During the third quarter of fiscal 2023, Culp Upholstery Fabrics Haiti, Ltd. ("CUF Haiti") entered into an agreement to terminate a lease associated with a facility, and in turn moved the production of upholstery cut and sewn kits to an existing facility leased by Culp Home Fashions Haiti, Ltd. ("CHF Haiti") during the fourth quarter of fiscal 2023. Both CUF Haiti and CHF Haiti are indirectly wholly-owned

subsidiaries of the company. During the first quarter of fiscal 2024, demand for upholstery cut and sewn kits declined more than previously anticipated, resulting in the strategic action to discontinue the production of upholstery cut and sew kits in Haiti.

This restructuring activity commenced during the third quarter of fiscal 2023 and was completed during the third quarter of fiscal 2024, resulting in a cumulative restructuring and restructuring related charges of $1.3 million of which $781,000 and $472,000 were incurred during fiscal 2024 and fiscal 2023, respectively.

See Note 9 of the consolidated financial statements for further details regarding the agreement to terminate the above mentioned lease agreement and a related note receivable.

During the second quarter of fiscal 2023, we closed our cut and sew upholstery fabrics operation, 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. This restructuring activity was completed during the third quarter of fiscal 2023, and as a result we incurred a cumulative restructuring and restructuring related charge of $713,000 during the second and third quarters of fiscal 2023.

During the fourth quarter of fiscal 2024, we closed our upholstery fabrics finishing operation to align with current demand trends and we continue to leverage our strategic supply relationships to meet customer finishing needs in China. This restructuring activity is expected to be completed by the end of the first quarter of fiscal 2025.

The following summarizes our restructuring expense and restructuring related charges noted above for the twelve months ending April 28, 2024, and April 30, 2023:


(dollars in thousands)		2024		2023
Employee termination benefits	$	307	$	507
Lease termination costs		—		481
Impairment loss - leasehold improvements and equipment		329		357
Loss on disposal and markdowns of inventory		40		98
Other associated costs		—		51
Restructuring expense and restructuring related charges (1)(2)	$	676	$	1,494

(1) Of the total $676,000, $636,000 and $40,000 were recorded within restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the twelve-month period ending April 28, 2024.

(2) Of the total $1.5 million, $1.4 million and $98,000 were recorded within restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the twelve-month period ending April 30, 2023.

The following summarizes the activity in accrued restructuring for fiscal 2024:


	Employee			Lease		Other
	Termination			Termination		Associated
(dollars in thousands)	Benefits			Costs		Costs		Total
Beginning of year balance	$	—		$	—	$	—	$	—
Accrual established in fiscal 2024		307			—		—		307
Expenses incurred		—			—		—		—
Payments		(304	)		—		—		(304	)
End of year balance (1)	$	3		$	—	$	—	$	3

(1) Accrued restructuring of $3,000 was reported within accrued expenses in the Consolidated Balance Sheets for the period ending April 28, 2024.

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	$	—		$	—		$	—		$	—

On April 29, 2024 (first quarter of fiscal 2025), our board of directors made a decision to (1) consolidate the company's North American mattress fabrics operations, including a gradual discontinuation of operations and sale of the company's manufacturing facility located in Quebec, Canada; (2) move a portion of the knitting and finishing capacity from the company's manufacturing facility located in Quebec, Canada to the company's manufacturing facility located in Stokesdale, North Carolina; (3) transition the mattress fabrics segment's weaving operation to a strategic sourcing model through the company's long standing supply partners; (4) consolidate the company's two leased facilities related to the sewn mattress cover operation located in Ouanaminthe, Haiti, and reduce other operating expenses at this location; as well as (5) reduce unallocated corporate expenses and shared service expenses, with targeted annualized savings of $1.5 million.

We expect the gradual discontinuance of operations and the closure of the facility located in Quebec, Canada will be completed by December 31, 2024. We expect the consolidation activity associated with the sewn mattress cover operation located in Haiti will be completed during the first quarter of fiscal 2025. These actions are expected to result in estimated restructuring and restructuring related costs and charges of approximately $8.0 million, of which approximately $2.5 million is expected to be cash expenditures. The costs include cash charges of approximately $1.1 million associated with expected ongoing operating losses and other exit and disposal expenses related to the company's manufacturing plant in Quebec, Canada; cash charges of approximately $1.4 million for employee termination costs; a non-cash charge of approximately $2.3 million associated with accelerated depreciation and losses on the sale of equipment; a non-cash charge of approximately $2.1 million associated with write-downs and other inventory related adjustments; and a non-cash charge of approximately $650,000 associated with accelerated rent amortization for a leased building in Haiti. These restructuring charges and restructuring related costs and charges exclude any expected gain on the sale of real estate associated with the closure of the Canadian facility, the amount of which is currently undetermined but which will ultimately reduce the amount of the restructuring charges incurred. Based on management's internal analysis we expect cash proceeds from the sale of real estate (net of all taxes and commissions) to exceed the amount of restructuring charges incurred. Also, management estimates that the realizable fair market value of the long-lived assets at the Canadian and Haitian facilities exceed their net book value, and for that reason, no charges for impairment of long-lived assets (other than the restructuring charges noted above) are expected to be recorded in the connection with this decision for either location.

Based on changes in business and current industry economic conditions, it is possible that the above estimates provided by management to determine the annual cost savings, restructuring and restructuring related charges, and proceeds generated from the sale of the manufacturing facility located in Quebec, Canada, could be materially different from our actual results, and therefore could adversely affect the success of this restructuring plan.