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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-07-15 compared with 2021-07-16 · 375 added, 553 removed, 1106 unchanged (46% of the section changed)

2 unchanged sentences

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

revolving credit agreement requires interest to be charged at a rate (applicable interest rate of 1.71% as of May 2, 2021) as a variable spread over LIBOR based on the company’s ratio of debt to EBITDA as defined in the U.S.

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

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

revolving credit agreement.

1 unchanged sentence

revolving credit agreement.

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

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

revolving credit agreement.

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

1 unchanged sentence

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

We try to maintain a natural hedge by keeping a balance of our assets and liabilities denominated in the local currency of our subsidiaries domiciled in Canada and China, although there is no assurance that we will be able to continually maintain this natural hedge.

We try to maintain a natural hedge by keeping a balance of our assets and liabilities denominated in the local currency of our subsidiaries domiciled in Canada and China.

However, there is no assurance that we will be able to continually maintain this natural hedge.

Our foreign subsidiaries use the U.S.

2 unchanged sentences

are denominated in U.S.

A 10% change in the above exchange rates as of May 2, 2021, would not have had a significant impact on our results of operations or financial position.

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

CONSOLIDATED FINANCIAL STATEMENTS

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

(a North Carolina corporation) and subsidiaries (the “Company”) as of May 2, 2021, and May 3, 2020, the related consolidated statements of net income (loss), comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the three years in the period ended May 2, 2021, and the related notes (collectively referred to as the “financial statements”).

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

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

8 unchanged sentences

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

20 unchanged sentences

property, plant and equipment, net

intangible assets

right of use assets

long-term investments - rabbi trust

long-term investments - held-to-maturity

right of use asset

investment in unconsolidated joint venture

intangible assets

deferred income taxes

1 unchanged sentence

current liabilities:

line of credit - China operations

Paycheck Protection Program loan

accounts payable - trade

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total current liabilities

line of credit - U.S.

accrued expense - long-term

operating lease liability - long-term

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accumulated earnings

accumulated other comprehensive income (loss)

accumulated other comprehensive income

total liabilities and equity

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

CONSOLIDATED STATEMENTS OF NET INCOME (LOSS)

For the years ended May 2, 2021, May 3, 2020, and April 28, 2019

CONSOLIDATED STATEMENTS OF NET (LOSS) INCOME

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

(dollars in thousands, except per share data)

9 unchanged sentences

other expense

income (loss) before income taxes from continuing operations

(loss) income before income taxes from continuing operations

income tax expense

income (loss) from investment in unconsolidated joint venture

net income (loss) from continuing operations

net (loss) income from continuing operations

loss before income taxes from discontinued operation

1 unchanged sentence

net loss from discontinued operation

net income (loss)

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

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

net (loss) income

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

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

net loss from discontinued operation per share-basic

net loss from discontinued operation per share-diluted

net income (loss) from per share-basic

net income (loss) per share-diluted

net (loss) income per share-basic

net (loss) income per share-diluted

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the years ended May 2, 2021, May 3, 2020, and April 28, 2019

net income (loss)

other comprehensive income (loss)

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

unrealized holding loss on foreign currency cash flow hedge

reclassification adjustment for realized loss on foreign currency cash

total unrealized gain on foreign currency cash flow hedge

unrealized gain (loss) on investments, net of tax

unrealized holding gain (loss) on investments

reclassification adjustment for realized (gain) loss included in

net income (loss)

total unrealized gain (loss) on investments

total other comprehensive income (loss)

comprehensive income (loss)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

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

net (loss) income

other comprehensive (loss) income

unrealized holding (loss) gain on investments

reclassification adjustment for realized loss (gain) included in

net (loss) income

total unrealized (loss) gain on investments

comprehensive (loss) income

comprehensive loss attributable to non-controlling interest

associated with discontinued operation

comprehensive income (loss) attributable to Culp Inc.

comprehensive (loss) income attributable to Culp Inc.

common shareholders

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Comprehensive

and April 28, 2019

(Loss) Income

and May 3, 2020

Balance, April 28, 2019

net income (loss)

acquisition of subsidiary with non-controlling

capital contribution from non-controlling

interest - discontinued operation

stock-based compensation

unrealized gain on foreign currency cash

flow hedge instrument

unrealized gain on investments

unrealized loss on investments

common stock issued in connection with

1 unchanged sentence

immediately vested common stock awards

common stock issued in connection with

vesting of time-based restricted stock

common stock surrendered in connection

2 unchanged sentences

dividends paid

Balance, April 28, 2019

capital contribution from non-controlling

interest - discontinued operation

Balance, May 3, 2020

stock-based compensation

unrealized loss on investments

unrealized gain on investments

common stock issued in connection with

3 unchanged sentences

with payroll withholding taxes

common stock repurchased

dividends paid

1 unchanged sentence

stock-based compensation

unrealized gain on investments

unrealized loss on investments

common stock issued in connection with

3 unchanged sentences

with payroll withholding taxes

common stock repurchased

dividends paid

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended May 2, 2021, May 3, 2020, and April 28, 2019

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

(dollars in thousands)

cash flows from operating activities:

net income (loss)

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

net (loss) income

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

operating activities:

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(income) loss from investment in unconsolidated joint venture

realized (gain) loss on sale of short-term investments (available for sale)

foreign currency exchange loss (gain)

realized loss (gain) from the sale of investments

foreign currency exchange loss

changes in assets and liabilities, net of effects of

6 unchanged sentences

accrued restructuring costs

net cash provided by operating activities

net cash (used in) provided by operating activities

cash flows from investing activities:

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proceeds from the sale of short-term investments (available for sale)

proceeds from the sale of short-term investments (held to maturity)

proceeds from the sale and maturity of investments (held to maturity)

purchase of short-term investments (available for sale)

purchase of short-term and long-term investments (held-to-maturity)

purchase of investments (held-to-maturity)

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

purchase of long-term investments (rabbi trust)

proceeds from life insurance policy

net cash (used in) provided by investing activities

net cash provided by (used in) investing activities

cash flows from financing activities:

3 unchanged sentences

payments associated with Paycheck Protection Program loan

payments on vendor-financed capital expenditures

proceeds from subordinated loan payable associated with the

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

We have wholly-owned mattress fabric operations located in Stokesdale, NC, High Point, NC, and Quebec, Canada, as well as a wholly-owned cut and sew mattress cover operation located in Ouanaminthe, Haiti (see Note 2 of the consolidated financial statements for further details regarding this business combination).

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

We have wholly-owned upholstery fabric operations located in Shanghai, China and Burlington, NC.

We also commenced construction on a new facility in Haiti during the fourth quarter of fiscal 2021.

This new wholly-owned operation will be dedicated to the production of cut and sewn upholstery kits and is expected to begin operating during the second quarter of fiscal 2022.

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

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

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

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

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

We have upholstery fabric operations located in Shanghai, China and Burlington, NC.

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

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

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

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

In accordance with the equity method of accounting, our 50 % proportionate share of earnings and losses from CIH w ere reflected in the caption “Income (loss) from investment in unconsolidated joint venture” in the Consolidated Statements of Net Income (Loss) for the first nine months of fiscal 2021, the full fiscal 2020 year , and the full fiscal 2019 year .

Our carrying value in CIH was reflected in the caption “Investment in unconsolidated joint venture” in our Consolidated Balance Sheets .

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

In accordance with the equity

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

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

Pursuant to this transaction, Culp International is now the sole owner with full control over CIH.

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(see Note 2 of the consolidated financial statements for further details regarding this business combination).

Discontinued Operation – Home Accessories Segment

Consolidation

As a result of the fiscal 2019 acquisition of our 80 % ownership interest in eLuxury, we previously included all the accounts of eLuxury in our consolidated financial statements and eliminated all significant intercompany balances and transactions.

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

common shareholders.

Substantive Profit-Sharing Provisions

In connection with the fiscal 2019 acquisition of our 80 % ownership in interest in eLuxury, we entered into an Equity Purchase Agreement (Equity Agreement) that contained substantive profit-sharing provisions which explicitly stated the ownership interests as of the acquisition date of June 22, 2018, and the allocation of net income or loss between us, as the controlling interest holder, and the noncontrolling interest holder.

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

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

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

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

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

Deconsolidation

In accordance with ASC Topic 810-10-40, a parent company must deconsolidate a subsidiary as of the date the parent ceases to have a controlling interest in that subsidiary and recognize a gain or loss in net income at that time.

As a result, we deconsolidated eLuxury from our consolidated financial statements on March 31, 2020, the effective date of the sale agreement, and recognized a loss on disposal of discontinued operation totaling $ 1.9 million, which is included in net loss from discontinued operation in the fiscal 2020 Consolidated Statement of Net Loss.

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

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

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

See Note 3 “Disposal - Overview” section of the consolidated financial statements for description of consideration.

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

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Short-Term Investments (Available-for-Sale)

Our short-term investments classified as available-for-sale were recorded at their fair values of $ 5.5 million and $ 923,000 as of May 2, 2021, and May 3, 2020, respectively.

These investments had an accumulated unrealized gain of $ 24,000 and $ 9,000 as of May 2, 2021, and May 3, 2020, respectively.

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

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

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

All our short-term investments classified as available-for-sale reside with our U.S.

Long-Term Investments (Rabbi Trust)

2 unchanged sentences

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

These investments had an accumulated unrealized gain totaling $ 122,000 as of May 2, 2021, and an accumulated unrealized loss of $ 19,000 as of May 3, 2020.

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

All our long-term investments classified as available-for-sale that pertain to our rabbi trust reside with our U.S.

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

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

Investments (Held-To-Maturity)

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 2 years as of May 2, 2021.

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

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

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

corporate bonds, foreign bonds, and government bonds.

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

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

The amortized cost of our held-to-maturity investments was $ 4.3 million and $ 6.3 million as of May 2, 2021, and May 3, 2020, respectively.

The fair value these investments was $ 4.3 million and $ 6.4 million as of May 2, 2021, and May 3, 2020, respectively.

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

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

2 unchanged sentences

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

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

Accounts Receivable

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

Accounts Receivable and Current Expected Credit Losses

Substantially all our accounts receivable were due from manufacturers in the bedding and furniture industries.

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(iii) management’s general ability;

(iv) historical loss experience;

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

and (iv) historical loss experience;

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

After our risk assessment is completed, we assign credit grades to our customers, which in turn, are used to determine our allowance for doubtful accounts.

1 unchanged sentence

We account for inventories at the lower of first-in, first-out (FIFO) cost or net realizable value.

Management continually examines inventory to determine if there are indicators that the carrying value exceeds its net realizable value.

Management continuously examines inventory to determine if there are indicators that the carrying value exceeds its net realizable value.

Experience has shown that the most significant indicators of the need for inventory markdowns are the age of the inventory and the planned discontinuance of certain patterns.

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Advertising costs are expensed as incurred.

There were no advertising costs presented in continuing operations during fiscal year 2021, 2020, or 2019.

We presented advertising costs totaling $ 1.7 million and $ 2.2 million in discontinued operations during fiscal 2020 and 2019, respectively.

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

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

Interest Costs

Total interest costs incurred were $ 17,000 , $ 51,000 , and, $ 190,000 during fiscal 2022, 2021, and 2020, respectively.

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

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

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

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

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Foreign currency revenues and expenses are remeasured at average exchange rates in effect during the year, except for certain expenses related to balance sheet amounts remeasured at historical exchange rates, such as depreciation expense.

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

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

(dollars in thousands)

Euro foreign exchange contract

Goodwill and Intangible Assets

In accordance with ASC Topic 350, Intangibles – Goodwill and Other, our business was classified into our four reporting units during fiscal 2020 and 2019:

mattress fabrics, upholstery fabrics, Read Window Products, LLC, and home accessories.

Fiscal 2022 and 2021

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

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

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

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

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

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

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

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

1 unchanged sentence

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

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

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

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

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

Fiscal 2021and Fiscal 2019

No asset impairment charges were recorded during fiscal 2021 or fiscal 2019.

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

Deferred Income Taxes – Overall

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

Deferred income taxes are recognized for temporary differences between the financial statement carrying amounts and the tax basis of our assets, liabilities, and our U.S.

Deferred income taxes are recognized for temporary differences between the financial statement carrying amounts and the tax basis of our assets, liabilities, U.S.

loss carryforwards, and foreign income tax credits at income tax rates expected to be in effect when such amounts are realized or settled.

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We are required to record a deferred tax liability for undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely.

Also, we assess the recognition of U.S.

foreign income tax credits associated with foreign withholding and income tax payments and whether it is more likely than not that our foreign income tax credits will not be realized.

If it is determined that any foreign income tax credits need to be recognized or it is more likely than not our foreign income tax credits will not be realized, an adjustment to our provision for income taxes will be recognized at that time.

For fiscal 2019 and beyond, the 2017 Tax Cuts and Jobs Act allows a U.S.

corporation a 100 % dividend received deduction for earnings and profits received from a 10 % owned foreign corporation.

As a result of the 2017 Tax Cuts and Jobs Act, a U.S.

corporation is allowed a 100 % dividend received deduction for earnings and profits received from a 10 % owned foreign corporation.

Therefore, a deferred tax liability will only be required for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the U.S.

parent company.

Uncertainty in Income Taxes

We recognize the income tax effect from an uncertain income tax position only if it is more likely than not that the income tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

Uncertain Income Tax Positions

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

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

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Revenue from Contracts with Customers

Adoption of New Standard

On April 30, 2018 (the beginning of fiscal 2019), we adopted ASU 2014-09 “Revenue from Contracts with Customers” (ASC Topic 606 or the “new standard”).

ASC Topic 606 requires us to disclose significant judgments and changes in judgments in applying the new standard that significantly affect the determination of the amount and timing of revenue from contracts with customers.

The application of the new standard did not have a material affect on our results of operations or financial condition.

However, as required by ASC Topic 606, we recorded a reclassification adjustment from a contra account applied to accounts receivable to accrued expenses for estimated sales returns and allowances totaling $ 1.2 million.

Significant Judgements and Accounting Policies

See below for disclosure of our significant judgements and accounting policies or determining the amount and timing of revenue from contracts with customers.

Revenue Recognition

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Sales and other taxes collected from customers and remitted to governmental authorities are presented on a net basis and, as such, are excluded from revenues.

Adoption of New Standard

On April 29, 2019 (the beginning of fiscal 2020), we adopted ASU No.

2016-02, Leases (Topic 842 or the “new standard’), which requires lessees to recognize leases on the balance sheet and disclose certain key information about their leasing arrangements.

The new standard establishes a right of use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability for certain lease contracts.

Topic 842 allows the election of several practical expedients as part of adopting this new standard.

We elected the “package of practical expedients” which permits us not to reassess our previous conclusions regarding lease identification and classification.

We did not elect the use of hindsight with respect to determining the lease term.

Topic 842 provides practical expedients after adoption of the new standard.

We elected the short-term lease exemption, and therefore, we will not recognize ROU assets or lease liabilities for leases shorter than twelve months.

We did not elect the practical expedient to combine lease and non-lease components for any class of assets and will account for lease components separately from non-lease components.

We adopted Topic 842 electing to use the modified retrospective transition method, which requires us to recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption.

Consequently, financial information and disclosures is not provided for periods prior to April 29, 2019.

Topic 842 had a material effect on our Consolidated Balance Sheet and increased the required disclosures in our notes to the consolidated financial statements (see Note 13 for further details).

On April 29, 2019, our Consolidated Balance Sheet was significantly affected by the recognition of ROU assets totaling $ 7.2 million that were mostly offset by the recognition of lease liabilities totaling $ 7.1 million.

The adoption of Topic 842 did not have a material effect on our Consolidated Statements of Net Income (Loss) or our Consolidated Statements of Cash Flows.

Significant Judgements and Accounting Policies

See below for disclosure of our significant judgements and accounting policies for determining the lease term of our leases and the incremental borrowing rates used to calculate the present value of lease payments to measure our ROU assets and lease liabilities on the date a lease arrangement is commenced.

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

1 unchanged sentence

Operating leases with an initial term of 12 months or less are not recognized in our Consolidated Balance Sheets.

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

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

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

A renewal option is considered reasonably certain to be exercised if there is a significant economic incentive, as defined in Topic 842, to exercise the renewal option on the date a lease arrangement is commenced.

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

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

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

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

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

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

Compensation expense for performance-based restricted stock units is recorded based on an assessment each reporting period of the probability that certain performance goals will be met during the contingent vesting period.

If performance goals are not probable of occurrence, no compensation expense will be recognized.

Previously recognized compensation cost on performance goals that were previously deemed probable and subsequently were not met or not expected to be met is reversed.

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

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

Fair Value of Financial Instruments

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The fair value measurements of our financial instruments are described more fully in Note 15 of the consolidated financial statements.

The carrying amount of cash and cash equivalents, accounts receivable, other current assets, lines of credit (which were repaid in full during the first quarter of fiscal 2021), accounts payable, and accrued expenses approximate their fair value because of the short maturity of these financial instruments.

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

Recently Adopted Accounting Pronouncements

Current Expected Credit Losses (“CECL”)

Adoption of New Standard

In June 2016, the FASB issued ASU No.

2016-13, “ Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, ” which requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables.

The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics.

Topic 326 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

As a result, we adopted the provisions of Topic 326 on May 4, 2020 (the beginning of fiscal 2021).

The adoption of Topic 326 did not affect our financial position, results of operations, or cash flows.

Trade Accounts Receivable

See Note 4 of our consolidated financial statements for further disclosures resulting from the adoption of CECL as it pertains to trade accounts receivable.

As of May 4, 2020, we did not record an allowance for credit losses related to our short-term available-for-sale and held-to-maturity investments, which are comprised of fixed income securities that are predominantly investment grade U.S.

and foreign corporate bonds, U.S.

Treasury bonds, and short-term mutual bond funds.

We determined that our credit loss exposure was immaterial due to the short-term nature of our mutual bond funds, and we have historically experienced historically low unrealized losses and gains during past reporting periods.

In addition, 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.

As of May 2, 2021, we reported an unrealized gain of $ 24,000 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 recovery of their amortized cost basis.

Accordingly, we did not record any credit loss exposure during fiscal 2021.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (ASU 2019-12), which is intended to simplify various aspects 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.

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

We are required to apply this guidance in our fiscal 2022 interim and annual financial statements.

Currently, we do not expect this standard to affect our consolidated financial statements.

There are no other recently issued accounting pronouncements that are expected to have a significant effect on our consolidated financial statements.

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

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

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

Recently Issued Accounting Pronouncements

Currently, there are no new accounting pronouncements that are expected to have a material effect on our consolidated financial statements.

BUSINESS COMBINATION ACHIEVED IN STAGES

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

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

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

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

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

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

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

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

In accordance with ASC Topic 805-10-25-10, we remeasured our previously held 50% ownership interest in CIH at its acquisition date fair value.

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

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

As of the acquisition date, the fair value of our previously held 50% ownership interest totaling $ 1.7 million represented its carrying amount, and therefore, no gain or loss was recognized in earnings for the remeasurement of our previously held 50% ownership interest.

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

Consequently, in accordance with ASC Topic 825-30-25-4, we (i) reassessed the recognition and measurement of the assets acquired, liabilities assumed, and previously held ownership interest;

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

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

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

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

As part of our review of the rebate and supply agreements, we verified that the terms of these agreements were consistent with fair market value terms and are considered separate transactions and not considered part of the business combination in accordance with ASC Topic 805-20-25-21.

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

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

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

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

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

For the period from February 1, 2021, through May 2, 2021, shipments pursuant to the supply agreement were $ 379,000 .

For the period from February 1, 2021, through May 2, 2021, a charge of $ 25,000 pursuant to the rebate agreement was included in net sales in the fiscal 2021 Consolidated Statement of Net Income.

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

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

Acquisition-Related Costs

Acquisition-related costs totaling $ 30,000 were included in selling, general, and administrative expenses in the fiscal 2021 Consolidated Statement of Net Income.

Actual revenue and net loss from the acquisition date of February 1, 2021, through May 2, 2021, included in our fiscal 2021 Consolidated Statement of Net Income and totaled $ 379,000 and $( 2,000 ), respectively.

Pro Forma Financial Information

Actual revenue and net loss from the acquisition date of February 1, 2021, through May 2, 2021, included in our fiscal 2021 Consolidated Statement of Net Income totaled $ 379,000 and $( 2,000 ), respectively.

(Unaudited) Pro Forma Financial Information

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

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Equity Method of Accounting

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

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

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

(dollars in thousands)

total liabilities

total members’ equity

As of May 3, 2020, our investment in unconsolidated joint venture totaled $ 1.6 million, which represents our 50 % ownership interest in our investment in CIH.

HOME ACCESSORIES SEGMENT

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

This acquisition provided a new sales channel for eLuxury’s bedding accessories and an opportunity for us to participate in the e-commerce direct-to-consumer space.

The estimated consideration given for the 80 % ownership interest in eLuxury totaled $ 18.1 million, of which $ 12.5 million represented the estimated purchase price and $ 5.6 million represented the estimated fair value of contingent consideration associated with an earn-out obligation.

Of the $12.5 million estimated purchase price, $ 11.6 million was paid at closing on June 22, 2018, $ 185,000 was paid in August 2018, and $ 749,000 was paid in September 2019.

Assets Acquired and Liabilities Assumed

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

(dollars in thousands)

Accounts receivable and other current assets

Accounts payable

Accrued expenses

Non-controlling interest in eLuxury

As of the acquisition date, we recorded the tradename at fair market value based on the relief from royalty method.

The goodwill related to this acquisition was attributable to eLuxury’s reputation with the products it offered and management’s experience in e-commerce, online brand building, and direct-to-consumer shopping and fulfillment expertise.

Acquisition costs totaling $ 270,000 were included in selling, general, and administrative expenses in our fiscal 2019 Consolidated Statement of Net Income.

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

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

Also, this sale was expected to increase our

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

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

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

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

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

Discontinued Operation Financial Statement Presentation and Disclosures

Financial Statement Presentation

Due to the sale of our entire ownership interest in eLuxury, our home accessories segment was eliminated as a result of our strategic decision to focus on our core products that we believed would increase our liquidity and assist with our comprehensive response to the COVID-19 global pandemic.

Consequently, we determined that the results from operations and assets and liabilities associated with our home accessories segment were to be excluded from our continuing operations and presented as a discontinued operation in our consolidated financial statements in accordance with ASC Topic 205-20-45.

As a result, we classified the results from operations of our home accessories segment separately in captions titled “Discontinued Operations” on our Consolidated Statements of Net Income (Loss) for the prior year periods.

Consolidated Balance Sheet

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

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

Consolidated Balance Sheet as of Disposal Date

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

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Net Loss from Discontinued Operation

The following is a reconciliation of the major classes of financial statement line items constituting loss before income taxes from discontinued operation that are disclosed in the notes to the financial statements to loss from discontinued operation that are presented in the Consolidated Statements of Net Income (Loss) for fiscal years 2020 and 2019:

(dollars in thousands)

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

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

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

based on the terms of the sale agreement.

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

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

common shareholders and the noncontrolling interest for fiscal years 2021, 2020, and 2019:

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

common shareholders and the noncontrolling interest for fiscal year 2020:

(dollars in thousands)

net income (loss) from continuing operations

net income (loss) from continuing operations attributable to

net loss from continuing operations

net loss from continuing operations attributable to

noncontrolling interest

net income (loss) from continuing operations attributable

net loss from continuing operations attributable

common shareholders

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common shareholders

net income (loss)

net loss from noncontrolling interest

net income (loss) attributable to Culp Inc.

net loss attributable to Culp Inc.

common shareholders

Cash Flow Disclosures

Our discontinued operation had net cash used in operating activities totaling $( 2.3 ) million and $( 1.5 ) million for fiscal 2020 and 2019, respectively.

Our discontinued operation had net cash used in investing activities totaling $( 134,000 ) and $( 54,000 ) for fiscal 2020 and 2019, respectively.

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

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

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

and the noncontrolling interest of eLuxury totaling $ 2.4 million and $ 1.5 million during fiscal 2020 and 2019, respectively.

We believe our liquidity has been positively affected in the absence of our home accessories segment due to the significant losses that were incurred and the funding of working capital requirements though loans and capital contributions.

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

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

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Consolidation

As a result of the acquisition of our 80 % ownership interest and prior to the disposal of eLuxury, we included all of its accounts in our consolidated financial statements and eliminated all significant intercompany balances and transactions.

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

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

common shareholders during the first nine months of fiscal 2020.

Substantive Profit-Sharing Provisions

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

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

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

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

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

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Deconsolidation

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

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

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

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

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

Additionally,

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

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

Supply and Royalty Agreements

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

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

The royalty agreement requires eLuxury to pay us a royalty fee based on a percentage of sales, as defined in the royalty agreement, for sales of eLuxury’s products to certain business-to-business customers, including customers for which we referred to eLuxury prior to the sale transaction and new customer relationships we develop for eLuxury going forward, as well of eLuxury products generated by sales representatives that we develop or introduce to eLuxury.

There are no guarantees or provisions under either the supply or royalty agreements that require eLuxury to purchase a minimum amount of our products or sell a certain amount of eLuxury products to customers or through sales representatives developed or introduced by us.

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-business sales platform.

As a result of our continuing involvement with eLuxury, we reported net sales and the related cost of sales associated with our inventory shipments to eLuxury in accordance with Topic 205-20-50-4B, which requires us to report these transactions in continuing operations for all periods presented in our Consolidated Statement of Income (Loss).

Therefore, we reported both net sales and cost of sales totaling $ 968,000 during fiscal 2020 and $ 612,000 during fiscal 2019 that were previously eliminated in consolidation prior to the disposal date of March 31, 2020.

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

After the disposal date of March 31, 2020, and through our fiscal year end date of May 3, 2020, shipments to eLuxury pursuant to the supply agreement totaled $ 7,000 .

Shipments for the fiscal month April 2020 were severely affected by the COVID-19 global pandemic.

During fiscal 2021, we received payments pursuant to the royalty agreement totaling $ 154,000 .

After the disposal date of March 31, 2020, and through our fiscal year end date of May 3, 2020, no payments were received pursuant to the royalty agreement.

Supply Agreement

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

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

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

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

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

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

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

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

Royalty Agreement

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

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

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

Financial Guarantee

Currently, we have an agreement that guarantees 70 % of any unpaid lease payments associated with eLuxury’s facility located in Evansville, Indiana.

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

Under the terms of the sale of our controlling interest in eLuxury, the buyer (the former noncontrolling interest holder) must use commercially reasonable efforts to cause the lessor to release us from this financial guarantee of eLuxury’s lease agreement.

Additionally, eLuxury, and its sole owner following the sale have indemnified us from any liabilities and obligations that we would be required to pay regarding this lease agreement.

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

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

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

ACCOUNTS RECEIVABLE

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ending balance

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

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

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

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and (iv) historical loss experience;

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 $ 591,000 as of May 2, 2021.

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

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

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

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

(dollars in thousands)

beginning balance

adoption of ASC Topic 606

provision for returns and allowances and discounts

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ending balance

Subsequent Event

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

Bankruptcy Code.

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

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

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

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

REVENUE FROM CONTRACTS WITH CUSTOMERS

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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, a turn-key provider of window treatments that offers sourcing of upholstery fabrics and other products, as well as measuring and installation services of Read’s own products, to customers in the hospitality and commercial industries.

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

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

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

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

Discontinued Operation – Home Accessories Segment

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

Additionally, net sales associated with our home accessories segment were excluded from our continuing operations and are presented within discontinued operation in our Consolidated Statements of Net Income (Loss) for fiscal years 2020 and 2019.

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

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

Prior to its disposal, our former home accessories segment reported net sales totaling $ 13.8 million and $ 16.0 million during fiscal 2020 and 2019, respectively.

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

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

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

Significant Judgments

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

Commencing in the fourth quarter of fiscal 2020 and continuing into fiscal 2021, we granted extended terms to certain customers for a limited time in response to the challenging business conditions resulting from the COVID-19 global pandemic.

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

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

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

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Beginning Balance

Revenue recognized on contract liabilities during the period

Payments received for services not yet rendered during the period

Revenue recognized on contract liabilities

Payments received for services not yet rendered

Ending Balance

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machinery and equipment

data processing equipment and software

office furniture and equipment

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Non-compete agreement, net

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

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

(dollars in thousands)

beginning balance

acquisition of assets (note 3)

loss on impairment - continuing operations

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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 May 2, 2021, no indicators of impairment existed and therefore, no asset impairment charges associated with our tradename were recorded during fiscal 2021.

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

Continuing Operations (Fiscal 2020)

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

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

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

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

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

Our quantitative impairment test

involved determining the fair value of Read’s tradename utilizing the relief from royalty method and comparing the respective fair value of Read’s tradename with its carrying amount.

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

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

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

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

Accumulated amortization for these customer relationships was $ 1.2 million and $ 877,000 as of May 2, 2021, and May 3, 2020, respectively.

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

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

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Non-Compete Agreement

A summary of the change in the carrying amount of our non-compete agreement associated with a prior year acquisition by our mattress fabrics segment follows:

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

(dollars in thousands)

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ending balance

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

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

The gross carrying amount of this non-compete agreement was $ 2.0 million as of May 1, 2022, and May 2, 2021.

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beginning balance

business combination (note 3)

loss on impairment - continuing operations

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

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

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

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

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compensation and related benefits

As of May 2, 2021, the entire amount of accrued expenses totaling $ 14.8 million was classified as current accrued expenses in the accompanying Consolidated Balance Sheets.

As of May 3, 2020, accrued expenses totaled $ 5.9 million, of which $ 5.7 million and $ 167,000 were classified as current accrued expenses and long-term accrued expenses, respectively, in the accompanying Consolidated Balance Sheets.

LINES OF CREDIT AND PAYCHECK PROTECTION PLAN LOAN

LINES OF CREDIT

Revolving Credit Agreement – United States

Our Credit Agreement (“Credit Agreement”) with Wells Fargo Bank, N.A.

(“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 was charged under the Credit Agreement at a rate (applicable interest rate of 1.71 % and 1.75 % as of May 2, 2021, and May 3, 2020, respectively) as 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.

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

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

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

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

(a subsidiary located in the Cayman Islands).

As a result of the COVID-19 global pandemic and the uncertainty relating to the unknown duration and overall effect on the company, we proactively took a precautionary measure and borrowed the maximum amount available from this line of credit during the fourth quarter of fiscal 2020.

Consequently, we had outstanding borrowings of $ 29.8 million under the Credit Agreement as of May 3, 2020.

During June 2020, we repaid the entire $ 29.8 million outstanding balance and there were no additional borrowings made during fiscal 2021.

As a result, there were no borrowing outstanding pursuant to the Credit Agreement as of May 2, 2021.

As of May 2, 2021, and May 3, 2020, there were $ 275,000 and $ 250,000 , respectively, of outstanding letters of credit provided by the Credit Agreement.

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

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

Seventh Amendment to the Credit Agreement

Effective June 30, 2020, we entered into a Seventh Amendment to our Credit Agreement (the “Seventh Amendment”) which includes provisions that (i) modify the method for calculating the company’s debt to EBITDA covenant under the Credit Agreement solely during the temporary period beginning on the date of the Seventh Amendment and ending on the Rate Determination Date (as defined in the Credit Agreement), following the end of the company’s fiscal 2021 fourth quarter (such temporary period, the “Modification Period,”), and (ii) amend the pricing matrix used to determine the interest rate payable on loans made under the Credit Agreement solely during the Modification Period.

Specifically, the Seventh Amendment provides that during the Modification Period, the company’s ratio of debt to EBITDA shall be determined by excluding the fourth quarter of fiscal 2020 from the calculation thereof, such that the ratio shall be determined using the four most recent quarterly periods other than (i.e., excluding) the fourth quarter of fiscal 2020, rather than calculating on a rolling four-quarter basis.

It further provides that during the Modification Period, the Applicable Margin (as defined in the Credit Agreement) set forth in the pricing matrix is increased to 1.6 % for price level I, 2.05 % for price level II, 2.5 % for price level III, and 3.0 % for price level IV.

Additionally, the Seventh Amendment (i) changes the capital expenditure covenant by reducing permitted annual capital expenditures to $ 10 million during fiscal year 2021, (ii) changes the liens and other indebtedness covenant to reduce the permitted amount of allowable liens and other indebtedness to 5 % of consolidated net worth, and (iii) adds a new covenant that prohibits the company, solely during the Modification Period, from paying dividends or repurchasing stock in excess of $ 10 million in the aggregate during the Modification Period.

Revolving Credit Agreements – China Operations

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

Subsequent Event

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

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

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

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

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

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

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

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

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

The EBITDA to interest expense covenant does

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

Revolving Credit Agreements – China

Denominated in Chinese Yuan Renminbi (RMB)

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

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

As of May 3, 2020, there were outstanding borrowings under this agreement totaling $ 1.0 million at an applicable interest rate of 2.41 %.

During June 2020, we repaid the entire $ 1.0 million and there were no additional borrowings made during fiscal 2021.

As a result, there were no borrowings outstanding under this agreement as of May 2, 2021.

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

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

Denominated in United States Dollar (USD)

We have an unsecured credit agreement denominated in USD with another bank located in China that provides for a line of credit up to $ 2 million USD.

This agreement has an interest rate determined by the Chinese government at the time of borrowing and expired on July 7, 2021 .

There were no borrowings outstanding under this agreement as of May 2, 2021.

We are currently in the process of renewing this agreement.

We expect the renewal will be completed during the second quarter of fiscal 2022.

Small Business Administration - Paycheck Protection Program

On April 15, 2020, we received a loan of $ 7.6 million (the “Loan”) pursuant to the U.S.

Small Business Administration (the “SBA”) Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”).

We planned to use the proceeds from the Loan for covered payroll costs, rent, and utilities in accordance with the applicable terms and conditions of the CARES Act.

We believed the Loan would enable us to retain more of our employees, maintain payroll and benefits, and make lease and utility payments while producing and supplying critical products for essential businesses during the COVID-19 global pandemic.

Following our application and receipt of the Loan , the SBA and U.S.

Treasury Department issued new guidance regarding eligibility requirements under the PPP, raising questions regarding the eligibility of publicly traded companies to receive loans under the program.

As a result, out of an abundance of caution, we voluntarily repaid the L oan in full on May 13, 2020.

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

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

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

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

As of May 2, 2021, we complied with our financial covenants.

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

Interest paid during fiscal years 2022, 2021, and 2020 was $ 10,000 , $ 60,000 , and $ 124,000 , respectively.

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(dollars in thousands)

income (loss) from continuing operations

(loss) income from continuing operations

loss from discontinued operation

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

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

(dollars in thousands)

2017 Tax Cuts and Jobs Act

uncertain income tax positions

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valuation allowance

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

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

operations consists of:

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valuation allowance

write-off of U.S.

foreign income tax credits

income tax effects of the 2017 Tax Cuts and Jobs Act

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withholding taxes associated with foreign tax jurisdictions

uncertain income tax positions

state income taxes

stock-based compensation

gain on bargain purchase

income tax effects of impairment of nondeductible goodwill

Consolidated effective income tax rate (1)

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

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

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

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

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

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

Deferred Income Taxes - Overall

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

federal net operating loss carryforwards that were generated prior to fiscal 2019 have expiration dates ranging from fiscal years 2027 through 2038 .

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

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

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

state net operating loss carryforwards totaled $ 28.9 million with related future income tax benefits of $ 953,000 .

state net operating loss carryforwards totaled $ 28.0 million, with related future income tax benefits of $ 1.0 million.

state net operating loss carryforwards totaling $ 28.0 million have expiration dates ranging from fiscal years 2023 through 2043 .

foreign income tax credits of $ 783,000 will expire 10 years from when the associated earnings and profits from our foreign subsidiaries are repatriated to the U.S.

2017 Tax Cuts and Jobs Act

On December 22, 2017 (the “Enactment Date”), TCJA was signed into law.

TCJA contained significant changes to corporate taxation, including (i) the reduction of the corporate income tax rate to 21 %, (ii) the acceleration of expensing certain business assets, (iii) a one-time mandatory repatriation tax (the “Transition Tax”) related to the transition of U.S.

international tax from a worldwide tax system to a territorial tax system, (iv) limitations on the use of foreign tax credits to reduce the U.S.

income tax liability, (v) the repeal of the domestic production activities deduction, (vi) additional limitations on the deductibility of interest expense and executive compensation, and (vii) the creation of the Global Intangible Low Taxed Income (“GILTI”) tax.

The re-measurement of our U.S.

net deferred income tax balances to the new U.S.

federal corporate income tax rate and the determination of the income tax effects of the Transition Tax on our accumulated earnings and profits associated with our foreign subsidiaries were components of the TCJA that significantly affected our financial statements during fiscal 2019 and 2018.

During fiscal 2018, we were able to determine reasonable estimates for these components of the TCJA, and thus reported provisional amounts for these items under guidance provided by SEC Staff Bulletin No.

118 (“SAB 118”).

SAB 118 provided a measurement period not to extend beyond one year from the Enactment Date to revise our provisional estimates that were recorded during fiscal 2018.

During the third quarter of fiscal 2019, we completed our assessment of our U.S.

net deferred income tax balances and recorded an income tax benefit of $ 268,000 .

In addition, we completed our assessment of the income tax effects of the Transition Tax and recorded an income tax benefit of $ 282,000 during the third quarter of fiscal 2019.

Fiscal 2020 and 2019

In addition to the above components of the TJCA, GILTI became effective during fiscal 2019.

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

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

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

As a result, we recorded income tax charges of $ 1.9 million and $ 2.1 million during fiscal 2020 and 2019, respectively.

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

Effective July 20, 2020, the U.S.

Treasury Department finalized and enacted previously proposed regulations regarding the GILTI tax provisions of the TCJA.

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

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

As a result of the newly enacted regulations, we recorded a non-cash income tax benefit of $ 3.6 million resulting from the re-establishment of certain U.S.

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

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

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

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

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

federal net operating loss carryforwards.

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

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

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

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

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

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

net deferred income tax assets.

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

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

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

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

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

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

Deferred Income Taxes – Valuation Allowance

In accordance with ASC Topic 740, we evaluate the realizability of our deferred income taxes to determine if a valuation allowance is required.

ASC Topic 740 requires that companies assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified.

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

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

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

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taxable income during fiscal 2019 and 2020 that offset our U.S.

pre-tax losses during such years, and which offset is now reversed as a result of the retroactivity of the new GILTI regulations.

pre-tax losses during such years, and which offset was reversed because of the retroactivity of the new GILTI regulations.

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

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

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

pre-tax losses would continue into fiscal 2021.

4 unchanged sentences

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

As of May 2, 2021, we evaluated the realizability our U.S.

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

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

taxable losses, and we have experienced U.S.

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

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

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

taxable losses, in that we experienced U.S.

taxable losses during each of the last three fiscal years.

In addition, we are currently expecting U.S.

taxable losses to continue into fiscal 2023.

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

net deferred income tax assets.

Based on our assessments as of May 2, 2021, and May 3, 2020, valuation allowances against our deferred income taxes pertain to the following jurisdictions:

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

net deferred income tax assets pertain to the following:

(dollars in thousands)

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capital loss carryforward

A summary of the change in the valuation allowances against our deferred income taxes follows:

A summary of the change in the valuation allowances against our U.S.

net deferred income tax assets follows:

(dollars in thousands)

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establishment of valuation allowance (2)

write-off of deferred income taxes (3)

change in estimate during current year (3)

ending balance

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

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

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

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

During fiscal 2019, we recorded an income tax charge of $ 4.5 million for the write-off of certain U.S.

foreign income tax credits, and in turn, we recorded an income tax benefit of $ 4.5 million for the reduction in our valuation allowance.

Amount represents changes in our U.S.

1 unchanged sentence

effective income tax rate that pertain to U.S.

state income tax rates and apportionment percentages, and (iii) other immaterial items.

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

Deferred Income Taxes – Undistributed Earnings from Foreign Subsidiaries

In accordance with ASC Topic 740, we assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S.

parent company.

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

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

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

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

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

parent company.

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corporation is allowed a 100 % dividend received deduction for earnings and profits received from a 10 % owned foreign corporation.

Therefore, a deferred income tax liability will only be required for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the U.S.

Therefore, a deferred income tax liability will be required for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the U.S.

parent company.

As a result, we recorded a deferred income tax liability for withholding taxes on undistributed earnings and profits from our foreign subsidiaries totaling $ 3.5 million and $ 3.4 million as of May 2, 2021, and May 3, 2020, respectively.

As a result, we recorded a deferred income tax liability of $ 3.6 million and $ 3.5 million as of May 1, 2022, and May 2, 2021, respectively.

Uncertainty in Income Taxes

In accordance with ASC Topic 740, an unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the reporting period, or is effectively settled through examination, negotiation, or litigation, or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired.

An unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the end of the reporting period, or is effectively settled through examination, or negotiation, or litigation, or if the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired.

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

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decreases from prior period tax positions

lapse of applicable statute of limitations

increases from current period tax positions

1 unchanged sentence

ending balance

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

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

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

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

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

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

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

United States federal income tax returns filed by us remain subject to examination for income tax years 2017 and subsequent.

United States federal and state income tax returns filed by us remain subject to examination for income tax years 2019 and subsequent.

Canadian federal income tax returns filed by us remain subject to examination for income tax years 2018 and subsequent.

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(dollars in thousands)

United States Federal - AMT credit refunds (1)

United States Federal - Alternative Minimum Tax

(AMT) credit refunds (1)

United States Federal - Transition Tax

Unites States state income tax payments

In accordance with 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 expected to be received in each of our fiscal years 2021 and 2022, respectively.

We received our first 50 % installment totaling $ 746,000 during the first quarter of fiscal 2021.

In accordance with the CARES Act, 100 % of AMT credit carryforwards for tax 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.

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 refunds totaling $ 1.5 million in two separate installments totaling $ 746,000 and $ 764,000 during the first and second quarters of fiscal 2021, respectively.

COMMITMENTS AND CONTINGENCIES

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Right of use assets exchanged for lease liabilities

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

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

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

Short-term lease costs were $ 55,000 and $ 148,000 during fiscal 2021 and fiscal 2020, respectively.

Variable lease costs were immaterial for fiscal 2021 and fiscal 2020.

Short-term lease costs were $ 68,000 , $ 55,000 , and $ 148,000 during fiscal 2022, 2021, and 2020, respectively.

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

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

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Present value of lease liabilities

Lease Contracts

Culp Upholstery Fabrics – Haiti, Ltd.

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.

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 in April 2021, $ 558,000 is due June 30, 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 May 2, 2021, the $ 1.4 million paid in April 2021 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.

High Point, NC – Design and Innovation Campus

Effective May 7, 2021, we entered into an agreement to lease showroom and office space approximating 21,000 square feet located in downtown High Point, NC.

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 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 during the third 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.

Related Party Lease – Mattress Fabrics Segment

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

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

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

Effective February 1, 2021, we amended this lease agreement to include options to renew and extend this lease for up to two additional periods of three-years each.

In accordance with ASC Topic 842, we determined that these options to renew are reasonably certain to be exercised, and therefore are now included in the lease term of the amended agreement.

In addition, the amendment provided us with an allowance for reimbursement associated with certain leasehold improvements we previously paid on behalf of the lessor totaling $ 92,400 .

The lease payments during the non-cancelable term and the two optional renewal periods are $ 13,200 per month and are being partially offset by the $ 92,400 reimbursement allowance over the period covering the remaining non-cancelable lease term and the two additional three-year renewal periods.

Rents paid to the entity owned by an immediate family of an officer totaled $ 151,000 , $ 157,000 , $ 158,000 in fiscal 2021, 2020, and 2019, respectively.

As of May 2, 2021, the remaining amount of the allowance for reimbursement of certain leasehold improvements was $ 86,000 .

Other Litigation

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

The company is involved in legal proceedings and claims which have arisen in the ordinary course of business.

Management has determined that it is not reasonably possible that these actions, when ultimately concluded and settled, will have a material adverse effect upon the financial position, results of operations, or cash flows of the company.

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

Accounts Payable – Capital Expenditures

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

As of May 3, 2020, we had total amounts due regarding capital expenditures totaling $ 107,000 , which pertained to outstanding vendor invoices, none of which were financed.

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

Purchase Commitments - Capital Expenditures

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

and Canadian mattress fabrics operations totaling $ 1.6 million.

and Canadian mattress fabrics operations totaling $ 580,000 .

STOCK-BASED COMPENSATION

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

The 2015 Plan authorizes the grant of stock options intended to qualify as incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, and other equity and cash related awards as determined by our Compensation Committee.

awards as determined by our Compensation Committee.

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

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Stock Awarded

August 6, 2020

July 22, 2021

August 6, 2020

July 18, 2019

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

The following table summarizes information related to our time-based restricted stock units that vested during the fiscal 2021, 2020, and 2019:

Dollar amounts are in thousands.

Price per share represents closing price of our common stock on the date the respective award vested.

We recorded compensation expense of $ 614,000 , $ 220,000 , and $ 43,000 within selling, general, and administrative expense for time vested restricted stock units in fiscal 2021, 2020, and 2019, respectively.

As of May 2, 2021, the remaining unrecognized compensation cost related to our time vested restricted stock units was $ 1.4 million, which is expected to be recognized over a weighted average vesting period of 2.1 years.

As of May 2, 2021, our time vested restricted stock unit awards that were expected to vest had a fair value totaling $ 2.5 million.

We recorded compensation expense of $ 893,000 , $ 614,000 , and $ 220,000 within selling, general, and administrative expense for time-based restricted stock units in fiscal 2022, 2021, and 2020, respectively.

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

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

Performance-Based Restricted Stock Units

Senior Executives

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 the 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.

Compensation cost for share-based awards is measured based on the fair market value on the date of grant.

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 award agreements.

The number of shares of common stock that are earned based on the 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 award agreements.

Our performance-based restricted stock units granted to senior executives were measured based on their fair market value on the date of grant.

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.

There were no performance-based restricted stock units granted to senior executives during fiscal 2021.

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 18, 2019, and August 2, 2018:

Closing price of our common stock

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45.7% - 101.5%

29.9% - 82.3%

Risk-free interest rate

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Correlation coefficient of peer companies (1)

The expected volatility and correlation coefficient of our peer companies for the July 18, 2019, 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.

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

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

The expected volatility and correlation coefficient of our peer companies for the August 2, 2018, grant date was based on the Russell 2000 Index, which was approved by the Compensation Committee of our board of directors as the benchmark for determining the market-based total shareholder return component.

Since the Russell 2000 Index was the only benchmark for determining the market-based total shareholder return component, no ranges were disclosed for these assumptions.

Key Employees and a Non-Employee

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

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

There were no performance-based restricted stock units granted to our key employees or any non-employees during fiscal 2021.

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

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July 22, 2021 (2)

August 2, 2018 (1)

August 2, 2018 (2)

July 18, 2019 (1)

July 18, 2019 (2)

Performance-based restricted stock units awarded to certain senior executives.

Performance-based restricted stock units awarded to key employees.

Amounts represent the maximum number of common stock shares that could be earned if certain performance targets are met as defined in the related restricted stock unit agreements.

Compensation cost is based on an assessment each reporting period to determine the probability of whether or not certain performance goals will be met as of the end of the vesting period, and in turn, the number of shares that are expected to be awarded during the vesting period.

Amounts represent the maximum number of common stock shares that could be earned if certain performance targets are met, as defined in the related restricted stock unit award agreements.

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

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

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

Price per share represents the fair market value per share ($ 0.76 per $1, or a reduction of $ 5.84 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 ($ 24.35 ) for the performance-based component of the performance-based restricted stock units granted to certain senior executives on August 2, 2018.

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.

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

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

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

We recorded a charge or a (credit) to compensation expense totaling $ 357,000 , $ 114,000 , and $( 53,000 ) million within selling, general, and administrative expense associated with our performance-based restricted stock units for fiscal years 2021, 2020, and 2019, respectively.

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

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

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April 1, 2020 - Fiscal 2020

January 2, 2020 - Fiscal 2020

October 1, 2019 - Fiscal 2020

July 1, 2019 - Fiscal 2020

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

We recorded $ 321,000 , $ 280,000 , and $ 280,000 of compensation expense within selling, general, and administrative expense for these common stock awards for fiscal 2022, 2021, and 2020, respectively.

Fair Value of Financial Instruments

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).

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The determination of where an asset or liability falls in the hierarchy requires significant judgment.

We evaluate our hierarchy disclosures each quarter based on various factors and it is possible that an asset or liability may be classified differently from quarter to quarter.

We evaluate our hierarchy disclosures each quarter based on a range of various factors, and it is possible that an asset or liability may be classified differently from quarter to quarter.

However, we expect that changes in classifications between different levels will be rare.

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(amounts in thousands)

Premier Money Market Fund

Short Term Bond Mutual Funds

Short Duration Inflation Protected Mutual Fund

Mortgage Securities Mutual Fund

Government Money Market Fund

Growth Allocation Mutual Funds

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Short Term Bond Mutual Funds

Growth Allocation Mutual Fund

Short Duration Inflation Protected Mutual Fund

Mortgage Securities Mutual Fund

Growth Allocation Mutual Funds

Moderate Allocation Mutual Fund

Nonrecurring Basis – Continuing Operations

As of May 2, 2021, we had assets and liabilities related to our continuing operations that were required to be measured at fair value on a nonrecurring basis that pertained to the assets acquired and certain liabilities assumed in the connection with the CIH business combination effective February 1, 2021, that were acquired at fair value.

Fourth Quarter of Fiscal 2021

We had assets and liabilities that were required to be measured at fair value on a nonrecurring basis that pertained to assets acquired and certain liabilities that were assumed in connection with the CIH business combination effective February 1, 2021.

See Note 2 of the consolidated financial statements for further details regarding this business combination.

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

active markets

for identical

Fair value measurements on February 1, 2021, using:

Quoted Prices

identical assets

(amounts in thousands)

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Equipment and leasehold improvements

The fair value of our right of use assets was based on our analysis of a recent appraisal of the annual lease rates per square foot for industrial buildings that are similar in nature and within the same locale.

We believe the annual lease rates per square foot presented in our recent appraisal represent a significant observable inputs and therefore the right of use assets were classified as level 2.

The fair value of the right of use assets was based on our analysis of a recent appraisal of the annual lease rates per square foot for industrial buildings that are similar in nature and within the same locale.

We believe the annual lease rates per square foot presented in our recent appraisal represent significant observable inputs and therefore these right of use assets were classified as level 2.

Additionally, in connection with the CIH business combination effective February 1, 2021, we acquired cash, accounts receivable, and certain other current assets, and we assumed accounts payable.

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See Note 2 of the consolidated financial statements for the final allocation of the acquisition cost to assets acquired and liabilities assumed based on their fair values.

The following table presents information about assets and liabilities measured at fair value on a nonrecurring basis related to our continuing operations as of May 3, 2020:

Annual Impairment Assessment – May 3, 2020

The following table presents information about assets measured at fair value on a nonrecurring basis related to our continuing operations as of May 3, 2020:

Fair value measurements as of May 3, 2020, using:

active markets

for identical

Quoted Prices

identical assets

(amounts in thousands)

We recorded an asset impairment charge of $ 13.6 million in asset impairments in the fiscal 2020 Consolidated Statement of Net Loss for the entire carrying value of goodwill associated with our continuing operations.

As a result, we did no t have goodwill recorded in our Consolidated Balance Sheets as of May 1, 2022, and May 2, 2021, respectively.

Goodwill was recorded at fair market value using a discounted cash flow method that used significant unobservable inputs and was classified as level 3.

See Note 9 of the consolidated financial statements for further details regarding our assessment of impairment, conclusions reached, and the performance of our quantitative impairment tests.

We recorded an asset impairment charge of $ 143,000 in asset impairments in the fiscal 2020 Consolidated Statement of Net Loss.

Tradename was recorded at fair market value using the relief from royalty method that used significant unobservable inputs and was classified as level 3.

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Nonrecurring Basis – Discontinued Operation

During fiscal 2020, the entire carrying value of our goodwill and tradename associated with our discontinued operation was impaired, and therefore, we did no t have goodwill or tradename recorded in our Consolidated Balance Sheets as of May 2, 2021 and May 3, 2020.

During fiscal 2020, the entire carrying value of our goodwill and tradename associated with our discontinued operation was impaired.

Consequently, we recorded asset impairment charges totaling $ 20.2 million that were presented in loss before income taxes from discontinued operation of the fiscal 2020 Consolidated Statement of Net Loss.

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Based on this assessment, we recorded a reversal of $ 6.1 million for the full amount of this contingent consideration.

See below or fair value techniques used to determine the fair value of goodwill, tradename, and contingent consideration and the level of the fair value hierarchy these fair value techniques were classified based on the lowest level of inputs used.

See below for fair value techniques used to determine the fair value of goodwill, tradename, and contingent consideration and the level of the fair value hierarchy at which these assets and liabilities were classified based on the lowest level of inputs used.

Goodwill was assessed for impairment at the end of our third quarter and during our fourth quarter of fiscal 2020.

At the end of the third quarter of fiscal 2020, goodwill was recorded at fair market value using a discounted cash flow method that used significant unobservable inputs and was classified as level 3.

During the fourth quarter of fiscal 2020, goodwill was recorded at fair market value based on the expected selling price of our entire ownership in eLuxury in comparison to its carrying amount, including goodwill.

As disclosed in Note 3 of the consolidated financial statements, effective March 31, 2020, we sold our entire ownership interest in eLuxury to its noncontrolling interest holder resulting in

the elimination of the home accessories segment at such time.

During the fourth quarter of fiscal 2020, goodwill was recorded at fair market value based on the expected selling price of our entire ownership interest in eLuxury in comparison to its carrying amount, including goodwill.

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

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At the end of the third quarter of fiscal 2020, tradename was recorded at fair market value using the relief from royalty method that used significant unobservable inputs and was classified as level 3.

During the fourth quarter of fiscal 2020, tradename was recorded at fair market value based on the expected selling price of our entire ownership in eLuxury in comparison to its carrying amount.

During the fourth quarter of fiscal 2020, tradename was recorded at fair market value based on the expected selling price of our entire ownership interest in eLuxury in comparison to its carrying amount.

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See Note 3 of the consolidated financial statements for further details regarding the terms of this contingent consideration arrangement.

As of April 28, 2019, we had assets and liabilities related to our discontinued operation that were required to be measured at fair value on a nonrecurring basis in the connection with the eLuxury business combination on June 22, 2018 (during our fiscal 2019), that were acquired at fair value.

See Note 3 of the consolidated financial statements for further details regarding the acquisition of eLuxury and subsequent disposal effective March 31, 2020.

Fair value measurements as of April 28, 2019, using:

active markets

for identical

(amounts in thousands)

Goodwill - discontinued operation

Tradename - discontinued operation

Equipment - discontinued operation

Inventory - discontinued operation

Contingent consideration affiliated with a discontinued operation

The tradename was recorded at fair market value using the royalty from relief method that used significant unobservable inputs and was classified as level 3.

The contingent consideration – earn-out obligation was recorded at fair market value using Black Scholes pricing model which used significant observable inputs and was classified as level 3.

Additionally, we acquired certain current, assets such as accounts receivable and prepaid expenses, and we assumed certain liabilities such as accounts payable and accrued expenses.

Based on the nature of these items and their short-term maturity, the carrying amount

of these items approximated their fair values.

See Note 3 of the consolidated financial statements for the final allocation of the acquisition cost to the assets acquired and liabilities assumed based on their fair values.

NET INCOME (LOSS) FROM CONTINUING OPERATIONS PER SHARE

Basic net income (loss) from continuing operations per share is computed using the weighted-average number of shares outstanding during the period.

Diluted net income (loss) from continuing operations per share uses the weighted-average number of shares outstanding during the period plus the dilutive effect of stock-based compensation calculated using the treasury stock method.

Weighted average shares used in the computation of basic and diluted net income (loss) from continuing operations per share are as follows:

NET (LOSS) INCOME FROM CONTINUING OPERATIONS PER SHARE

Basic net (loss) income from continuing operations per share is computed using the weighted-average number of shares outstanding during the period.

Diluted net (loss) income from continuing operations per share uses the weighted-average number of shares outstanding during the period plus the dilutive effect of stock-based compensation calculated using the treasury stock

Weighted average shares used in the computation of basic and diluted net (loss) income from continuing operations per share are as follows:

(in thousands)

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weighted-average common shares outstanding, diluted

During fiscal 2021, 2,175 shares of unvested common stock were not included in the computation of diluted net income from continuing operations per share, as their effect would be antidilutive, due to the decrease in the price per share of our common stock during the reporting period in relation to the price per share of our common stock as of the respective grant dates of our stock-based compensation awards.

During fiscal 2020, 45,731 shares of unvested common stock were not included in the computation of diluted net loss from continuing operations per share, as their effect would be antidilutive.

Of the 45,731 shares of unvested common stock, 26,343 shares were not included in the computation as we incurred a net loss for the year, and therefore, their effect would be antidilutive.

In addition, 19,388 shares of unvested common stock 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 our stock-based compensation awards.

During fiscal 2019, all unvested shares of common stock were included in the computation of diluted net income from continuing operations per share.

During fiscal 2022, 18,281 shares of unvested common stock were not included in the computation of diluted net loss from continuing operations per share, as their effect would be antidilutive due to the decrease in the price per share of our common stock during the reporting period compared with the price per share of our common stock as of the respective grant dates of the related stock-based compensation awards.

In addition, during fiscal 2022, 85,796 shares of unvested common stock were not included in the computation of diluted net loss from continuing operations per share as we incurred a net loss during the reporting period.

During fiscal 2021, 2,175 shares of unvested common stock were not included in the computation of diluted net income from continuing operations per share, as their effect would be antidilutive due to the decrease in the price per share of our common stock during the reporting period compared with the price per share of our common stock as of the respective grant dates of the related stock-based compensation awards.

During fiscal 2020, 19,388 shares of unvested common stock were not included in the computation of diluted net loss from continuing operations per share, as their effect would be antidilutive due to the decrease in the price per share of our common stock during the reporting period compared with the price per share of our common stock as of the respective grant dates of the related stock-based compensation awards.

In addition, during fiscal 2020, 26,343 shares of unvested common stock were not included in the computation of diluted net loss from continuing operations per share as we incurred a net loss during the reporting period.

BENEFIT PLANS

Defined Contribution Plans

We have defined contribution plans which covers substantially all employees and provide for participant contributions on a pre-tax basis and matching contributions by the company for its U.S.

We have defined contribution plans that cover substantially all employees and allow participants to contribute on a pre-tax basis, along with, matching contributions by the company for its U.S.

and Canadian operations.

Our contributions to these plans were $ 1.2 million during fiscal years 2021, 2020, and 2019, respectively.

Our contributions to these plans were $ 1.3 million, $ 1.2 million, and $ 1.2 million during fiscal years 2022, 2021, and 2020, respectively.

Deferred Compensation Plan

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

In addition, this segment includes Read, which provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation services of Read’s own 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 of 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.

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

Additionally, the results of operations associated with our home accessories segment were excluded from our continuing operations and presented as a discontinued operation in our consolidated financial statements for fiscal years 2020 and 2019.

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

See Note 3 of the consolidated financial statements for detailed financial information of our former home accessories segment.

A reconciliation is provided in Note 3 that contains detailed income statement information and is reconciled to net loss from discontinued operation presented in the Consolidated Statements of Net Income (Loss) for fiscal years 2020 and 2019.

Net Sales Geographic Concentration

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No customers within the mattress fabrics segment represented greater than 10 % of consolidated net sales during fiscal 2022, 2021, or fiscal 2020.

One customer within the mattress fabrics segment accounted for 12 % of the consolidated net accounts receivable balance as of May 2, 2021.

No customers within the mattress fabrics segment accounted for greater than 10 % of the consolidated net accounts receivable balance as of May 1, 2022.

One customer within the mattress fabrics segment accounted for 12 % of the consolidated net accounts receivable balance as of May 2, 2021.

Employee Workforce Concentration

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Financial Information

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

We evaluate the operating performance of our business segments based upon income (loss) from continuing operations before certain unallocated corporate expenses, asset impairment charges, restructuring credit, and other items that are not expected to occur on a regular basis.

Cost of sales in each of our current business segments include costs to develop, manufacture, or source our products, including costs such as raw material and finished goods purchases, direct and indirect labor, overhead and incoming freight charges.

Unallocated corporate expenses primarily represent compensation and benefits for certain senior executives and their support staff, all costs associated with being a public company, and other miscellaneous expenses.

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

The mattress fabrics segment also included in segment assets their investment in an unconsolidated joint venture as of May 3, 2020.

During fiscal 2019, we elected to no longer include goodwill and intangible assets in segment assets, as these assets are not used by the Chief Operating Decision Maker to evaluate the respective segment’s operating performance, to allocate resources to the individual segments, or determine executive compensation.

Statements of operations for our current operating segments are as follows:

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mattress fabrics

total segment gross profit

other non-recurring charges (1)

restructuring related charges (2)

total gross profit from continuing operations

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unallocated corporate

total segment selling, general, and administrative expenses

other non-recurring charges (3)

restructuring related charges (4)

total selling, general, and administrative expenses

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asset impairments (1)

other non-recurring charges (1) (3)

restructuring credit and related charges (5) (6)

restructuring credit

total income (loss) from continuing operations

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other expense

income (loss) before income taxes from continuing operations

The $ 159,000 represents employee termination benefits and other operational reorganization costs associated with our mattress fabrics segment.

The $ 2.3 million represents a restructuring related charge of $ 1.6 million for inventory markdowns and $ 784,000 for other operating costs associated with our closed Anderson, SC upholstery fabrics facility.

The $ 518,000 represents a non-recurring charge of $ 429,000 for the accelerated vesting of certain stock-based compensation agreements associated with a senior executive and was recorded in unallocated corporate expenses.

Additionally, the $ 518,000 includes $ 89,000 for employee termination benefits and operational reorganizational costs associated with our mattress fabrics segment.

The $ 40,000 represents a restructuring related charge for the accelerated vesting for certain stock-based compensation agreements associated with an employee that was located at our closed Anderson, SC upholstery fabrics facility.

The $ 1.6 million represent charges and credits that were associated our closed Anderson, SC upholstery fabrics facility and include $ 1.6 million for inventory markdowns, $ 784,000 for other operating costs, $ 661,000 for employee termination benefits, and $ 40,000 for the accelerated vesting of certain stock-based compensation agreements associated an employee, partially offset by a $ 1.5 million gain on the sale of property, plant, and equipment.

Of this total net charge of $ 1.6 million , a charge of $ 2.3 million, a charge of $ 40,000 and a credit of $ 825,000 were recorded in cost of sales, selling, general, and administrative expenses, and restructuring credit, respectively, in the fiscal 2019 Consolidated Statement of Net Income.

During fiscal 2020, we incurred asset impairment charges totaling $ 13.7 million, of which $ 13.6 million and $ 143,000 pertained to goodwill associated with our mattress and upholstery fabric segments and a tradename associated Read, respectively.

(loss) income before income taxes from continuing operations

During fiscal 2020, we incurred asset impairment charges totaling $ 13.7 million, of which $ 13.6 million and $ 143,000 pertained to goodwill and a tradename associated with Read, respectively.

Of this $ 13.7 million, $ 11.5 million and $ 2.2 million pertained to the mattress fabrics segment and upholstery fabrics segment, respectively.

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Pursuant to this transaction, we are now the sole owner with full control over this operation.

The gain on bargain purchase represents the net assets acquired from this transaction that were more than the $ 954,000 total purchase price.

The gain on bargain purchase represents the net assets acquired from this transaction that exceeded the fair value of our previously held 50 % ownership interest of $ 1.7 million and the $ 954,000 total purchase price for the remaining 50% ownership interest.

Balance sheet information for our current operating segments follow:

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right of use assets

investment in unconsolidated joint venture

total mattress fabrics assets

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The $ 38.7 million as of May 1, 2022, represents property, plant, and equipment of $ 25.6 million, $ 12.4 million, and $ 757,000 located in the U.S., Canada, and Haiti, respectively.

The $ 40.7 million as of May 3, 2020, represents property, plant, and equipment of $ 27.7 million and $ 13.0 million located in the U.S.

and Canada, respectively.

The $ 41.7 million as of May 2, 2021, represents property, plant, and equipment of $ 28.8 million, $ 12.0 million, and $ 855,000 located in the U.S., Canada, and Haiti, respectively.

The $ 3.5 million as of May 1, 2022, represents right of use assets of $ 2.0 million, $ 1.2 million, and $ 291,000 located in Haiti, the U.S., and Canada, respectively.

The $ 362,000 as of May 3, 2020, represents right of use assets located in the U.S.

The $ 1.9 million as of May 2, 2021, represents property, plant, and equipment of $ 1.1 million and $ 850,000 located in the U.S.

and China, 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 $ 2.0 million as of May 1, 2022, represents property, plant, and equipment of $ 1.0 million, $ 756,000 , and $ 255,000 located in the U.S., Haiti, and China, respectively.

The $ 1.5 million as of May 2, 2021, represents property, plant, and equipment of $ 1.1 million and $ 420,000 located in the U.S.

and China, respectively.

The $ 8.1 million as of May 1, 2022, represents right of use assets of $ 3.7 million, $ 2.6 million, and $ 1.8 million located in China, Haiti, and the U.S., respectively.

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

The $ 1.6 million as of May 3, 2020, represents right of use assets of $ 857,000 and $ 776,000 located in the U.S.

and China, respectively.

The $ 941,000 as of May 1, 2022, and $ 814,000 as of May 2, 2021, represent property, plant, and equipment associated with unallocated corporate departments and corporate departments shared by both the mattress fabrics and upholstery fabrics segments located in the U.S.

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See the Consolidated Statement of Cash Flows for capital expenditure amounts on a cash basis.

2019 UPHOLSTERY FABRICS RESTRUCTURING PLAN

On June 12, 2018, our board of directors announced the closure of our upholstery fabrics manufacturing facility located in Anderson, South Carolina.

This closure was completed during the second quarter of fiscal 2019 and was due to a continued decline in demand for the products manufactured at this facility, reflecting a change in consumer style preferences.

The following summarizes our restructuring credit and related charges that were associated with this restructuring plan described above:

(dollars in thousands)

Inventory markdowns

Other operating costs associated with a closed facility

Employee termination benefits

Gain on sale of property, plant, and equipment

Restructuring credit and restructuring related charges (1) (2)

The $ 70,000 credit was recorded to restructuring credit in the accompanying fiscal 2020 Consolidated Statement of Net Loss.

Of the total net charge of $ 1.6 million, a $ 2.3 million charge, a charge of $ 40,000 , and a credit of $ 825,000 were recorded in cost of sales, selling, general and administrative expenses, and restructuring credit, respectively, in the accompanying fiscal 2019 Consolidated Statement of Net Income.

STATUTORY RESERVES

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

As of May 2, 2021, the statutory surplus reserve fund represents the 50 % registered capital limit, and therefore, our subsidiary located in China is not required to transfer 10 % of its net income in accordance with PRC accounting rules and regulations.

As of May 1, 2022, the statutory surplus reserve fund represents the 50 % registered capital requirement, and therefore, our subsidiary located in China is no longer required to transfer 10% of its net income in accordance with PRC accounting rules and regulations.

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

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In March 2020, our board of directors approved an authorization for us to acquire up to $ 5.0 million of our common stock.

Under the common stock repurchase program, shares may be purchased from time to time in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise.

The number of shares purchased, and the timing of such purchases will be based on working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities.

As part of our comprehensive response to the COVID-19 pandemic, we announced on April 3, 2020, that our board of directors temporarily suspended the share repurchase program given the ongoing economic disruption and uncertainty.

On March 2, 2021, our board of directors reinstated the share repurchase program.

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

As a result, as of May 2, 2021, we had $ 5.0 million available for additional repurchases of our common stock.

Under the common stock repurchase program, shares may be purchased in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise.

The number and timing of share purchases are based on working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities.

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

As a result, as of May 1, 2022, $ 3.2 million is available for additional repurchases of our common stock.

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

During fiscal 2020, we repurchased 142,496 shares of our common stock at a cost of $ 1.7 million pursuant to the authorization approved by our board of directors on September 5, 2019.

During fiscal 2019, we repurchased 160,823 shares of our common stock at a cost of $ 3.3 million pursuant to the authorization approved by our board of directors on June 15, 2016.

DIVIDEND PROGRAM

On June 15, 2021, our board of directors approved a regular quarterly cash dividend of $ 0.11 per share.

This payment will be made on July 16, 2021 , to shareholders of record as of July 9, 2021 .

During fiscal 2021, dividend payments totaled $ 5.3 million, which represented quarterly dividend payments ranging from $ 0.105 to $ 0.11 per share.

During fiscal 2020, dividend payments totaled $ 5.1 million, which represented quarterly dividend payments ranging from $ 0.10 to $ 0.105 per share.

During fiscal 2019, dividend payments totaled $ 4.7 million, which represented quarterly dividend payments ranging from $ 0.09 to $ 0.10 per share.

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

Future dividend payments are subject to final determination by our board of directors and will depend on our earnings, capital requirements, financial condition, excess availability under our lines of credit, market and economic conditions, and other factors we consider relevant.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The selected quarterly data tabular disclosure is no longer required, as we have elected to early adopt the amendment to Item 302 of Regulation S-K contained in SEC Release No.

33-10890, which became effective on February 10, 2021.

There were no material retrospective changes to any quarters in the two most recent fiscal years that would require this disclosure.

On June 29, 2022, our board of directors announced the decision to suspend the company’s quarterly cash dividend.

Considering the current and expected macroeconomic conditions, we believe that preserving capital and managing our liquidity is in the company’s best interest to support future growth and the long-term interests of our shareholders.

During fiscal 2022, dividend payments totaled $ 5.5 million, which represented quarterly dividend payments ranging from $ 0.11 per share to $ 0.115 per share.

During fiscal 2021, dividend payments totaled $ 5.3 million, which represented quarterly dividend payments ranging from $ 0.105 per share to $ 0.11 per share.

During fiscal 2020, dividend payments totaled $ 5.1 million, which represented quarterly dividend payments ranging from $ 0.10 per share to $ 0.105 per share.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk