaining unrecognized compensation cost related to our performance-based restricted stock units was $ 1.1 million, which is expected to be recognized over a weighted average vesting period of 2.8 years.

As of August 1, 2021, the performance-based restricted stock units that were expected to vest had a fair value totaling $ 1.1 million.

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

As of October 31, 2021, the remaining unrecognized compensation cost related to our performance-based restricted stock units was $ 1.1 million, which is expected to be recognized over a weighted average vesting period of 2.6 years.

As of October 31, 2021, the performance-based restricted stock units that were expected to vest had a fair value totaling $ 951,000 .

Time-Based Restricted Stock Units

The following table summarizes information related to our grants of time-based restricted stock unit awards associated with senior executives and key members of management that are unvested as of August 1, 2021:

Restricted Stock

8 unchanged sentences

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

We recorded compensation expense of $ 184,000 and $ 67,000 within selling, general, and administrative expenses associated with our time-based restricted stock unit awards for the three-month periods ending August 1, 2021, and August 2, 2020, respectively.

As of August 1, 2021, the remaining unrecognized compensation cost related to our time-based restricted stock units was $ 1.8 million, which is expected to be recognized over a weighted average vesting period of 1.3 years.

As of August 1, 2021, the time-based restricted stock units that are expected to vest had a fair value totaling $ 3.2 million.

We recorded compensation expense of $ 446,000 and $ 245,000 within selling, general, and administrative expenses associated with our time-based restricted stock unit awards for the six-month periods ending October 31, 2021, and November 1, 2020, respectively.

As of October 31, 2021, the remaining unrecognized compensation cost related to our time-based restricted stock units was $ 1.6 million, which is expected to be recognized over a weighted average vesting period of 2.0 years.

As of October 31, 2021, the time-based restricted stock units that are expected to vest had a fair value totaling $ 2.8 million.

Common Stock Award

We granted a total of 4,312 shares of common stock to our outside directors on July 1, 2021.

We granted a total of 6,426 and 4,312 shares of common stock to our outside directors on October 1, 2021 and July 1, 2021, respectively.

These shares of common stock vested immediately and were measured at their fair value on the date of grant.

The fair value of these awards was $ 16.24 per share on July 1, 2021, which represents the closing price of our common stock on the date of grant.

We granted a total of 7,000 shares of common stock to our outside directors on July 1, 2020.

The fair value of these awards was $ 13.03 and $ 16.24 per share on October 1, 2021 and July 1, 2021, respectively, which represents the closing price of our common stock on the date of grant.

We granted a total of 5,193 and 7,000 shares of common stock to our outside directors on October 1, 2020 and July 1, 2020, respectively.

These shares of common stock vested immediately and were measured at their fair value on the date of grant.

The fair value of these awards was $ 10.00 per share on July 1, 2020 which represents the closing price of our common stock on the date of grant.

We recorded $ 70,000 of compensation expense within selling, general, and administrative expenses for common stock awards to our outside directors for each of the three-month periods ending August 1, 2021, and August 2, 2020.

The fair value of these awards was $ 13.48 and $ 10.00 per share on October 1, 2020 and July 1, 2020, respectively, which represents the closing price of our common stock on the date of grant.

We recorded $ 154,000 and $ 140,000 of compensation expense within selling, general, and administrative expenses for common stock awards to our outside directors for the six-month periods ending October 31, 2021, and November 1, 2020.

We lease manufacturing facilities, showroom and office space, distribution centers, and equipment under operating lease arrangements.

Our operating leases have remaining lease terms of one to ten years , with renewal options for additional periods ranging up to twelve years .

Our operating leases have remaining noncancellable lease terms of one to ten years , with renewal options for additional periods ranging up to twelve years.

Balance Sheet

The right of use assets and lease liabilities associated with our operating leases as of August 1, 2021, August 2, 2020, and May 2, 2021, are as follows:

The right of use assets and lease liabilities associated with our operating leases as of October 31, 2021, November 1, 2020, and May 2, 2021, are as follows:

(dollars in thousands)

4 unchanged sentences

(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Operating lease liability payments

Right of use assets exchanged for lease liabilities

Operating lease expense for the three-month periods ended August 1, 2021, and August 2, 2020, was $ 876,000 and $ 658,000 , respectively.

Short-term lease and variable lease expenses were immaterial for the three-month periods ended August 1, 2021, and August 2, 2020.

Operating lease expense for the three-month periods ended October 31, 2021, and November 1, 2020, was $ 905,000 and $ 696,000 , respectively.

Operating lease expense for the six-month periods ended October 31, 2021, and November 1, 2020, was $ 1.8 million and $ 1.4 million, respectively.

Short-term lease and variable lease expenses were immaterial for the three-month and six-month periods ended October 31, 2021, and November 1, 2020.

Other Information

2 unchanged sentences

Present value of lease liabilities

As of August 1, 2021, the weighted average remaining lease term and discount rate for our operating leases follows:

August 1, 2021

As of October 31, 2021, the weighted average remaining lease term and discount rate for our operating leases follows:

October 31, 2021

Weighted average lease term

Weighted average discount rate

As of November 1, 2020, the weighted average remaining lease term and discount rate for our operating leases follows:

November 1, 2020

Weighted average lease term

Weighted average discount rate

Lease Contracts

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Effective April 9, 2021, we entered into an agreement to lease a 90,000 square foot facility located in a modern industrial park on the northeastern border of Haiti.

This facility will be dedicated to the production of cut and sewn upholstery kits and is expected to be operational during the second quarter of fiscal 2022.

This facility will be dedicated to the production of cut and sewn upholstery kits and is expected to be operational during the third quarter of fiscal 2022.

The lease agreement has an initial non-cancelable lease term of eight years , which will commence after the construction of the facility has been completed, and at such time we will have control of the facility based on the terms of the lease.

The rent payments for the initial term of the lease total $ 2.8 million and will be paid in advance of the commencement of the lease.

Of the $2.8 million rent payments, $ 1.4 million was paid during April 2021, $ 558,000 was paid during July 2021, $ 418,500 is due August 30, 2021, and $ 418,500 is due October 30, 2021, or 30 days after commencement of the lease as defined in the agreement.

As of August 1, 2021, the $ 2.0 million paid in April and July 2021 was classified as other assets in the accompanying Consolidated Balance Sheets.

The rent payments for the initial term of the lease total $ 2.8 million and will be paid in advance of commencement of the lease.

Of the $2.8 million rent payments, $ 1.4 million was paid during April 2021, $ 558,000 was paid during July 2021, $ 418,500 was paid during August 2021, and the remaining $ 418,500 is expected to be paid during the third quarter of fiscal 2022 within 30 days after commencement of the lease as defined in the agreement.

As of October 31, 2021, $ 2.4 million was paid in advance of the commencement of the lease and was classified as other assets in the accompanying Consolidated Balance Sheets.

The initial non-cancelable term of the lease can be subsequently renewed and extended for successive eight-year periods by written communication as defined in the lease agreement.

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This facility will be used to advance synergies between our upholstery fabrics and mattress fabrics business segments by bringing our creative talent together to collaborate, develop new products through shared innovation and technology, and meet with new and existing customers.

The lease agreement has an initial non-cancelable lease term of ten years , which will commence once certain lessor-owned leasehold improvements have been completed, and at such time we will have control of the facility based on the terms of the lease.

The rent payments for the initial term of the lease total $ 2.2 million and will be paid in monthly installments beginning at the commencement of the lease, which is expected to occur near the end of the second quarter of fiscal 2022.

The initial non-cancelable term of the lease can be subsequently renewed and extended up to four additional periods of three years each by written communication as defined in the lease agreement.

As of August 1, 2021, we had a commitment for the construction of leasehold improvements associated with this lease totaling $ 865,000 .

The lease agreement commenced during the second quarter of fiscal 2022, has an initial non-cancelable lease term of ten years , and requires lease payments totaling $ 2.2 million to be paid in monthly installments beginning November 1, 2021.

In addition to the required lease payments, we invested $ 995,000 in certain leasehold improvements that were determined to be lessor owned assets in accordance with ASC Topic 842, Leases and therefore, are classified as a right of use asset in the accompanying Consolidated Balance Sheets.

The initial noncancellable term of the lease can be subsequently renewed and extended up to four additional periods of three years each by written communication as defined in the lease agreement.

Commitments, Contingencies, and Guarantees

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Accounts Payable – Capital Expenditures

As of August 1, 2021, August 2, 2020, and May 2, 2021, we had total amounts due regarding capital expenditures totaling $ 48,000 , $ 333,000 , and $ 348,000 , respectively, which pertained to outstanding vendor invoices, none of which were financed.

As of October 31, 2021, November 1, 2020, and May 2, 2021, we had total amounts due regarding capital expenditures totaling $ 176,000 , $ 68,000 , and $ 348,000 , respectively, which pertained to outstanding vendor invoices, none of which were financed.

Purchase Commitments – Capital Expenditures

As of August 1, 2021, we had open purchase commitments to acquire equipment for our mattress fabrics segment totaling $ 1.2 million.

As of October 31, 2021, we had open purchase commitments to acquire equipment for our mattress fabrics segment totaling $ 810,000 .

Discontinued Operations

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As a result, the success of these agreements and the period of time in which our involvement with eLuxury is expected to continue are based on eLuxury’s ability to sell products that require mattress and upholstery fabrics and our ability to provide an additional sales channel for eLuxury to grow its business-to-business sales platform.

During the three-month periods ending August 1, 2021, and August 2, 2020, shipments to eLuxury under the supply agreement totaled $ 43,000 and $ 244,000 , respectively.

During the three-month periods ending August 1, 2021, and August 2, 2020, we received payments pursuant to the royalty agreement totaling $ 14,000 and $ 17,000 , respectively.

During the three-month and six-month periods ending October 31, 2021, shipments to eLuxury under the supply agreement totaled $ 40,000 and $ 83,000 , respectively.

During the three-month and six-month periods ending November 1, 2020, shipments to eLuxury under the supply agreement totaled $ 41,000 and $ 285,000 , respectively.

During the three-month and six-month periods ending October 31, 2021, we received payments pursuant to the royalty agreement totaling $ 14,000 and $ 28,000 , respectively.

During the three-month and six-month periods ending November 1, 2020, we received payments pursuant to the royalty agreement totaling $ 28,000 and $ 80,000 , respectively.

Financial Guarantee

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Our subsidiary located in China was required to transfer 10 % of its net income, as determined in accordance with the People’s Republic of China (PRC) accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reached 50 % of the company’s registered capital.

As of August 1, 2021, the statutory surplus reserve fund represents the 50 % registered capital requirement, and therefore, our subsidiary located in China is no longer required to transfer 10 % of its net income in accordance with PRC accounting rules and regulations.

As of October 31, 2021, the statutory surplus reserve fund represents the 50 % registered capital requirement, and therefore, our subsidiary located in China is no longer required to transfer 10% of its net income in accordance with PRC accounting rules and regulations.

The transfer to this reserve must be made before distributions of any dividend to shareholders.

As of August 1, 2021, the company’s statutory surplus reserve was $ 4.5 million.

As of October 31, 2021, the company’s statutory surplus reserve was $ 4.5 million.

The statutory surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any.

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The number 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 first quarter of fiscal 2022, we repurchased 48,686 shares of our common stock at a cost of $ 723,000 .

As a result, as of August 1, 2021, we had $ 4.3 million available for additional repurchases of our common stock.

During the first quarter of fiscal 2021, we did no t repurchase any shares of our common stock.

During the first half of fiscal 2022, we repurchased 121,688 shares of our common stock at a cost of $ 1.8 million.

As a result, as of October 31, 2021, we had $ 3.2 million available for additional repurchases of our common stock.

During the first half of fiscal 2021, we did no t repurchase any shares of our common stock.

Dividend Program

On September 1, 2021, our board of directors approved a quarterly cash dividend of $ 0.11 per share.

This payment will be made on October 18, 2021 , to shareholders of record as of October 11, 2021 .

During the first quarter of fiscal 2022, dividend payments totaled $ 1.4 million, which represented a quarterly dividend payment of $ 0.11 per share.

During the first quarter of fiscal 2021, dividend payments totaled $ 1.3 million, which represented a quarterly dividend payment of $ 0.105 per share.

On December 1, 2021, our board of directors approved a quarterly cash dividend of $ 0.115 per share.

This payment will be made on January 19, 2022 , to shareholders of record as of January 11, 2022 .

During the first half of fiscal 2022, dividend payments totaled $ 2.7 million, which represented quarterly dividend payments of $ 0.11 per share.

During the first half of fiscal 2021, dividend payments totaled $ 2.6 million, which represented quarterly dividend payments of $ 0.105 per share.

Our board of directors has sole authority to determine if and when we will declare future dividends and on what terms.

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In addition, the impact of potential goodwill or intangible asset impairments or valuation allowances could affect our financial results.

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.

Increases in freight costs, labor costs, and raw material prices, including increases in market prices for petrochemical products, can also significantly affect the prices we pay for shipping, labor, and raw materials, respectively, and in turn, increase our operating costs and decrease our profitability.

Finally, disruption in our customers’ supply chains for non-fabric components may cause declines in new orders and/or delayed shipping of existing orders while our customers wait for other components, which could adversely affect our financial results.

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 most recent Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission.

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

The three months ended August 1, 2021, and August 2, 2020, both represent 13-week periods.

The six months ended October 31, 2021, and November 1, 2020, both represent 26-week periods.

Our operations are classified into two business segments:

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We also commenced construction on a new leased facility in Haiti during the fourth quarter of last fiscal year.

This new operation will be dedicated to production of cut and sewn upholstery kits and is expected to begin operating during the second quarter of this fiscal year.

This new operation will be dedicated to production of cut and sewn upholstery kits and is now expected to begin operating during the third quarter of this fiscal year.

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

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Executive Summary

Cost of sales in each segment includes costs to develop, manufacture, or source our products, including costs such as raw material and finished good purchases, direct and indirect labor, overhead, and incoming freight charges.

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(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Gross profit margin

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Income tax expense

Six Months Ended

(dollars in thousands)

October 31, 2021

November 1, 2020

Gross profit margin

Selling, general, and administrative expenses

Income from operations

Operating margin

Income before income taxes

Income tax expense

Net income (loss)

Overall, our net sales for the first quarter of fiscal 2022 increased by 28.8% compared with the same period a year ago, with mattress fabrics sales increasing 19.3% and upholstery fabrics sales increasing 41.0%.

The first quarter of fiscal 2021 was negatively affected by the economic disruption caused by the COVID-19 pandemic, especially during the early part of the quarter.

The increase in net sales in both segments reflects increased demand for both our mattress and residential upholstery fabric products, as well as our ability to meet this demand and respond quickly to the needs of our customers through our flexible global platform and the support of our long-term supplier relationships.

It also reflects a price increase that was effective during the quarter for both divisions, which increased our consolidated net sales by approximately 2.5%.

Overall, our net sales for the second quarter of fiscal 2022 decreased by 3.0% compared with the same period a year ago, with mattress fabrics sales increasing 2.1% and upholstery fabrics sales decreasing 8.5%.

Our net sales for the first half of fiscal 2022 increased by 11.5%, compared with the same period a year ago, with mattress fabrics sales increasing 10.3% and upholstery fabrics sales increasing 13.0%.

The first half of fiscal 2021 was negatively affected by the economic disruption caused by the COVID-19 pandemic during the early months of the period.

The increase in net sales for our mattress fabrics segment for the second quarter reflects continued solid demand for our products compared to strong sales during the prior-year period, although sales were affected somewhat by our customers’ supply chain constraints for non-fabric components and their existing inventory levels for mattress fabrics and covers.

It also reflects a price increase that was effective during the quarter, as well as a surcharge that was implemented during the quarter, which together increased net sales for the division by approximately 4.6%.

The decrease in net sales for our upholstery fabrics segment for the second quarter reflects lower sales in our residential fabrics business due to COVID-19-related shutdowns of our sourcing partners and customers in Vietnam throughout most of the quarter, as well as our customers’ supply chain constraints for non-fabric components and labor shortages at their U.S.

facilities, which reduced our ability to ship prepared fabric orders.

The decrease was partially offset by a price increase and freight surcharge that were effective during the quarter, which increased net sales for the division by approximately 2.3%.

The increase in net sales in both segment s for the first half of fiscal 2022 reflect s increased demand for both our mattress and residential upholstery fabric products during the first quarter, as compared to the prior-year first quarter, which was negatively affected by disruption from the COVID-19 pandemic.

It also reflects our ability to meet this increased demand and respond quickly to the needs of our customers through our flexible global platform and the support of our long-term supplier relationship s .

The increase in net sales for the first half of fiscal 2022 was supplemented by a price increase that was effective during the first half of fiscal 2022 for both divisions, as well as a surcharge that w as implemented and effective during most of the second quarter for both divisions, which collectively increase d our consolidated net sales by approximately 2.8 % for the six-month period .

See the Segment Analysis section below for further details.

Income Before Income Taxes

Our income before income taxes for the first quarter of fiscal 2022 was $3.2 million, compared with $1.5 million for the prior-year period.

Our improved operating performance for the first quarter of fiscal 2022 primarily reflects higher sales as compared with the same period a year ago, partially offset by higher freight and raw material costs, unfavorable foreign exchange rate fluctuations associated with our operations in China and Canada, and operating inefficiencies due to labor shortages in the U.S.

Overall, our income before income taxes for the second quarter of fiscal 2022 was $1.3 million, compared with $3.9 million for the prior-year period, while income before income taxes for the first six months of fiscal 2022 was $4.5 million, compared with $5.4 million for the prior-year period.

Operating performance for the second quarter of fiscal 2022 was materially affected by lower sales as compared with the same period a year ago, as well as higher freight, raw material, and labor costs;

unfavorable foreign exchange rate fluctuations associated with our operations in China and Canada;

start-up costs for the new Haiti facility for our upholstery fabrics segment;

and operating inefficiencies due to labor shortages in the U.S.

and Canada for our mattress fabrics segment.

Operating performance for the first half of fiscal 2022 was also materially pressured by the same factors, but partially offset by higher sales for the six-month period, as compared with the same period a year ago.

See the Segment Analysis section below for further details.

We recorded income tax expense of $905,000, or 28.7% of income before income taxes, for the three-month period ended August 1, 2021, compared with income tax expense of $4.3 million, or 283.7% of income before income taxes, for the three-month period ended August 2, 2020.

We recorded income tax expense of $1.3 million, or 30.3% of income before income taxes, for the six-month period ending October 31, 2021, compared with income tax expense of $5.9 million, or 109.5% of income before income taxes, for the prior-year period.

This is due mostly to higher annual forecasted taxable income from our U.S.

operations as of the end of the first quarter of fiscal 2022 compared with the annual forecasted taxable income as of the end of the first quarter of fiscal 2021, which was affected by the ongoing disruption and uncertain economic conditions relating to the COVID-19 pandemic during the first quarter of fiscal 2021.

Income tax expense during the first quarter of fiscal 2021 was also affected by a $3.7 million net income tax charge, which consisted of a $7.2 million non-cash income tax charge to record a full valuation allowance against the company’s U.S.

operations as of the end of the second quarter of fiscal 2022, compared with lower annual forecasted taxable from our U.S.

operations as of the end of the second quarter of fiscal 2021.

Income tax expense during the first half of fiscal 2021 was also affected by a $4.2 million net income tax charge, which consisted of a $7.7 million non-cash income tax charge to record a full valuation allowance against the company’s U.S.

net deferred income tax assets, partially offset by a $3.5 million non-cash income tax benefit that re-established certain U.S.

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Treasury regulations regarding the Global Intangible Low Taxed Income (“GILTI”) tax provisions of the Tax Cuts and Jobs Act of 2017.

The $7.7 million non-cash income tax charge represents $7.0 million to provide for a full valuation allowance against our U.S.

net deferred income tax assets that existed at the beginning of fiscal 2021 and $713,000 to provide for a full valuation allowance against the U.S.

income tax loss carryforward that originated during fiscal 2021.

Refer to Note 13 of the consolidated financial statements for further details regarding our provision for income taxes.

As of August 1, 2021, our cash and cash equivalents, short-term investments (available for sale), and short-term and long-term investments (held-to-maturity) (collectively “cash and investments”) totaled $44.0 million compared with $46.9 million as of May 2, 2021.

The decrease in our cash and investments from the end of fiscal 2021 was mostly due to (i) $2.0 million of capital expenditures primarily related to our mattress fabrics segment and our innovation campus located in downtown High Point, NC, (ii) a cash payment of $1.4 million for a regular quarterly dividend payment to shareholders, and (iii) common stock repurchases totaling $723,000, partially offset by (iv) net cash provided by operating activities totaling $1.6 million.

Our net cash provided by operating activities was $1.6 million during the first quarter of fiscal 2022, compared with $10.6 million during the first quarter of fiscal 2021.

This decrease was mostly due to (i) increased inventory purchases due to increased sales volume, (ii) annual incentive plan award payments made during the first quarter of fiscal 2022 (compared with minimal payments made during the first quarter of fiscal 2021), (iii) an increase in income tax payments due primarily to an Alternative Minimum Tax credit refund of $745,000 received during the first quarter of fiscal 2021 that did not recur during fiscal 2022, and a withholding tax payment made to the Chinese government of $533,000 during the first quarter (such payment was not made until the third quarter of fiscal 2021), and (iv) payments relating to our new building lease associated with our upholstery cut and sewn operation located in Haiti, partially offset by (v) improved cash collections on accounts receivable resulting from more customers taking advantage of early payment discounts and their continuing return to making payments based on normal credit terms, rather than the extended terms previously granted in response to the COVID-19 pandemic.

As of August 1, 2021, there were no outstanding borrowings under our lines of credit.

As of October 31, 2021, our cash and cash equivalents, short-term investments (available for sale), and short-term and long-term investments (held-to-maturity) (collectively “cash and investments”) totaled $36.6 million compared with $46.9 million as of May 2, 2021.

The decrease in our cash and investments from the end of fiscal 2021 was mostly due to (i) $3.9 million of capital expenditures primarily related to our mattress fabrics segment, our innovation campus located in downtown High Point, NC, and equipment associated with information technology, (ii) cash payments totaling $2.7 million for regular quarterly dividend payments to shareholders, (iii) common stock repurchases totaling $1.8 million, and (iv) net cash used in operating activities totaling $1.3 million.

Our net cash used in operating activities was $1.3 million during the first half of fiscal 2022 compared with net cash provided by operating activities of $22.7 million during the first half of fiscal 2021.

This difference was mostly due to (i) a net increase in

cash that was generated during the first half of fiscal 2021 due to a significant surge in customer demand as a result of the focus-on-the-home trend that occurred as businesses began to re-open coming out of pandemic-related closures , which surge did not recur during the first half of fiscal 2022 ;

(ii) a decrease in accounts payable related to our return to normal credit terms with our vendors , as opposed to the extended terms previously granted in response to the COVID-19 pandemic ;

(iii) an increase in inventory to support our customers by accommodating their need to slow order uptake due to their supply chain constraints for non-fabric components , as well an increase in inventory purchases to strategically get ahead of anticipated increases in raw material costs and improve our in-stock position in anticipation of customer demand ahead of the upcoming Chinese New Year holiday;

(iv) a decrease in accrued expenses primarily due to annual incentive bonus compensation paid during the first quarter of fiscal 2022 ;

(v) $1.4 million in payments for the new building lease and start -up expenses associated our upholstery fabrics cut and sew operation located in Haiti ;

(vi) an increase in income tax payments mostly related to U.S.

A lternative Minimum Tax credit refunds totaling $1.5 million received during fiscal 2021 that will not recur during fiscal 2022 ;

partially offset by (vii) a decrease in accounts receivable related to our customers’ return to normal credit terms , rather than the extended terms previously granted in response to the COVID-19 pandemic.

As of October 31, 2021, there were no outstanding borrowings under our lines of credit.

Dividend Program

On September 1, 2021, our board of directors approved a quarterly cash dividend of $0.11 per share.

This payment will be made on October 18, 2021, to shareholders of record as of October 11, 2021.

During the first quarter of fiscal 2022, dividend payments totaled $1.4 million, which represented a quarterly dividend payment of $0.11 per share.

During the first quarter of fiscal 2021, dividend payments totaled $1.3 million, which represented a quarterly dividend payment of $0.105 per share.

On December 1, 2021, our board of directors approved a quarterly cash dividend of $0.115 per share, or $0.46 per share on an annualized basis.

This payment will be made on January 19, 2022, to shareholders of record as of January 11, 2022.

During the first half of fiscal 2022, dividend payments totaled $2.7 million, which represented quarterly dividend payments of $ 0.11 per share.

During the first half of fiscal 2021, dividend payments totaled $2.6 million, which represented quarterly dividend payments of $0.105 per share.

Common Stock Repurchases

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During the first quarter of fiscal 2022, we repurchased 48,686 shares of common stock at a cost of $723,000.

As a result, as of August 1, 2021, we had $4.3 million available for additional repurchases of our common stock.

During the first quarter of fiscal 2021, we did not repurchase any shares of our common stock.

During the first half of fiscal 2022, we repurchased 121,688 shares of our common stock at a cost of $1.8 million.

As a result, as of October 31, 2021, we had $3.2 million available for additional repurchases of our common stock.

During the first half of fiscal 2021, we did not repurchase any shares of our common stock.

Segment Analysis

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(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Gross profit margin

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Operating margin

Mattress fabrics sales increased 19.3% in the first quarter of fiscal 2022 compared to the prior-year period, which was adversely affected by disruption from the COVID-19 pandemic.

The increase in mattress fabrics net sales for the quarter reflects an increase in demand driven by the continued strength of our product offerings.

It was also supplemented by a price increase implemented during the quarter to help offset certain inflationary pressures, which increased net sales by approximately 3.0%.

During the quarter, the strength and flexibility of our global manufacturing and sourcing operations in the U.S., Canada, Haiti, Asia, and Turkey enabled us to support current demand levels and serve the needs of our mattress fabrics and cover customers.

We maintained our focus on product innovation, creative designs, and customer marketing during the quarter, and we further expanded our digital design platform to offer enhanced accessibility for our customers.

Demand trends for sewn mattress covers also remained strong, as our on-shore, near-shore, and off-shore supply chain strategy, as well as our fabric-to-cover model, continued to provide a preferred platform that provides customers with the agility and value they need for their business.

Looking ahead, we are faced with some continued near-term pressures relating to labor shortages and ongoing customer capacity limitations due to supply chain disruption for non-fabric components, but we expect that most of these headwinds are temporary.

Additionally, the ongoing impact of the COVID-19 pandemic remains unknown and depends on factors beyond our knowledge or control, including the duration and severity of the outbreak, actions taken to contain its spread and mitigate the public health and economic effects, the short- and long-term disruption of the global economy, consumer confidence, unemployment, employee health, and the financial health of our customers, suppliers, and distribution channels.

Six Months Ended

(dollars in thousands)

October 31, 2021

November 1, 2020

Gross profit margin

Selling, general, and administrative expenses

Income from operations

Operating margin

Mattress fabrics sales increased 2.1% in the second quarter of fiscal 2022, as compared to the prior-year period.

Mattress fabrics sales increased 10.3% for the first half of fiscal 2022, as compared to the first half of fiscal 2021, which was adversely affected during the early months by disruption from the COVID-19 pandemic.

The increase in mattress fabrics net sales for the second quarter reflects continued solid demand for our products compared to strong sales during the prior-year period, although sales were affected somewhat during the second quarter by our customers’ supply chain constraints for non-fabric components and their existing inventory levels for mattress fabrics and covers.

It also reflects a price increase that was in effect throughout the quarter, as well as a surcharge that was implemented during the quarter, which together increased net sales for the division by approximately 4.6% for the quarter.

During the quarter, we relied on our product-driven strategy with a focus on design creativity and innovation, supported by the utilization of our flexible, global manufacturing and sourcing operations in the U.S., Canada, Haiti, Asia, and Turkey, which enabled us to support current demand levels and serve the needs of our mattress fabrics and cover customers.

Demand trends for sewn mattress covers were negatively affected by our customers’ supply chain constraints and existing levels of cover inventory.

However, we continue to believe our on-shore, near-shore, and off-shore supply chain strategy, as well as our fabric-to-cover model, remains a preferred platform for our customers and continues to support our business.

The increase in mattress fabrics net sales for the first half of fiscal 2022 reflects an increase in demand primarily during the first quarter, as compared to the prior-year first quarter, which was negatively affected by disruption from the COVID-19 pandemic.

This sales increase was also supplemented by a price increase that was effective throughout the first half of fiscal 2022, as well as a surcharge that was implemented and in effect during much of the second quarter, to help offset certain inflationary pressures.

These pricing actions increased net sales by approximately 3.8% for the first half of fiscal 2022.

Looking ahead, we believe our market position remains solid, with strong new placements and product developments for fiscal 2023.

We expect some continued near-term pressures relating to our customers’ capacity limitations due to supply chain disruption for non-fabric components, but we expect that most of these headwinds are temporary.

Additionally, the impact of the COVID-19 pandemic, including the new Omicron variant, remains unknown and depends on factors beyond our knowledge or control, including the duration and severity of the outbreak, actions taken to contain its spread and mitigate the public health and economic effects, the short- and long-term disruption of the global economy, consumer confidence, unemployment, employee health, and the financial health of our customers, suppliers, and distribution channels.

At this time, we cannot reasonably estimate the ongoing impact of the COVID-19 pandemic on our mattress fabrics segment;

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Gross Profit, Selling, General & Administrative Expenses, and Operating Income

The increase in mattress fabrics profitability during the first quarter of fiscal 2022, as compared to the prior-year period, was primarily due to the higher mattress fabrics sales noted above, somewhat offset by increased raw material prices, freight costs, unfavorable foreign currency fluctuations in Canada and China, and inefficiencies due to labor shortages at our facilities in the U.S.

Our previously implemented price increase helped cover some inflationary pressures.

However, with the continued rapid rise in labor, freight, and raw material costs, we are implementing a surcharge during the second quarter to

further mitigate these pressures.

T his surcharge will not take effect until midway through the second quarter, resulting in a temporary cost-price lag that will affect our profitability during the period.

We expect continued near-term inflationary pressures relating to increasing labor, freight, and raw material costs, as well as ongoing foreign currency fluctuations in China and Canada.

We believe most of these headwinds are temporary and will be mitigated to some extent by the surcharge noted above, as well as our ongoing efforts to control costs.

The decrease in mattress fabrics profitability during the second quarter, as compared to the prior-year period, was primarily due to higher freight, raw material, and labor costs;

inefficiencies due to labor shortages at our facilities in the U.S.

and unfavorable foreign currency fluctuations in China and Canada.

Mattress fabrics profitability for the first half of fiscal 2022 was pressured by the same factors that affected the second quarter, partially offset by higher sales for the six-month period, as compared with the same period a year ago.

Our previously implemented price increase and surcharge have helped us offset a portion of the current inflationary pressures we are facing.

However, the lag in cost-price realization, along with some competitive market pressures that limit us from immediately passing on all of our cost increases, are expected to continue affecting our profitability during fiscal 2022.

We expect inflationary pressures relating to increasing labor, freight, and raw material costs, as well as ongoing foreign currency fluctuations in China and Canada, to continue over the near-term.

We believe most of these headwinds are temporary and will be mitigated to some extent by the pricing actions we have already implemented, as noted above, as well as our ongoing efforts to control our internal costs, improve efficiencies, and consider additional reasonable pricing actions to mitigate and manage inflation.

CLASS International Holdings, Ltd.

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(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Accounts receivable

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Accounts Receivable

As of August 1, 2021, accounts receivable increased by $2.4 million, or 15.6%, compared with August 2, 2020.

This increase reflects the significant increase in net sales during the first quarter of fiscal 2022 compared with the first quarter of fiscal 2021.

Net sales during the first quarter of fiscal 2021 were adversely affected by the economic disruption caused by the COVID-19 pandemic.

Although we experienced a substantial increase in net sales during the first quarter of fiscal 2022, the increase in accounts receivable was partially offset by improved cash collections during the first quarter of fiscal 2022 as compared with the first quarter of fiscal 2021.

The improved cash collections are due to more customers taking advantage of early payment discounts, as well as their continued return to making payments based on normal credit terms as opposed to the extended terms previously granted in response to the COVID-19 pandemic.

As of August 1, 2021, accounts receivable decreased by $2.4 million, or 11.8%, compared with May 2, 2021.

This decrease reflects improved cash collections during the first quarter of fiscal 2022 compared with the fourth quarter of fiscal 2021, as more customers started taking advantage of early payment discounts and also continued their return to making payments based on normal credit terms, as opposed to extended terms previously granted in response to the COVID-19 pandemic.

Days’ sales outstanding was 37 days for the first quarter of fiscal 2022, compared with 39 days for the first quarter of fiscal 2021 and 43 days for the fourth quarter of fiscal 2021.

As of August 1, 2021, inventory increased by $11.7 million, or 58.3%, compared August 2, 2020.

This increase reflects the significant increase in net sales during the first quarter of fiscal 2022 as compared with the first quarter of fiscal 2021.

Net sales during the first quarter of fiscal 2021 were adversely affected by the economic disruption caused by the COVID-19 pandemic.

As of August 1, 2021, inventory modestly increased by $1.7 million, or 5.8%, compared with May 2, 2021.

This increase represents management’s ability to maintain a consistent level of inventory that reflects our focus on inventory management and

aligning our inventory purchases to reflect current demand trends.

Net sales during the first quarter of fiscal 2022 and the fourth quarter of fiscal 2021 were $43.1 million and $42.9 million, respectively.

Inventory turns were 4.7 for the first quarter of fiscal 2022, compared with 5.9 for the first quarter of fiscal 2021 and 4.2 for the fourth quarter of fiscal 2021.

As of October 31, 2021, accounts receivable increased by $725,000, or 4.6%, compared with November 1, 2020.

This increase reflects the slight increase in net sales during the second quarter of fiscal 2022, as compared with the second quarter of fiscal 2021.

As of October 31, 2021, accounts receivable decreased by $3.8 million, or 18.5%, compared with May 2, 2021.

This decrease reflects improved cash collections during the second quarter of fiscal 2022 compared with the fourth quarter of fiscal 2021, as customers continued their return to making payments based on normal credit terms, as opposed to extended terms previously granted in response to the COVID-19 pandemic.

In addition, this decrease reflects the decrease in net sales during the second quarter of fiscal 2022 compared with the fourth quarter of fiscal 2021.

Net sales of $40.9 million during the second quarter of fiscal 2022 decreased by $2.0 million, or 4.8%, compared with net sales of $42.9 million during the fourth quarter of fiscal 2021.

Days’ sales outstanding was 37 days for the second quarter of fiscal 2022, compared with 36 days for the second quarter of fiscal 2021 and 43 days for the fourth quarter of fiscal 2021.

As of October 31, 2021, inventory increased by $10.3 million, or 42.6%, compared with November 1, 2020.

As of October 31, 2021, inventory increased by $4.5 million, or 14.8%, compared with May 2, 2021.

The increases in inventory reflects (i) support for our customers by accommodating their need to slow order uptake due to their supply chain constraints for non-fabric components, (ii) an increase in inventory purchase to strategically get ahead of anticipated increases in raw material costs, and (iii) an increase in inventory purchases to strategically improve our inventory position to support expected customer demand ahead of the upcoming Chinese New Year holiday.

Inventory turns were 4.2 for the second quarter of fiscal 2022, compared with 5.7 for the second quarter of fiscal 2021 and 4.2 for the fourth quarter of fiscal 2021.

Property, Plant, & Equipment

The $40.9 million as of August 1, 2021, represents property, plant, and equipment of $27.6 million, $12.4 million, and $875,000 located in the U.S., Canada, and Haiti, respectively.

The $39.6 million as of August 2, 2020, represents property, plant, and equipment of $27.0 million and $12.6 million located in the U.S.

The $40.2 million as of October 31, 2021, represents property, plant, and equipment of $26.8 million, $12.6 million, and $836,000 located in the U.S., Canada, and Haiti, respectively.

The $38.8 million as of November 1, 2020, represents property, plant, and equipment of $26.5 million and $12.3 million located in the U.S.

and Canada, respectively.

2 unchanged sentences

Right of Use Assets

The $4.1 million as of August 1, 2021, represents right of use assets of $2.3 million, $1.4 million, and $355,000 located Haiti, the U.S., and Canada, respectively.

The $832,000 as of August 2, 2020, represents right of use assets of $535,000 and $297,000 located in Canada and the U.S., respectively.

The $3.8 million as of October 31, 2021, represents right of use assets of $2.2 million, $1.3 million, and $309,000 located Haiti, the U.S., and Canada, respectively.

The $1.2 million as of November 1, 2020, represents right of use assets of $696,000 and $490,000 located in the U.S.

and Canada., respectively.

The $4.3 million as of May 2, 2021, represents right of use assets of $2.4 million, $1.4 million, and $400,000 located in Haiti, the U.S., and Canada, respectively.

As of August 1, 2021, and May 2, 2021, right of use assets have increased significantly from August 2, 2020.

This increase mostly represents (i) $2.5 million that related to building leases acquired from Class International Holdings, Ltd.

and (ii) $879,000 that related to the renewal and amendment of a building lease located in the U.S.

associated with our mattress cover operation.

As of October 31, 2021, and May 2, 2021, right of use assets have increased significantly from November 1, 2020.

This increase primarily represents (i) $2.5 million that related to building leases acquired from CIH during the fourth quarter of fiscal 2021;

(ii) $879,000 that related to the renewal and amendment of a building lease located in the U.S.

associated with our mattress cover operation during the fourth quarter of fiscal 2021;

partially offset by (iii) rent expense associated with executed lease agreements.

Investment in Unconsolidated Joint Venture

As of August 2, 2020, our investment in unconsolidated joint venture represented our 50% ownership in CIH and was accounted for under the equity method in accordance with ASC Topic 823.

As of November 1, 2020, our investment in unconsolidated joint venture represented our 50% ownership in CIH and was accounted for under the equity method in accordance with ASC Topic 823.

Accordingly, the carrying value of our investment in CIH was reported as a single line item in the Consolidated Balance Sheets titled “Investment in unconsolidated joint venture”.

7 unchanged sentences

(dollars in thousands)

August 1, 2021

August 2, 2020

Upholstery fabrics sales increased 41.0% in the first quarter of fiscal 2022 compared to the prior-year period, which was adversely affected by disruption from the COVID-19 pandemic.

The increase in upholstery fabrics net sales for the quarter reflects a significant increase in demand for our residential upholstery business compared to the prior-year period, partially offset by lower sales for Read Window Products in our hospitality business, which remained under significant pressure from the ongoing COVID-19 disruption that continues to affect the travel and leisure industries.

The increase in net sales for the first quarter also reflects a price increase that was implemented on products sold in the U.S.

to help offset unfavorable foreign currency exchange rate fluctuations associated with our operations in China.

This price increase accounted for approximately 1.5% of net sales for the quarter.

Our residential upholstery fabrics business continued to benefit from growth in our market reach, the flexibility of our Asian platform, and the success of our product innovation strategy, including the continued popularity of our LiveSmart ® product portfolio.

Our highly durable, stain-resistant LiveSmart ® performance fabrics, as well as our LiveSmart Evolve® performance plus sustainability fabrics, are important drivers of growth in our residential business.

These product lines continued to experience strong demand trends amidst consumer desire for cleanability, ease of maintenance, and environmentally-conscious products.

Looking ahead, we are encouraged by the demand trends in our residential upholstery business.

We expect that certain near-term headwinds, including customer supply chain constraints and ongoing pandemic-related disruptions such as quarantine and shutdown requirements currently affecting our sourcing partners in Vietnam, may temporarily pressure our business during fiscal 2022.

However, we believe that our flexible Asian platform and the addition of our new facility in Haiti near the end of the second quarter, as well as our long-term supplier relationships and product-driven strategy, will benefit us as we navigate these challenges.

Notably, the ongoing economic and health effects of the COVID-19 pandemic, as well as the duration of such effects, remain unknown and depend on factors beyond our control.

At this time, we cannot reasonably estimate the ongoing impact of the pandemic on our upholstery fabrics segment, but note that if conditions worsen, the impact on our employees, suppliers, consumers, and the global economy could adversely affect our operations and financial performance.

October 31, 2021

November 1, 2020

Six Months Ended

(dollars in thousands)

October 31, 2021

November 1, 2020

Upholstery fabrics sales decreased 8.5% in the second quarter of fiscal 2022 compared to the prior-year period.

Upholstery fabric sales increased 13.0% for the first half of fiscal 2022, as compared to the first half of fiscal 2021, which was adversely affected during the early months by disruption from the COVID-19 pandemic.

The decrease in upholstery fabrics net sales for the second quarter was primarily driven by lower sales in our residential business due to COVID-19-related shutdowns of our sourcing partners and customers in Vietnam throughout most of the quarter.

Residential sales were also pressured by our customers’ supply chain constraints for non-fabric components and labor shortages at their U.S.

facilities, which significantly reduced our ability to ship prepared fabric orders.

The decrease in sales was partially offset by a price increase and freight surcharge that were in effect during the quarter, which increased net sales for the division by approximately 2.3%.

Despite the headwinds in our residential business, we were encouraged by the recovery in our hospitality business during the second quarter, led by our hospitality/contract fabric business.

We also saw a measurable improvement in our Read business during the last month of the quarter.

We are pleased the shutdowns that affected our Vietnam customers and sourcing partners during the quarter have now been lifted, and we have resumed shipping at normalized capacity.

Additionally, we now expect to begin production at our new facility in Haiti during the third quarter, which will expand our capacity for cut and sewn upholstery kits.

The increase in upholstery fabrics net sales for the first half of fiscal 2022 reflects a significant increase in demand for our residential upholstery business during the first quarter, as compared to the first quarter of fiscal 2021, partially offset by lower sales for Read in our hospitality business, which remained under significant pressure from the ongoing COVID-19 disruption that continues to affect the travel and leisure industries.

The increase in net sales for the first half of fiscal 2022 also reflects a price increase that was effective during the period on products sold in the U.S.

to help offset unfavorable foreign currency exchange rate fluctuations associated with our operations in China, as well as a freight surcharge implemented during the second quarter.

Together, this price increase and freight surcharge accounted for approximately 1.7% of net sales for the first half of fiscal 2022.

Looking ahead, there are lingering near-term challenges related to our customers’ supply chain constraints and existing levels of fabric inventory for our residential business, which may temporarily pressure our business during the remainder of fiscal 2022.

Also, while we believe demand trends remain favorable for the home furnishings industry, there is an expected slowdown in new business from the peak experienced during the post-COVID stay-at-home surge.

Despite the headwinds, we believe our product-driven strategy and innovative product offerings, including our popular portfolio of LiveSmart® performance products, as well as our flexible Asian platform, our long-term supplier relationships, and our expanded capacity in Haiti, will benefit us as we navigate these challenges.

Notably, the ongoing economic and health effects of the COVID-19 pandemic, including the new Omicron variant, as well as the duration of such effects, remain unknown and depend on factors beyond our control.

At this time, we cannot reasonably estimate the impact of the pandemic on our upholstery fabrics segment, but note that if conditions worsen, the impact on our employees, suppliers, consumers, and the global economy could adversely affect our operations and financial performance.

Gross Profit, Selling, General & Administrative Expenses, and Operating Income

1 unchanged sentence

(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Gross profit margin

2 unchanged sentences

Operating margin

The decrease in upholstery fabrics profitability for the first quarter of fiscal 2022, as compared to the prior-year period, primarily reflects a dramatic increase in freight costs, unfavorable foreign currency fluctuations associated with our operations in China, lower sales in Read, and start-up costs for our new Haiti facility.

Looking ahead, we expect that further pressures relating to rising freight and U.S.

labor costs, as well as ongoing China foreign exchange rate fluctuations and additional start-up costs for our new facility in Haiti, may temporarily pressure our profitability during fiscal 2022.

Our previously implemented price increase has helped offset foreign currency exchange rate fluctuations to some extent, as intended, but we are implementing an additional freight surcharge during the second quarter to help mitigate a continued rise in freight costs.

Six Months Ended

(dollars in thousands)

October 31, 2021

November 1, 2020

Gross profit margin

Selling, general, and administrative expenses

Income from operations

Operating margin

The decrease in upholstery fabrics profitability for the second quarter and the first half of fiscal 2022, as compared to the applicable prior-year periods, primarily reflects lower sales in our residential business during the second quarter, as well as higher freight and material costs, start-up costs for our new Haiti cut and sew facility, unfavorable foreign currency fluctuations associated with our operations in China, lower sales from Read, and higher selling, general, and administrative expenses.

The increase in selling, general, and administrative expenses during the second quarter and first half of fiscal 2022, as compared to the prior-year periods, is mostly due to higher salary, marketing, and design expenses, partially offset by lower incentive compensation expense reflecting unfavorable financial results in relation to pre-established performance targets and lower sales commissions reflecting the decrease in net sales.

Looking ahead, we expect that further pressures relating to rising freight costs, material prices, and U.S.

labor costs, as well as ongoing China foreign exchange rate fluctuations and additional start-up costs for our new facility in Haiti, may temporarily pressure our profitability during the remainder of fiscal 2022.

Our previously implemented price increase and freight surcharge have helped offset foreign currency exchange rate fluctuations and rising freight costs to some extent, as intended, but due to the continued rapid rise in operating and material costs, we are instituting an additional price increase during the third quarter to help cover a portion of these inflationary pressures.

Segment Assets

1 unchanged sentence

(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

Accounts receivable

3 unchanged sentences

Accounts Receivable

As of August 1, 2021, accounts receivable increased by $2.7 million, or 18.8%, compared with August 2, 2020.

This increase reflects the significant increase in net sales during the first quarter of fiscal 2022, as compared with the first quarter of fiscal 2021.

Net sales during the first quarter of fiscal 2021 were adversely affected by the economic disruption caused by the COVID-19 pandemic.

The improved cash collections were due to our customers’ continuing return to making payments based on normal credit terms as opposed to the extended terms previously granted in response to the COVID-19 pandemic.

As of August 1 , 2021 , accounts receivable modestly decreased by 1.8 %, as compared with May 2 , 202 1 .

This decrease reflects improved cash collections due to our customers’ continuing return to making payments based on normal credit terms as opposed to extended terms previously granted in response to the COVID-19 pandemic.

Although we experienced a substantial improvement in cash collections during the first quarter of fiscal 2022, the decrease in accounts receivable was partially offset by an increase in net sales during the first quarter of fiscal 2022, as compared with the fourth quarter of fiscal 2021, due to plant shutdowns for the Chinese New Year holiday that occurred during the fourth quarter of fiscal 2021.

Net sales were $ 40.0 million during the first quarter of fiscal 2022 , an increase of $3.9 million, or 10.8%, compared with $36.1 million during the fourth quarter of fiscal 2021.

Days’ sales outstanding were 38 days during the first quarter of fiscal 2022, as compared with 44 days during the first quarter of fiscal 2021 and 42 days during the fourth quarter of fiscal 2021.

As of August 1, 2021, inventory increased by $6.5 million, or 32.0%, compared with August 2, 2020.

This increase reflects the significant increase in net sales during the first quarter of fiscal 2022 compared with the first quarter of fiscal 2021.

Net sales during the first quarter of fiscal 2021 were adversely affected by the economic disruption caused by the COVID-19 pandemic.

As of August 1, 2021, inventory increased by $1.0 million, or 3.7%, compared with May 2, 2021.

This increase reflects the increase in net sales during the first quarter of fiscal 2022, compared with the fourth quarter of fiscal 2021, due to plant shutdowns for the Chinese New Year holiday that occurred during that period, as noted above.

Net sales were $40.0 million during the first quarter of fiscal 2022, an increase of $3.9 million, or 10.8%, compared with $36.1 million during the fourth quarter of fiscal 2021.

Inventory turns were 4.9 for the first quarter of fiscal 2022, as compared with 4.3 for the first quarter of fiscal 2021 and 4.6 for the fourth quarter of fiscal 2021.

As of October 31, 2021, accounts receivable decreased by $1.4 million, or 8.0%, compared with November 1, 2020.

This decrease primarily reflects the decrease in net sales during the second quarter of fiscal 2022 compared with the second quarter of fiscal 2021, as noted above.

As of October 31, 2021, accounts receivable decreased by $1.6 million, or 9.4%, as compared with May 2, 2021.

This decrease reflects the decrease in net sales during the second quarter of fiscal 2022 compared with the fourth quarter of fiscal 2021.

Net sales were $33.7 million during the second quarter of fiscal 2022, a decrease of $2.4 million, or 6.8%, compared with net sales of $36.1 million during the fourth quarter of fiscal 2021.

Days’ sales outstanding was 41 days during the second quarter of fiscal 2022, compared with 41 days during the second quarter of fiscal 2021 and 42 days during the fourth quarter of fiscal 2021.

As of October 31, 2021, inventory increased by $5.8 million, or 24.5%, compared with November 1, 2020.

As of October 31, 2021, inventory increased by $3.4 million, or 13.2%, compared with May 2, 2021.

The increases in inventory reflects (i) support for our customers by accommodating their need to slow order uptake due to their supply chain constraints for non-fabric components, (ii) an increase in inventory purchase to strategically get ahead of anticipated increases in material costs, and (iii) an increase in inventory purchases to strategically improve our inventory position to support expected customer demand ahead of the upcoming Chinese New Year holiday.

Inventory turns were 4.3 for the second quarter of fiscal 2022, compared with 5.3 for the second quarter of fiscal 2021 and 4.6 for the fourth quarter of fiscal 2021.

Property, Plant, & Equipment

The $2.1 million as of August 1, 2021, represents property, plant, and equipment of $1.1 million, $830,000, and $130,000 located in the U.S., China, and Haiti, respectively.

The $1.6 million as of August 2, 2020, represents property, plant, and equipment of $1.2 million and $456,000 located in the U.S.

The $2.1 million as of October 31, 2021, represents property, plant, and equipment of $1.1 million, $798,000, and $242,000 located in the U.S., China, and Haiti, respectively.

The $2.0 million as of November 1, 2020, represents property, plant, and equipment of $1.1 million and $904,000 located in the U.S.

and China, respectively.

3 unchanged sentences

Right of Use Assets

The $6.0 million as of August 1, 2021, represents right of use assets of $4.6 million and $1.4 million located in China and the U.S., respectively.

The $3.8 million as of August 2, 2020, represents right of use assets of $3.1 million and $710,000 located in China and the U.S., respectively.

The $5.5 million as of October 31, 2021, represents right of use assets of $4.3 million and $1.2 million located in China and the U.S., respectively.

The $3.3 million as of November 1, 2020, represents right of use assets of $2.7 million and $561,000 located in China and the U.S., respectively.

The $5.9 million as of May 2, 2021, represents right of use assets of $5.0 million and $952,000 located in China and the U.S., respectively.

Effective April 9, 2021, we entered into an agreement to lease a 90,000 square foot facility located in a modern industrial park on the northeastern border of Haiti.

The lease term is expected to commence during the second quarter of fiscal 2022, after construction of the facility has been completed, and at such time, we will have control of the facility based on the terms of the lease.

The lease term is now expected to commence during the third quarter of fiscal 2022, after construction of the facility has been completed, and at such time, we will have control of the facility based on the terms of the lease.

As a result, right of use assets are expected to increase by $2.8 million at the commencement of the lease.

2 unchanged sentences

(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

SG&A expenses

Interest income

Other expense

Six Months Ended

(dollars in thousands)

October 31, 2021

November 1, 2020

SG&A expenses

Interest expense

2 unchanged sentences

Selling, General, and Administrative Expenses

The increase in selling, general, and administrative expenses during the first quarter of fiscal 2022, as compared with the first quarter of fiscal 2021, is mostly due to our significant cost cutting measures during the fourth quarter of fiscal 2020 that continued into the first quarter of fiscal 2021 as part of our comprehensive response to the COVID-19 global pandemic.

cost cutting measures primarily related to compensation and included ( i ) temporary salary reductions, (ii) workforce adjustments to align with demand, (iii) suspended merit pay increases, and (iv) aggressively reduced discretionary spending such as professional fees and travel and entertainment expenses.

The decrease in selling, general, and administrative expenses during the second quarter of fiscal 2022, as compared with the second quarter of fiscal 2021, is mostly due to (i) lower incentive compensation expense reflecting unfavorable financial results in relation to pre-established performance targets and (ii) lower sales commissions reflecting the decrease in net sales, partially offset by (iii) higher salary, marketing, and design expenses associated with our upholstery fabrics segment.

The increase in selling, general, and administrative expenses during the first half of fiscal 2022, as compared with the first half of fiscal 2021, is due mostly to (i) our significant cost cutting measures during the fourth quarter of fiscal 2020 that continued into the first quarter of fiscal 2021 as part of our comprehensive response to the COVID-19 global pandemic, and which trend did not recur during the first half of fiscal 2022, and (ii) higher salary, marketing, and design expenses associated with our upholstery fabrics segment, partially offset by (iii) lower incentive compensation expense reflecting unfavorable financial results in relation to pre-established performance targets.

Interest Expense

During the first quarter of fiscal 2022, we did not incur any interest expense, as we did not have any borrowings outstanding during such time.

During the first quarter of fiscal 2021, interest expense was attributable to interest paid on amounts borrowed during the fourth quarter of fiscal 2020 in connection with the economic uncertainty and disruption associated with the COVID-19 global pandemic.

During the first half of fiscal 2022, we did not incur any interest expense, as we did not have any borrowings outstanding during such time.

During the first half of fiscal 2021, interest expense was attributable to interest paid on amounts borrowed during the fourth quarter of fiscal 2020 in connection with the economic uncertainty and disruption associated with the COVID-19 global pandemic.

During the fourth quarter of fiscal 2020, we borrowed $30.8 million under our lines of credit and applied for and received a $7.6 million loan under the SBA’s Paycheck Protection Program.

1 unchanged sentence

Interest Income

Interest income reflects interest earned on our current investments of excess cash held in (i) money market funds, (ii) bond, other fixed income, and equity-related mutual funds, and (iii) investment-grade U.S.

Interest income mostly reflects investment income earned on our current investments of excess cash held in (i) money market funds, (ii) bond, other fixed income, and equity-related mutual funds, and (iii) investment-grade U.S.

corporate, foreign, and government bonds, as well as (iv) interest earned on a money market fund and equity-related mutual fund investment associated with our rabbi trust that funds our deferred compensation plan.

The increase in interest income during the first quarter of fiscal 2022, as compared with the first quarter of fiscal 2021, reflects an increase in our investments during the first quarter of fiscal 2022 as compared with the first quarter of fiscal 2021.

Our investments include short-term investments (available for sale), short-term and long-term investments (held-to-maturity), and long-term investments associated with our rabbi trust.

These investments totaled $26.8 million and $15.3 million as of August 1, 2021, and August 2, 2020, respectively.

Other Expense

The decrease in other expense during the first quarter of fiscal 2022, as compared with the first quarter of fiscal 2021, was due mostly to more favorable foreign currency exchange rates applied against balance sheet accounts denominated in Chinese Renminbi to determine the corresponding U.S.

In accordance with ASC Topic 830 Foreign Currency Matters , management assesses certain economic factors to determine the currency of the primary economic environment in which our foreign subsidiaries operate.

Based on our assessments, the U.S.

dollar was determined to be the functional currency of our operations located in China and Canada.

The decreases in other expense during the three-month and six-month periods of fiscal 2022 compared with the three-month and six-month periods of fiscal 2021 were due mostly to more favorable foreign exchange rates applied against our balance sheet accounts denominated in Chinese Renminbi to determine the corresponding U.S.

dollar financial reporting amounts.

During the first quarter of fiscal 2022, we reported a foreign exchange loss associated with our operations located in China of $9,000 compared with $139,000 for the first quarter of fiscal 2021.

During the three-month and six-month periods of fiscal 2022, we reported foreign exchange rate losses associated with our operations located in China of $151,000 and $160,000, respectively.

During the three-month and six-month periods of fiscal 2021, we reported foreign exchange rate losses associated with our operations located in China of $551,000 and $690,000, respectively.

In addition, the $160,000 and $690,000 foreign exchange losses for the six-month periods of fiscal 2022 and 2021, respectively, were partially offset by income tax benefits totaling $72,000 and $650,000 for the six-month periods of fiscal 2022 and 2021, respectively.

These income tax benefits were associated with income tax deductible foreign exchange rate losses based on more unfavorable foreign exchange rates applied against balance sheet accounts denominated in U.S.

dollars to determine the corresponding Chinese Renminbi local currency amounts.

The foreign exchange rate losses incurred on our U.S.

dollar denominated balance sheet accounts associated with our operations located in China are income tax deductible as we incur income tax expense and pay income taxes in China’s local currency.

See the Income Taxes – Effective Income Tax Rate & Income Tax Expense section below for further details on the income tax effects of the foreign exchange rate losses (gains) associated with our China operations on our consolidated effective income tax rate for the six-month periods ended October 31, 2021 and November 1, 2020, respectively.

Effective Income Tax Rate & Income Tax Expense

We recorded income tax expense of $1.3 million, or 30.3% of income before income taxes, for the six-month period ending October 31, 2021, compared with income tax expense of $5.9 million, or 109.5% of income before income taxes, for the six-month period ending November 1, 2020.

This loss limitation rule requires any taxable loss associated with our U.S.

or foreign operations to be excluded from the annual estimated effective income tax rate calculation if it was determined that no tax benefit could be recognized during the current fiscal year.

or foreign operations to be excluded from the annual estimated effective income tax rate calculation if it is determined that no income tax benefit could be recognized during the current fiscal year.

The effective income tax rate can be affected over the fiscal year by the mix and timing of actual earnings from our U.S.

1 unchanged sentence

The following schedule summarizes the principal differences between income tax expense at the U.S.

federal income tax rate and the effective income tax rate reflected in the consolidated financial statements for the three-month periods ending August 1, 2021, and August 2, 2020:

Three Months Ended

August 1, 2021

August 2, 2020

federal income tax rate and the effective income tax rate reflected in the consolidated financial statements for the six-month periods ending October 31, 2021, and November 1, 2020:

Six Months Ended

October 31, 2021

November 1, 2020

federal income tax rate

4 unchanged sentences

Global Intangible Low Taxed Income Tax ("GILTI")

Tax effects of deductible foreign exchange rate losses

This is due mostly to higher annual forecasted taxable income from our U.S.

operations as of the end of the first quarter of fiscal 2022, as compared with lower annual forecasted taxable income as of the end of the first quarter of fiscal 2021.

operations as of the end of the second quarter of fiscal 2022, compared with lower annual forecasted taxable from our U.S.

operations as of the end of the second quarter of fiscal 2021.

Effective July 20, 2020, the U.S.

6 unchanged sentences

federal net operating loss carryforwards.

This $ 3.5 million income tax benefit was recorded as a discrete event in which its full income tax effects were recorded in the first quarter of fiscal 2021.

This $3.5 million income tax benefit was recorded as a discrete event in which its full income tax effects were recorded in the first quarter and the six-month year-to-date period of fiscal 2021.

Additionally, we met the requirements for the High-Tax exception for our 2021 fiscal year, and therefore, were not subject to GILTI tax.

20 unchanged sentences

net deferred income tax assets.

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

As of August 1, 2021, we evaluated the realizability of our U.S.

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

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

This $7.0 million income tax charge was recorded as a discrete event in which its full income tax effects were recorded during the first quarter and the six-month year-to-date period of fiscal 2021.

As of October 31, 2021, we evaluated the realizability of our U.S.

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

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

taxable losses, in that we experienced U.S.

taxable losses during each of the fiscal years 2020 and 2021.

In addition, as of August 1, 2021, we are currently expecting U.S.

In addition, as of October 31, 2021, we are currently expecting U.S.

taxable income during fiscal 2022 stemming from the source of taxable income provided by GILTI noted above.

4 unchanged sentences

net deferred income tax assets.

Based on our assessments as of August 1, 2021, August 2, 2020, and May 2, 2021, valuation allowances against our net deferred income taxes pertain to the following:

Based on our assessments as of October 31, 2021, November 1, 2020, and May 2, 2021, valuation allowances against our net deferred income taxes pertain to the following:

(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

federal and state net deferred income tax assets

1 unchanged sentence

Undistributed Earnings

Refer to Note 13 of the consolidated financial statements for disclosures regarding our assessments of our recorded deferred income tax liability balances associated with undistributed earnings from our foreign subsidiaries as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively.

Refer to Note 13 of the consolidated financial statements for disclosures regarding our assessments of our recorded deferred income tax liability balances associated with undistributed earnings from our foreign subsidiaries as of October 31, 2021, November 1, 2020, and May 2, 2021, respectively.

Uncertain Income Tax Positions

Refer to Note 13 located of the consolidated financial statements for disclosures regarding our assessments of our uncertain income tax positions as of August 1, 2021, August 2, 2020, and May 2, 2021, respectively.

Income Taxes Paid

Refer to Note 13 located of the consolidated financial statements for disclosures regarding our assessments of our uncertain income tax positions as of October 31, 2021, November 1, 2020, and May 2, 2021, respectively.

Income Taxes Paid (Refunded)

The following table sets forth taxes paid (refunded) by jurisdiction:

Three Months Ended

Six Months Ended

(dollars in thousands)

October 31, 2021

November 1, 2020

United States Federal - Alternative Minimum Tax

(AMT) credit refunds (1)

(1) In accordance with the provisions of the TCJA, corporate taxpayers were eligible to treat prior AMT credit carryforwards as refundable.

Accordingly, we elected to treat our prior AMT credit carryforward balance of $1.5 million as refundable, and as a result, 50% of the $1.5 million refundable balance was received during the first quarter of fiscal 2021, with the remaining balance expected to be received in fiscal 2022.

In accordance with the provisions of the U.S.

federal Coronavirus Aid, Relief, and Economic Security (CARES) Act (2020), 100% of AMT credit carryforwards for years beginning in the 2019 tax year were immediately refundable.

Accordingly, we claimed credit for the remaining 50% installment of our refundable AMT credit carryforward in May 2020.

We received our remaining 50% installment, plus interest, totaling $764,000 during the second quarter of fiscal 2021.

United States Transition Tax Payment

China - Income Taxes

China - Withholding Taxes Associated with Earnings

and Profits Distribution to U.S.

Canada - Income Taxes

(1) In accordance with the provisions of the TCJA, we elected to treat our prior AMT credit carryforward balance of $1.5 million as refundable.

We received our $1.5 million refundable balance in two separate installments totaling $746,000 and $764,000 during the first and second quarters of fiscal 2021, respectively.

Future Liquidity

We are currently projecting annual cash income tax payments of approximately $3.6 million for fiscal 2022, compared with $3.0 million for fiscal 2021.

The increase in our income tax payments mostly represents U.S.

The increase mostly represents U.S.

AMT credit refunds totaling $1.5 million that were received during fiscal 2021 that will not recur during fiscal 2022.

Our estimated cash income tax payments for fiscal 2022 are management’s current projections only and can be affected over the year by actual earnings from our foreign subsidiaries located in China and Canada versus annual projections, as well as changes in the foreign exchange rates associated with our China operations in relation to the U.S.

This increase is expected to be partially offset by a significant decrease in income tax payments associated with our Canadian operation resulting from several significant capital projects that will be placed into service during fiscal 2022 that will be eligible for a significant amount of deductible accelerated depreciation.

Our estimated cash income tax payments for fiscal 2022 are management’s current projections only and can be affected over the year by actual earnings from our foreign subsidiaries located in China and Canada versus annual projections, changes in the foreign exchange rates associated with our China operations in relation to the U.S.

dollar, as well as the timing of when significant capital projects will be placed into service, which determines the deductibility of accelerated depreciation.

Additionally, we currently expect to pay minimal income taxes in the U.S.

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These sources have been adequate for day-to-day operations, capital expenditures, debt payments, common stock repurchases, and dividend payments.

We believe our cash and cash equivalents of $26.0 million and short-term investments (available for sale) of $9.7 million as of August 1, 2021, cash flow from operations, and the current availability ($38.2 million) under our revolving credit lines will be sufficient to fund our foreseeable business needs and our contractual obligations.

Our net cash provided by operating activities of $1.6 million decreased during the first quarter of fiscal 2022, as compared with $10.6 million during the first quarter of fiscal 2021.

withholding tax payment made to the Chinese government of $533,000 during the first quarter ( such payment was not made until the third quarter of fiscal 2021 ) , and (iv) payments relating to our new building lease associated with our upholstery cut and sew n operation located in Haiti, partially offset by (v) improved cash collections on accounts receivable resulting from more customers taking advantage of early payment discounts and their continuing return to making payments based on normal credit terms , rather than the extended terms previously granted in response to the COVID-19 pandemic.

As of August 1, 2021, there were no outstanding borrowings under our lines of credit.

We believe our cash and cash equivalents of $17.0 million and short-term investments (available for sale) of $9.7 million as of October 31, 2021, cash flow from operations, and the current availability ($38 million) under our revolving credit lines will be sufficient to fund our foreseeable business needs and our contractual obligations.

Our net cash used in operating activities was $1.3 million during the first half of fiscal 2022, compared with net cash provided by operating activities of $22.7 million during the first half of fiscal 2021.

This difference was mostly due to a net increase in cash generated by a significant surge in customer demand as a result of the focus-on-the-home trend that occurred as businesses began to re-open coming out of pandemic-related closures, which surge did not recur during the first half of fiscal 2022;

(ii) a decrease in accounts payable related to our return to normal credit terms with our vendors, as opposed to the extended terms previously

granted in response to the COVID-19 pandemic ;

(iii) an increase in inventory to support our customers by accommodat ing their need to slow order uptake due to their supply chain constraints for non-fabric components, as well as an increase in inventory purchases to strategically get ahead of anticipated increase s in raw material costs and improve our in-stock position in anticipation of customer demand ahead of the upcoming Chinese New Year holiday ;

(iv) a decrease in accrued expenses primarily due to annual incentive bonus compensation paid during the first quarter of fiscal 2022 ;

(v) $1.4 million in payments for the new building lease and start -up expenses associated our upholstery cut and sew operation located in Haiti ;

(vi) an increase in income tax payments mostly related to U.S.

A lternative Minimum Tax credit refunds totaling $1.5 million received during fiscal 2021 that will not recur during fiscal 2022 ;

As of October 31, 2021, there were no outstanding borrowings under our lines of credit.

The income taxes we pay also affects our liquidity.

See the section titled “Income Taxes Paid” of this Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION section for further details.

Our cash and cash equivalents and short-term investments (available for sale) balance may be adversely affected by factors beyond our control, such as the continuing uncertainty of the COVID-19 global pandemic, lower net sales due to consumer demand, and delays in receipt of payment on accounts receivable.

Additionally, we expect our cash liquidity to be affected by strategic investments in working capital, planned capital expenditures, and investments in our operations located in Haiti, with a significant portion of this spending occurring during the second quarter of fiscal 2022.

Looking ahead, we expect our cash liquidity to be affected by strategic investments in working capital, planned capital expenditures, and investments in our operations located in Haiti, with a significant portion of this spending occurring during the second half of fiscal 2022.

By Geographic Area

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(dollars in thousands)

August 1, 2021

August 2, 2020

October 31, 2021

November 1, 2020

United States

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During the first quarter of fiscal 2022, we repurchased 48,686 shares of common stock at a cost of $723,000.

As a result, as of August 1, 2021, we had $4.3 million available for additional repurchases of our common stock.

During the first quarter of fiscal 2021, we did not repurchase any shares of our common stock.

During the first half of fiscal 2022, we repurchased 121,688 shares of our common stock at a cost of $1.8 million.

As a result, as of October 31, 2021, we had $3.2 million available for additional repurchases of our common stock.

During the first half of fiscal 2021, we did not repurchase any shares of our common stock.

Dividend Program

On September 1, 2021, our board of directors approved a quarterly cash dividend of $0.11 per share.

This payment will be made on October 18, 2021, to shareholders of record as of October 11, 2021.

During the first quarter of fiscal 2022, dividend payments totaled $1.4 million, which represented a quarterly dividend payment of $0.11 per share.

During the first quarter of fiscal 2021, dividend payments totaled $1.3 million, which represented a quarterly dividend payment of $0.105 per share.

On December 1, 2021, our board of directors approved a quarterly cash dividend of $0.115 per share.

This payment will be made on January 19, 2022, to shareholders of record as of January 11, 2022.

During the first half of fiscal 2022, dividend payments totaled $2.7 million, which represented quarterly dividend payments of $ 0.11 per share.

During the first half of fiscal 2021, dividend payments totaled $2.6 million, which represented quarterly dividend payments of $0.105 per share.

Our board of directors has sole authority to determine if and when we will declare future dividends, and on what terms.

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Operating Working Capital

Operating working capital (accounts receivable and inventories, less accounts payable-trade, accounts payable-capital expenditures, and deferred revenue) was $47.6 million as of August 1, 2021, compared with $43.5 million as of August 2, 2020, and $50.2 million as of May 2, 2021.

Operating working capital turnover was 6.9 during the first quarter of fiscal 2022, compared with 5.0 during the first quarter of fiscal 2021 and 6.4 during the fourth quarter of fiscal 2021.

Operating working capital (accounts receivable and inventories, less accounts payable-trade, accounts payable-capital expenditures, and deferred revenue) was $54.7 million as of October 31, 2021, compared with $42.0 million as of November 1, 2020, and $50.2 million as of May 2, 2021.

Operating working capital turnover was 6.5 during the second quarter of fiscal 2022, compared with 5.3 during the second quarter of fiscal 2021 and 6.4 during the fourth quarter of fiscal 2021.

Accounts Receivable

Accounts receivable were $35.0 million as of August 1, 2021, and increased $5.1 million, or 17.1%, compared with $29.9 million as of August 2, 2020.

This increase reflects the significant increase in net sales during the first quarter of fiscal 2022 as compared with the first quarter of fiscal 2021.

Net sales during the first quarter of fiscal 2021 were adversely affected by the economic disruption caused by the COVID-19 pandemic.

The improved cash collections are due to more customers taking advantage of early payment discounts, as well as their continuing return to making payments based on normal credit terms as opposed to the extended terms previously granted in response to the COVID-19 pandemic.

Accounts receivable as of August 1, 2021, decreased $2.7 million, or 7.2%, compared with $37.7 million as of May 2, 2021.

This decrease reflects improved cash collections due to more customers taking advantage of early payment discounts, as well as their continuing return to making payments based on normal credit terms as opposed to extended terms previously granted in response to the COVID-19 pandemic.

Although we experienced a substantial improvement in cash collections during the first quarter of fiscal 2022, the decrease in accounts receivable was partially offset by an increase in net sales associated with our upholstery fabrics segment during the first quarter of fiscal 2022, as compared with the fourth quarter of fiscal 2021, due to plant shutdowns for the Chinese New Year holiday that occurred during the fourth quarter of fiscal 2021.

Days’ sales outstanding were 38 days for the first quarter of fiscal 2022, as compared with 41 days for the first quarter of fiscal 2021 and 43 days for the fourth quarter of fiscal 2021.

Inventory was $58.6 million as of August 1, 2021, and increased by $18.2 million, or 45.1%, compared with $40.4 million as of August 2, 2020.

This increase reflects the significant increase in net sales during the first quarter of fiscal 2022 as compared with the first quarter of fiscal 2021.

Net sales during the first quarter of fiscal 2021 were adversely affected by the economic disruption caused by the COVID-19 pandemic.

Inventories as of August 1, 2021, modestly increased by $2.7 million, or 4.8%, compared with $55.9 million as of May 2, 2021.

This increase is due primarily to an increase in net sales associated with our upholstery fabrics segment during the first quarter of fiscal 2022, as compared with the fourth quarter of fiscal 2021, due to plant shutdowns for the Chinese New Year holiday that occurred during the fourth quarter of fiscal 2021.

Inventory turns were 4.9 for the first quarter of fiscal 2022, as compared with 5.3 for the first quarter of fiscal 2021 and 4.8 for the fourth quarter of fiscal 2021.

Accounts receivable were $32.3 million as of October 31, 2021, a decrease of $644,000, or 2.0%, compared with $33.0 million as of November 1, 2020.

This decrease reflects the 3.0% decrease in net sales during the second quarter of fiscal 2022 compared with the second quarter of fiscal 2021.

Accounts receivable as of October 31, 2021, decreased $5.4 million, or 14.3%, compared with $37.7 million as of May 2, 2021.

This decrease reflects improved cash collections during the second quarter of fiscal 2022 compared with the fourth quarter of fiscal 2021, as customers returned to making payments based on normal credit terms, as opposed to extended terms previously granted in response to the COVID-19 pandemic.

In addition, this decrease reflects the decrease in net sales during the second quarter of fiscal 2022 as compared with the fourth quarter of fiscal 2021.

Net sales of $74.6 million during the second quarter of fiscal 2022 decreased by $4.5 million, or 5.7%, as compared with net sales of $79.1 million during the fourth quarter of fiscal 2021.

Days’ sales outstanding was 39 days for the second quarter of fiscal 2022, compared with 39 days for the second quarter of fiscal 2021 and 43 days for the fourth quarter of fiscal 2021.

Inventory was $63.8 million as of October 31, 2021 an increase of $16.1 million, or 33.6%, compared $47.7 million as of November 1, 2020.

Inventory was $63.8 million as of October 31, 2021 an increase of $7.9 million, or 14.1%, compared $55.9 million as of November 1, 2020.

The increases in inventory reflect an increase in inventory purchases to (i) support our customers and accommodate their need to slow order uptake due to their supply chain constraints for non-fabric components, (ii) strategically get ahead of anticipated increases in raw material costs, and (iii) strategically improve our in-stock position in anticipation of customer demand ahead of the upcoming Chinese New Year holiday.

Inventory turns were 4.2 for the second quarter of fiscal 2022, compared with 5.6 for the second quarter of fiscal 2021 and 4.8 for the fourth quarter of fiscal 2021.

Accounts Payable

Accounts payable- trade, totaling $45.3 million as of August 1, 2021, increased by $19.5 million, or 75.9%, compared with $25.7 million as of August.

The increase in accounts payable- trade primarily reflects the significant increase in net sales during the first quarter of fiscal 2022 as compared with the first quarter of fiscal 2021.

Accounts payable- trade as of August 1, 2021, modestly increased by $2.7 million, or 6.5%, compared with $42.5 million as of May 2, 2021.

Accounts payable- trade was $40.5 million as of October 31, 2021, an increase of $2.3 million, or 6.0%, compared with $38.2 million as of November 1, 2020.

The increase in accounts payable-trade reflects the increase in inventory purchases noted above that were partially offset by a decrease related to our return to normal credit terms with our vendors as opposed to the extended terms previously granted in response to the COVID-19 pandemic

Accounts payable- trade was $40.5 million as of October 31, 2021, a decrease of $2.0 million, or 4.7%, compared with $42.5 million as of May 2, 2021.

The decrease reflects the return to normal credit terms with our vendors as opposed to the extended terms previously granted in response to the COVID-19 pandemic, as well as the decrease in net sales during the second quarter of fiscal 2022 compared with the fourth quarter of fiscal 2021.

Net sales of $74.6 million during the second quarter of fiscal 2022 decreased by $4.5 million, or 5.7%, as compared to net sales of $79.1 million during the fourth quarter of fiscal 2021.

These decreases were partially offset by the increased inventory purchases noted above.

Financing Arrangements

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from 10% owned foreign corporations.

As of August 1, 2021, we did not have any outstanding borrowings associated with our revolving credit agreements.

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

As of August 1, 2021, we complied with these financial covenants.

As of October 31, 2021, we did not have any outstanding borrowings associated with our revolving credit agreements.

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

As of October 31 , 202 1 , we complied with these financial covenants.

Refer to Note 9 of the consolidated financial statements for further details of our revolving credit agreements.

Capital Expenditures and Depreciation

Capital expenditures on a cash basis were $2.0 million during the first quarter of fiscal 2022, compared with $500,000 for the same period a year ago.

Capital expenditures on a cash basis were $3.9 million during the first half of fiscal 2022, compared with $2.0 million for the same period a year ago.

Capital expenditures mostly related to our mattress fabrics segment and our innovation campus located in downtown High Point, NC.

Depreciation expense was $1.7 million during the first quarter of fiscal 2022, compared with $1.8 million for the same period a year ago.

Depreciation expense was $3.5 million during both the first half of fiscal 2022 and the first half of fiscal 2021.

Depreciation expense mostly related to our mattress fabrics segment for both periods.

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Accounts Payable – Capital Expenditures

As of August 1, 2021, we had total amounts due regarding capital expenditures totaling $48,000 that pertained to outstanding vendor invoices, none of which were financed.

As of October 31, 2021, we had total amounts due regarding capital expenditures totaling $176,000 that pertained to outstanding vendor invoices, none of which were financed.

The total amount outstanding of $176,000 is required to be paid based on normal credit terms.

Purchase Commitments – Capital Expenditures

As of August 1, 2021, we had open purchase commitments (i) for the acquisition of equipment for our mattress fabrics segment totaling $1.2 million, and (ii) for the construction of leasehold improvements associated with our showroom and office space located in downtown High Point, NC totaling $865,000.

As of October 31, 2021, we had open purchase commitments for the acquisition of equipment for our mattress fabrics segment totaling $810,000.

Critical Accounting Policies and Recent Accounting Developments

As of August 1, 2021, there were no changes in our significant accounting policies or the application of those policies from those reported in our annual report on Form 10-K for the year ended May 2, 2021.

As of October 31, 2021, there were no changes in our significant accounting policies or the application of those policies from those reported in our annual report on Form 10-K for the year ended May 2, 2021.

Refer to Note 2 of the consolidated financial statements for recently adopted and issued accounting pronouncements since the filing of our Form 10-K for the year ended May 2, 2021.

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There were no significant or new contractual obligations from those reported in our annual report on Form 10-K for the year ended May 2, 2021.

Effective May 7, 2021, we entered into an agreement to lease showroom and office space encompassing 21,000 square feet located in downtown High Point, NC.

The lease term is expected to commence near the end of the second quarter of fiscal 2022, once certain lessor-owned leasehold improvements have been completed, and at such time we will have control of the facility based on the terms of the lease.

As a result, right of use assets are expected to increase by $2.2 million at the commencement of the lease.

Any significant increase in our raw material costs, utility/energy costs, and general economic inflation could have a material adverse impact on the company, because competitive conditions have limited our ability to pass significant operating cost increases on to customers.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements