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Stock-Based Compensation

6 Months Ended

Nov. 03, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

18. Stock-Based Compensation

Equity Incentive Plan Description

On September 16, 2015, our shareholders approved an equity incentive plan entitled 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.

At November 3, 2019, there were 886,298 shares available for future equity-based grants under our 2015 plan.

Performance-Based Restricted Stock Units

Executive Management

We grant performance-based restricted stock units to certain 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 will 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 is 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 components

of awards

The following table provides assumptions used to determine the fair market value of the market-based shareholder return component

of awards

using the Monte Carlo simulation model

during

the

fiscal year

the

grants noted

below were awarded


	Fiscal 2020	Fiscal 2019			Fiscal 2018
Closing price of our common stock	$18.49	$	24.35		$	32.50
Expected volatility of our common stock	30.0%		33.5	%		31.0	%
Expected volatility of peer companies (1) (2)	29.9% - 82.3%		16.0	%		16.5	%
Risk-free interest rate	1.73%		2.74	%		1.56	%
Dividend yield	2.10%		1.35	%		1.66	%
Correlation coefficient of peer companies (1) (2)	0.00 – 0.43		0.47			0.46

(1)

The expected volatility and correlation coefficient of our peer companies for fiscal 2020 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 the 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 fiscal 2019 and 2018 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 (the closing price of our common stock) on the date when the performance criteria was met.

The following table summarizes information related to our grants of performance-based restricted stock units associated with certain senior executives and key employees that are currently unvested:


Date of Grant	(3) Restricted Stock Units Awarded		Price Per Share			Vesting Period
July 18, 2019 (1)		93,653	$	19.04	(4)		3 years
July 18, 2019 (2)		30,426	$	18.49	(7)		3 years
August 2, 2018 (1)		86,599	$	18.51	(5)		3 years
August 2, 2018 (2)		47,800	$	24.35	(7)		3 years
July 13, 2017 (1)		78,195	$	31.85	(6)		3 years
July 13, 2017 (2)		44,000	$	32.50	(7)		3 years

(1)	Performance-based restricted stock units awarded to certain 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)

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 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 ($18.49) for the performance-based components of the performance-based restricted stock units granted to certain senior executives on July 18, 2019.

(5)

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 components of the performance-based restricted stock units granted to certain senior executives on August 2, 2018.

(6)

Price per share represents the fair market value per share ($0.98 per $1 or a reduction of $0.65 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 ($32.50) for the performance-based components of the performance-based restricted stock units granted to certain senior executives on July 13, 2017.

(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

six-month

period ending November 3, 2019 and the entire fiscal year ending April 28, 2019:


Fiscal Year	Restricted Stock Units Vested		(3) Fair Value		Weighted Average Price Per Share
Fiscal 2020 (1)		9,489	$	165	$	17.36	(4)
Fiscal 2020 (2)		4,148	$	72	$	17.36	(4)
Fiscal 2019 (1)		128,632	$	3,754	$	29.19	(4)
Fiscal 2019 (2)		10,364	$	320	$	30.90	(4)

(1)	Certain senior executives and key employees.

(2)	Non-employee

(3)	Dollar amounts are in thousands.

(4)	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.

Overall

We recorded compensation expense of $275,000 and a credit to compensation expense of $216,000 within selling, general, and administrative expenses for the

six-month

periods ending November 3, 2019, and October 28, 2018, respectively. Compensation cost is recorded based on an assessment each reporting period of the probability that certain performance goals will be met during the vesting period

of outstanding awards

. If performance goals are not probable of occurrence, compensation cost will not be recorded and any previously recognized compensation cost would be reversed.

At November 3, 2019, the remaining unrecognized compensation cost related to our performance based restricted stock units was $1.3 million, which is expected to be recognized over a weighted average vesting period of 2.4 years. At November 3, 2019, the performance based restricted stock units that were expected to vest had a fair value totaling $1.3 million.

Time

Based Restricted Stock Units

The following table summarizes information related to our grants of time-based restricted stock units associated with senior executives and key members of management that are currently unvested:


Date of Grant	Time Based Stock Units Awarded		Price Per Share			Vesting Period
July 18, 2019		34,398	$	18.49	(1)		3 years
August 2, 2018		10,000	$	24.35	(1)		5 years

(1) Price per share represents closing price of 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

six-month

period ending November 3, 2019 and the entire fiscal year ending April 28, 2019:


Fiscal Year	Restricted Stock Units Vested		(1) Fair Value		Weighted Average Price Per Share
Fiscal 2020		—	$	—		—
Fiscal 2019		1,200	$	21	$	17.36	(2)

(1)	Dollar amounts are in thousands.

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

Overall

We recorded compensation expense of $52,000 and $26,000 within selling, general, and administrative expense associated with our time

vested restricted stock unit awards for the

six-month

periods ending November 3, 2019, and October 28, 2018, respectively.

At November 3, 2019, the remaining unrecognized compensation cost related to our time vested restricted stock units was $790,000, which is expected to be recognized over a weighted average vesting period of 2.8 years. At November 3, 2019, the time

vested restricted stock awards that were expected to vest had a fair value totaling

682,000.

Common Stock Award

Fiscal 2020

We granted a total of 4,519 and 3,659 shares of common stock to our outside directors on 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 w

$15.49 and $19.21 per share on October 1, 2019 and July 1, 2019, respectively, which represents the closing price of our common stock on the date of grant.

Fiscal 2019

We granted a total of 2,948 and 3,600 shares of common stock to our outside directors on April 1, 2019 and October 1, 2018, 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 $19.18 and $23.45 per share on April 1, 2019 and October 1, 2018, respectively, which represents the closing price of our common stock on the date of grant.

We recorded $140,000 and $84,000 of compensation expense within selling, general, and administrative expense for our common stock awards for the

six-months

ending November 3, 2019 and October 28, 2018, respectively.