During the second quarter of fiscal 2023, we closed our cut and sew upholstery fabrics operation located in Shanghai, China, which included the termination of an agreement to lease a building. This strategic action, along with the further use of our Asian supply chain, was our response to declining consumer demand for cut and sew products, by adjusting our operating costs to better align with the lower demand.

As a result of this strategic action, we recorded restructuring expense and restructuring related charges during fiscal 2023 totaling $713,000, which represent represent (i) employee termination benefits of $468,000, (ii) loss from the disposal and markdowns of inventory of $98,000, (iii) an impairment loss associated with equipment of $80,000, (iv) lease termination costs of $47,000, (v) and

other associated costs of $20,000. Of the total $713,000, $615,000 and $98,000, were recorded to restructuring expense and cost of sales, respectively, in the fiscal 2023 Consolidated Statement of Net Loss.

Effective January 24, 2023, Culp Upholstery Fabrics Haiti, Ltd. ("CUF Haiti") entered into an agreement to terminate a lease associated with a facility located in Ouanaminthe, Haiti ("Haiti"), that was used solely for the production of cut and sewn kits associated with our upholstery fabrics segment. As a result, CUF Haiti's production of cut and sewn upholstery kits has been moved to an existing facility leased by Culp Home Fashions Haiti, Ltd. ("CHF Haiti"). Both CUF Haiti and CHF Haiti are indirect wholly-owned subsidiaries of Culp, Inc. CHF Haiti's facility, which is also located in Ouanaminthe, Haiti, will not only produce cut and sewn kits associated with our upholstery fabrics segment, but will also continue to produce cut and sewn mattress covers associated with our mattress fabrics segment. We believe this restructuring action will reduce the costs of our operations located in Haiti to better align with the declining consumer demand for cut and sewn products by consolidating existing facilities and reducing headcount.

As mentioned above, CUF Haiti entered into an agreement to terminate the lease (the "Termination Agreement") of a facility ("right of use asset"). Pursuant to the terms of the original lease agreement (the "Original Lease"), CUF Haiti was required to pay in advance $2.8 million for the full amount of rent due prior to the commencement of the Original Lease, and the initial lease term was set to expire on December 31, 2029. Pursuant to the terms of the Termination Agreement, the Original Lease was formally terminated when CUF Haiti vacated and returned possession of their right of use asset associated with the Original Lease to the lessor. After CUF Haiti vacated and returned possession of their right of use asset to the lessor, a third party (the "Lessee") took possession of CUF Haiti's right of use asset, and the Lessee agreed to pay CUF Haiti $2.4 million over a period commencing on April 1, 2023 and ending on December 31, 2029, based on monthly installments as stated in the Termination Agreement. In connection with the Termination Agreement, an affiliate of the Lessee has guaranteed payment in full of all amounts due and payable to CUF Haiti by the Lessee, and CUF Haiti has been fully and unconditionally released and discharged from all of its remaining obligations under the Original Lease.

In connection with the Termination Agreement, CUF Haiti's right of use asset was classified as held for sale and was presented separately as assets held for sale on the Consolidated Balance Sheet as of January 29, 2023 (i.e., the end of the third quarter of fiscal 2023). As a result, CUF Haiti's right of use asset was recorded at its fair value of $2.0 million, which was lower than its carrying value as of January 29, 2023 (see Note 14 to the consolidated financial statements for further details regarding fair value measurement). Consequently, since the fair value of CUF Haiti's right of use asset was lower than its carrying amount, we recorded a restructuring charge of $434,000 during the third quarter of fiscal 2023 to reduce the carrying amount of CUF Haiti's right of use asset to its reported fair value. During the fourth quarter of fiscal 2023, CUF Haiti recognized the sale of its right of use asset, as it vacated and returned possession of their right of use asset to the Lessor, and the Lessee has taken possession of CUF Haiti's right of use asset. As a result, CUF Haiti's right of use asset classified as held for sale was derecognized and a short-term and long-term note receivable was recognized based on the payments and timing of such payments due from the Lessee as stated in the Termination Agreement. As of April 30, 2023, CUF Haiti's note receivable totaled $1.9 million, of which $219,000 and $1.7 million were classified as short-term and long-term, respectively.

As a result of this strategic action, we recorded restructuring expense during fiscal 2023 totaling $781,000. which represents (i) lease termination costs of $434,000, (ii) an impairment loss related to leasehold improvements of $277,000, (iii) employee termination benefits of $39,000, and (iv) other associated costs of $31,000.

The following summarizes our restructuring expense and related charges from both our restructuring activities noted above for fiscal 2023:


(dollars in thousands)		2023
Employee termination benefits	$	507
Lease termination costs		481
Impairment loss - leasehold improvements and equipment		357
Loss on disposal and markdowns of inventory		98
Other associated costs		51
Restructuring expense and restructuring related charges (1)	$	1,494

(1) Of the total $1.5 million, $1.4 million and $98,000 were recorded to restructuring expense and cost of sales, respectively, in the fiscal 2023 Consolidated Statement of Net Loss.

The following summarizes the activity in accrued restructuring for fiscal 2023:


	Employee			Lease			Other
	Termination			Termination			Associated
(dollars in thousands)	Benefits			Costs			Costs			Total
Beginning of year balance	$	—		$	—		$	—		$	—
Accrual established in fiscal 2023		507			47			—			554
Expenses incurred		—			—			51			51
Payments		(507	)		(47	)		(51	)		(605	)
End of year balance	$	—		$	—		$	—		$	—