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Upholstery Fabrics Segment Restructuring Activities | 9 Months Ended
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Jan. 29, 2023
Restructuring and Related Activities [Abstract] |
Upholstery Fabrics Segment Restructuring Activities | 8. Upholstery Fabrics Segment Restructuring Activities Second Quarter of Fiscal 2023 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 adjust our operating costs to better align with the declining consumer demand for cut and sewn products. As a result of this strategic action, we recorded restructuring expense and restructuring related charges during the second quarter of fiscal 2023 totaling $713,000. Restructuring expense and restructuring related charges totaling $713,000 represent employee termination benefits of $468,000, loss from the disposal and markdowns of inventory of $98,000, impairment loss associated with equipment of $80,000, lease termination costs of $47,000, 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 Consolidated Statement of Net loss for the three-month period ending October 30, 2022 and the nine-month period ending January 29, 2023. Third Quarter of Fiscal 2023 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 kits will be 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 Haiti, will now produce not only 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. This restructuring action will be completed during the fourth quarter of fiscal 2023. 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 would not be formally terminated until CUF Haiti vacated and returned possession of their right of use asset associated with the Original Lease to the lessor, which was required prior to February 28, 2023, and did occur in the fourth quarter of fiscal 2023. After CUF Haiti vacated and returned possession of their right of use asset to the lessor, a third party (the "Lessee"") has taken possession of CUF Haiti's right of use asset and the Lessee will pay CUF Haiti $2.4 million over a period commencing on April 1, 2023 through 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 will be fully and unconditionally released and discharged from all of its obligations under the Termination Agreement and Original Lease. In connection with the Termination Agreement, CUF Haiti's right of use asset was classified as held for sale and is presented separately as assets held for sale on the Consolidated Balance Sheet as of January 29, 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 10 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 their right of use asset, as they have 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 a result of this strategic action, we recorded restructuring expense of $711,000 during the third quarter of fiscal 2023, which represents lease termination costs of $434,000 and an impairment loss regarding leasehold improvements totaling $277,000. The following summarizes our restructuring expense and restructuring related charges from both our restructuring activities noted above for the nine months ending January 29, 2023:
|  |  | Nine Months Ended |
(dollars in thousands) |  |  | January 29, 2023 |
Lease termination costs |  |  | $ | 481 |
Employee termination benefits |  |  |  | 468 |
Impairment loss - leasehold improvements and equipment |  |  |  | 357 |
Loss on disposal and markdowns of inventory |  |  |  | 98 |
Other associated costs |  |  |  | 20 |
Restructuring expense and restructuring related charges (1) |  |  | $ | 1,424 |
(1) Of the total $1.4 million, $1.3 million and $98,000 were recorded to restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the nine-month period ending January 29, 2023. The following summarizes the activity in accrued restructuring for the nine-month period ending January 29, 2023:
|  |  | Employee |  | Lease |  | Other |  |  |
|  |  | Termination |  | Termination |  | Associated |  |  |
(dollars in thousands) |  |  | Benefits |  | Costs |  | Costs |  | Total |
Beginning balance |  |  | $ | — |  | $ | — |  | $ | — |  | $ | — |
Accrual established in fiscal 2023 |  |  |  | 468 |  |  | 47 |  |  | — |  |  | 515 |
Expenses incurred |  |  |  | — |  |  | — |  |  | 20 |  |  | 20 |
Payments |  |  |  | (468 | ) |  | (47 | ) |  | (20 | ) |  | (535 | )
Ending balance |  |  | $ | — |  | $ | — |  | $ | — |  | $ | — |

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- Definition The entire disclosure for restructuring and related activities. Description of restructuring activities such as exit and disposal activities, include facts and circumstances leading to the plan, the expected plan completion date, the major types of costs associated with the plan activities, total expected costs, the accrual balance at the end of the period, and the periods over which the remaining accrual will be settled. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 420 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 5.P.4(e)) -URI https://asc.fasb.org/extlink&oid=115931487&loc=d3e140904-122747 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 420 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6394359&loc=d3e17939-110869 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 420 -URI https://asc.fasb.org/topic&trid=2175745 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 420 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (e) -URI https://asc.fasb.org/extlink&oid=6394359&loc=d3e17939-110869 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 420 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (b)(2) -URI https://asc.fasb.org/extlink&oid=6394359&loc=d3e17939-110869 + Details
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