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Stock-Based Compensation

9 Months Ended

Jan. 31, 2021

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

17. Stock-Based Compensation

Equity Incentive Plan Description

On September 16, 2015, our shareholders approved an equity incentive plan titled the Culp, Inc. 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan authorizes the grant of stock options intended to qualify as incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, and other equity and cash related awards as determined by our Compensation Committee. An aggregate of 1,200,000 shares of common stock were authorized for issuance under the 2015 Plan, with certain sub-limits that would apply with respect to specific types of awards that may be issued as defined in the 2015 Plan.

As of January 31, 2021, there were 544,166 shares available for future equity-based grants under the 2015 Plan.

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 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 the nine-months ended January 31, 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 units granted to senior executives on July 18, 2019, and August 2, 2018:

	July 18,			August 2,
	2019			2018
Closing price of our common stock	$	18.49		$	24.35
Expected volatility of our common stock		30.0	%		33.5	%
Expected volatility of peer companies (1) (2)	29.9% - 82.3%				16.0	%
Risk-free interest rate		1.73	%		2.74	%
Dividend yield		2.10	%		1.35	%
Correlation coefficient of peer companies (1) (2)	0.00 - 0.43				0.47

(1)

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

(2)

The expected volatility and correlation coefficient of our peer companies for the August 2, 2018 grant date were 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. No market-based total shareholder return component was included in these awards. Our performance-based restricted stock units granted to a non-employee, which vested during the first quarter of fiscal 2020, were measured based on the fair market value (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 the nine-months ended January 31, 2021.

Overall

The following table summarizes information related to our grants of performance-based restricted stock units associated with senior executives and key employees that are unvested as of January 31, 2021:

	(3)		(4)
	Performance-Based		Restricted Stock
	Restricted Stock		Units Expected
Date of Grant	Units Awarded		to Vest		Price Per Share			Vesting Period
July 18, 2019 (1)		93,653		2,217	$	19.04	(5)	3 years
July 18, 2019 (2)		29,227		1,914	$	18.49	(7)	3 years
August 2, 2018 (1)		86,599		3,871	$	18.51	(6)	3 years
August 2, 2018 (2)		47,800		2,318	$	24.35	(7)	3 years

(1)	Performance-based restricted stock units awarded to senior executives.

(2)	Performance-based restricted stock units awarded to key employees.

(3)	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.

(4)

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 at the end vesting period. These amounts represent the number of shares that were expected to vest as of January 31, 2021.

(5)

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

(6)

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 the 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 senior executives on August 2, 2018.

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

The following table summarizes information related to our performance-based restricted stock units that vested during the nine-month periods ending January 31, 2021, and February 2, 2020:

	Performance-Based				(4)
	Restricted Stock		(3)		Price
Fiscal Year	Units Vested		Fair Value		Per Share
Fiscal 2021 (1)		3,277	$	33	$	9.96
Fiscal 2021 (1)		3,710	$	37	$	9.96
Fiscal 2020 (1)		11,351	$	197	$	17.36
Fiscal 2020 (2)		4,961	$	86	$	17.36

(1)	Senior executives and key employees.

(2)	Non-employee.

(3)	Dollar amounts are in thousands.

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

We recorded compensation expense of $127,000 and $467,000 within selling, general, and administrative expenses for the nine-month periods ending January 31, 2021, and February 2, 2020, respectively. Compensation cost is recorded based on an assessment each reporting period to determine the probability of whether or not certain performance targets will be met as of the end of the vesting period. If certain performance goals are not expected to be achieved, compensation cost would not be recorded, and any previously recognized compensation cost would be reversed.

As of January 31, 2021, the remaining unrecognized compensation cost related to our performance-based restricted stock units was $66,000, which is expected to be recognized over a weighted average vesting period of 1.2 years. As of January 31, 2021, the performance-based restricted stock units that were expected to vest had a fair value totaling $159,000.

Time-Based Restricted Stock Units

The following table summarizes information related to our grants of time-based restricted stock unit awards associated with senior executives and key members of management that are unvested as of January 31, 2021:

	Time-Based
	Restricted Stock		(1)
Date of Grant	Units Awarded		Price Per Share		Vesting Period
August 6, 2020		129,896	$	11.01	3 years
July 18, 2019		34,399	$	18.49	3 years
August 2, 2018		10,000	$	24.35	5 years

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

Overall

We recorded compensation expense of $429,000 and $154,000 within selling, general, and administrative expenses associated with our time-based restricted stock unit awards for the nine-month periods ending January 31, 2021, and February 2, 2020, respectively.

As of January 31, 2021, the remaining unrecognized compensation cost related to our time-based restricted stock units was $1.6 million, which is expected to be recognized over a weighted average vesting period of 2.3 years. As of January 31, 2021, the time-based restricted stock units that are expected to vest had a fair value totaling $2.7 million.

Common Stock Award

We granted a total of 4,563, 5,193, and 7,000 shares of common stock to our outside directors on January 4, 2021, October 1, 2020, and July 1, 2020, respectively. These shares of common stock vested immediately and were measured at their fair value on the date of grant. The fair value of these awards was $15.34, $13.48, and $10.00 per share on January 4, 2021, October 1, 2020, and July 1, 2020, respectively, which represents the closing price of our common stock on the date of grant.

We granted a total of 4,972, 4,519, and 3,659 shares of common stock to our outside directors on January 2, 2020, October 1, 2019, and July 1, 2019, respectively. These shares of common stock vested immediately and were measured at their fair value on the date of grant. The fair value of these awards was $14.08, $15.49, and $19.21 per share on January 2, 2020, October 1, 2019, and July 1, 2019, respectively, which represents the closing price of our common stock on the date of grant.

We recorded $210,000 of compensation expense within selling, general, and administrative expenses for common stock awards to our outside directors for each of the nine-month periods ending January 31, 2021, and February 2, 2020.