UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 24, 201731, 2023
OR
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 1-10542
UNIFI, INC.
(Exact name of registrant as specified in its charter)
New York | 11-2165495 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
7201 West Friendly Avenue | ||
Greensboro, North Carolina | 27410 | |
(Address of principal executive offices) | (Zip Code) |
(336) (336) 294-4410
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.10 per share | UFI | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of January 25, 2018,February 1, 2024, there were 18,297,60218,158,306 shares of the registrant’s common stock, par value $0.10 per share, outstanding.
This Quarterly Report on Form 10-Q contains forward-looking statements“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that relate to our plans, objectives, estimates, and goals. Statements expressing expectations regarding our future, or projections or estimates relating to products, sales, revenues, expenditures, costs, strategies, initiatives, or earnings, are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs, assumptions and expectations about our future economic performance, considering the information currently available to management. The words “believe,” “may,” “could,” “will,” “should,” “would,” “anticipate,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek,” “strive”“strive,” and words of similar import, or the negative of such words, identify or signal the presence of forward-looking statements. These statements are not statements of historical fact, andfact; they involve risks and uncertainties that may cause our actual results, performance, or financial condition to differ materially from the expectations of future results, performance, or financial condition that we express or imply in any forward-looking statement. Factors that could contribute to such differences include, but are not limited to:
the competitive nature of the textile industry and the impact of global competition;
changes in the trade regulatory environment and governmental policies and legislation;
the availability, sourcing, and pricing of raw materials;
general domestic and international economic and industry conditions in markets where the Company competes, including economic and political factors over which the Company has no control;
changes in consumer spending, customer preferences, fashion trends, and end-uses for the Company’s products;
the financial condition of the Company’s customers;
the loss of a significant customer;
natural disasters, industrial accidents, power or water shortages, extreme weather conditions, and other disruptions at one of the Company’s facilities;
the volatility of financial and credit markets;
the ability to service indebtedness and fund capital expenditures and strategic business initiatives;
the availability of and access to credit on reasonable terms;
changes in foreign currency exchange, interest, and inflation rates;
fluctuations in production costs;
the ability to protect intellectual property;
the strength and reputation of the Company’s brands;
the ability to attract, retain, and motivate key employees;
the operating performanceimpact of joint venturestax laws, the judicial or administrative interpretations of tax laws, and/or changes in such laws or interpretations; and other equity investments;
the accurate financial reporting of information from equity method investees; and
other factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2017July 2, 2023 or elsewhere in this report.
All such factors are difficult to predict, contain uncertainties that may materially affect actual results, and may be beyond our control. New factors emerge from time to time, and it is not possible for management to predict all such factors or to assess the impact of each such factor on the Company. Any forward-looking statement speaks only as of the date on which such statement is made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, except as may be required by federal securities law.laws.
In light of all the above considerations, we reiterate that forward-looking statements are not guarantees of future performance, and we caution you not to rely on them as such.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 24, 201731, 2023
TABLE OF CONTENTS
Page | ||||
Item 1. | 1 | |||
Condensed Consolidated Balance Sheets as of December | 1 | |||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| ||
Item 3. |
| |||
Item 4. |
| |||
Item 1. |
| |||
Item |
|
| ||
Item 6. |
| |||
| ||||
PART I—FINANCIALFINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
|
| December 24, 2017 |
|
| June 25, 2017 |
|
| December 31, 2023 |
|
| July 2, 2023 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents |
| $ | 48,615 |
|
| $ | 35,425 |
|
| $ | 35,979 |
|
| $ | 46,960 |
|
Receivables, net |
|
| 80,847 |
|
|
| 81,121 |
|
|
| 69,583 |
|
|
| 83,725 |
|
Inventories |
|
| 116,239 |
|
|
| 111,405 |
|
|
| 135,676 |
|
|
| 150,810 |
|
Income taxes receivable |
|
| 10,612 |
|
|
| 9,218 |
|
|
| 2,421 |
|
|
| 238 |
|
Other current assets |
|
| 6,854 |
|
|
| 6,468 |
|
|
| 12,290 |
|
|
| 12,327 |
|
Total current assets |
|
| 263,167 |
|
|
| 243,637 |
|
|
| 255,949 |
|
|
| 294,060 |
|
Property, plant and equipment, net |
|
| 203,699 |
|
|
| 203,388 |
|
|
| 209,435 |
|
|
| 218,521 |
|
Operating lease assets |
|
| 7,094 |
|
|
| 7,791 |
| ||||||||
Deferred income taxes |
|
| 4,161 |
|
|
| 2,194 |
|
|
| 4,812 |
|
|
| 3,939 |
|
Investments in unconsolidated affiliates |
|
| 113,623 |
|
|
| 119,513 |
| ||||||||
Other non-current assets |
|
| 2,815 |
|
|
| 2,771 |
|
|
| 14,839 |
|
|
| 14,508 |
|
Total assets |
| $ | 587,465 |
|
| $ | 571,503 |
|
| $ | 492,129 |
|
| $ | 538,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Accounts payable |
| $ | 35,420 |
|
| $ | 41,499 |
|
| $ | 34,709 |
|
| $ | 44,455 |
|
Accrued expenses |
|
| 12,990 |
|
|
| 16,144 |
| ||||||||
Income taxes payable |
|
| 1,833 |
|
|
| 1,351 |
|
|
| 2,263 |
|
|
| 789 |
|
Current operating lease liabilities |
|
| 1,733 |
|
|
| 1,813 |
| ||||||||
Current portion of long-term debt |
|
| 17,112 |
|
|
| 17,060 |
|
|
| 12,357 |
|
|
| 12,006 |
|
Other current liabilities |
|
| 17,409 |
|
|
| 12,932 |
| ||||||||
Total current liabilities |
|
| 67,355 |
|
|
| 76,054 |
|
|
| 68,471 |
|
|
| 71,995 |
|
Long-term debt |
|
| 115,588 |
|
|
| 111,382 |
|
|
| 120,144 |
|
|
| 128,604 |
|
Non-current operating lease liabilities |
|
| 5,515 |
|
|
| 6,146 |
| ||||||||
Deferred income taxes |
|
| 2,526 |
|
|
| 3,364 |
| ||||||||
Other long-term liabilities |
|
| 11,093 |
|
|
| 11,804 |
|
|
| 4,133 |
|
|
| 5,100 |
|
Deferred income taxes |
|
| 7,140 |
|
|
| 11,457 |
| ||||||||
Total liabilities |
|
| 201,176 |
|
|
| 210,697 |
|
|
| 200,789 |
|
|
| 215,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Common stock, $0.10 par value (500,000,000 shares authorized; 18,290,935 and 18,229,777 shares issued and outstanding as of December 24, 2017 and June 25, 2017, respectively) |
|
| 1,829 |
|
|
| 1,823 |
| ||||||||
Common stock, $0.10 par value (500,000,000 shares authorized; 18,150,602 and 18,081,538 |
|
| 1,815 |
|
|
| 1,808 |
| ||||||||
Capital in excess of par value |
|
| 55,215 |
|
|
| 51,923 |
|
|
| 70,254 |
|
|
| 68,901 |
|
Retained earnings |
|
| 360,702 |
|
|
| 339,940 |
|
|
| 273,676 |
|
|
| 306,792 |
|
Accumulated other comprehensive loss |
|
| (31,457 | ) |
|
| (32,880 | ) |
|
| (54,405 | ) |
|
| (53,891 | ) |
Total Unifi, Inc. shareholders’ equity |
|
| 386,289 |
|
|
| 360,806 |
| ||||||||
Non-controlling interest |
|
| — |
|
|
| — |
| ||||||||
Total shareholders’ equity |
|
| 386,289 |
|
|
| 360,806 |
|
|
| 291,340 |
|
|
| 323,610 |
|
Total liabilities and shareholders’ equity |
| $ | 587,465 |
|
| $ | 571,503 |
|
| $ | 492,129 |
|
| $ | 538,819 |
|
See accompanying notes to condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
1
CONDENSED CONSOLIDATED STATEMENTS OF INCOME(Unaudited)
(Unaudited)
(In thousands, except per share amounts)
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||||
Net sales |
| $ | 167,478 |
|
| $ | 155,155 |
|
| $ | 331,720 |
|
| $ | 315,124 |
|
Cost of sales |
|
| 144,802 |
|
|
| 133,025 |
|
|
| 285,752 |
|
|
| 269,447 |
|
Gross profit |
|
| 22,676 |
|
|
| 22,130 |
|
|
| 45,968 |
|
|
| 45,677 |
|
Selling, general and administrative expenses |
|
| 14,626 |
|
|
| 12,868 |
|
|
| 27,489 |
|
|
| 24,278 |
|
Benefit for bad debts |
|
| (72 | ) |
|
| (95 | ) |
|
| (131 | ) |
|
| (462 | ) |
Other operating expense, net |
|
| 348 |
|
|
| 319 |
|
|
| 663 |
|
|
| 249 |
|
Operating income |
|
| 7,774 |
|
|
| 9,038 |
|
|
| 17,947 |
|
|
| 21,612 |
|
Interest income |
|
| (181 | ) |
|
| (183 | ) |
|
| (262 | ) |
|
| (329 | ) |
Interest expense |
|
| 1,190 |
|
|
| 914 |
|
|
| 2,375 |
|
|
| 1,606 |
|
Loss on sale of business |
|
| — |
|
|
| 1,662 |
|
|
| — |
|
|
| 1,662 |
|
Equity in (earnings) loss of unconsolidated affiliates |
|
| (211 | ) |
|
| 367 |
|
|
| (3,298 | ) |
|
| (473 | ) |
Income before income taxes |
|
| 6,976 |
|
|
| 6,278 |
|
|
| 19,132 |
|
|
| 19,146 |
|
(Benefit) provision for income taxes |
|
| (4,826 | ) |
|
| 1,924 |
|
|
| (1,630 | ) |
|
| 5,650 |
|
Net income including non-controlling interest |
|
| 11,802 |
|
|
| 4,354 |
|
|
| 20,762 |
|
|
| 13,496 |
|
Less: net loss attributable to non-controlling interest |
|
| — |
|
|
| (237 | ) |
|
| — |
|
|
| (498 | ) |
Net income attributable to Unifi, Inc. |
| $ | 11,802 |
|
| $ | 4,591 |
|
| $ | 20,762 |
|
| $ | 13,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Unifi, Inc. per common share: |
| |||||||||||||||
Basic |
| $ | 0.65 |
|
| $ | 0.25 |
|
| $ | 1.14 |
|
| $ | 0.78 |
|
Diluted |
| $ | 0.63 |
|
| $ | 0.25 |
|
| $ | 1.12 |
|
| $ | 0.76 |
|
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||||
Net sales |
| $ | 136,917 |
|
| $ | 136,212 |
|
| $ | 275,761 |
|
| $ | 315,731 |
|
Cost of sales |
|
| 135,281 |
|
|
| 144,212 |
|
|
| 274,700 |
|
|
| 317,168 |
|
Gross profit (loss) |
|
| 1,636 |
|
|
| (8,000 | ) |
|
| 1,061 |
|
|
| (1,437 | ) |
Selling, general and administrative expenses |
|
| 12,408 |
|
|
| 11,748 |
|
|
| 24,017 |
|
|
| 23,521 |
|
Provision (benefit) for bad debts |
|
| 1,289 |
|
|
| (156 | ) |
|
| 1,080 |
|
|
| 18 |
|
Restructuring costs |
|
| 5,101 |
|
|
| — |
|
|
| 5,101 |
|
|
| — |
|
Other operating expense (income), net |
|
| 481 |
|
|
| 226 |
|
|
| 535 |
|
|
| (463 | ) |
Operating loss |
|
| (17,643 | ) |
|
| (19,818 | ) |
|
| (29,672 | ) |
|
| (24,513 | ) |
Interest income |
|
| (697 | ) |
|
| (514 | ) |
|
| (1,278 | ) |
|
| (1,061 | ) |
Interest expense |
|
| 2,613 |
|
|
| 1,889 |
|
|
| 5,098 |
|
|
| 3,136 |
|
Equity in earnings of unconsolidated affiliates |
|
| (93 | ) |
|
| (86 | ) |
|
| (293 | ) |
|
| (381 | ) |
Loss before income taxes |
|
| (19,466 | ) |
|
| (21,107 | ) |
|
| (33,199 | ) |
|
| (26,207 | ) |
Provision (benefit) for income taxes |
|
| 380 |
|
|
| (3,070 | ) |
|
| (83 | ) |
|
| (336 | ) |
Net loss |
| $ | (19,846 | ) |
| $ | (18,037 | ) |
| $ | (33,116 | ) |
| $ | (25,871 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss per common share: |
| |||||||||||||||
Basic |
| $ | (1.10 | ) |
| $ | (1.00 | ) |
| $ | (1.83 | ) |
| $ | (1.44 | ) |
Diluted |
| $ | (1.10 | ) |
| $ | (1.00 | ) |
| $ | (1.83 | ) |
| $ | (1.44 | ) |
Comprehensive loss:
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||||
Net loss |
| $ | (19,846 | ) |
| $ | (18,037 | ) |
| $ | (33,116 | ) |
| $ | (25,871 | ) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustments |
|
| 5,026 |
|
|
| 3,447 |
|
|
| (514 | ) |
|
| (2,461 | ) |
Other comprehensive income (loss), net |
|
| 5,026 |
|
|
| 3,447 |
|
|
| (514 | ) |
|
| (2,461 | ) |
Comprehensive loss |
| $ | (14,820 | ) |
| $ | (14,590 | ) |
| $ | (33,630 | ) |
| $ | (28,332 | ) |
See accompanying notes to condensed consolidated financial statements.
2
2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMESHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands)
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||||
Net income including non-controlling interest |
| $ | 11,802 |
|
| $ | 4,354 |
|
| $ | 20,762 |
|
| $ | 13,496 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| (2,341 | ) |
|
| (780 | ) |
|
| 524 |
|
|
| (1,359 | ) |
Foreign currency translation adjustments for an unconsolidated affiliate |
|
| (487 | ) |
|
| (280 | ) |
|
| (593 | ) |
|
| (523 | ) |
Changes in interest rate swaps |
|
| 1,077 |
|
|
| 19 |
|
|
| 1,492 |
|
|
| 38 |
|
Other comprehensive (loss) income, net |
|
| (1,751 | ) |
|
| (1,041 | ) |
|
| 1,423 |
|
|
| (1,844 | ) |
Comprehensive income including non-controlling interest |
|
| 10,051 |
|
|
| 3,313 |
|
|
| 22,185 |
|
|
| 11,652 |
|
Less: comprehensive loss attributable to non-controlling interest |
|
| — |
|
|
| (237 | ) |
|
| — |
|
|
| (498 | ) |
Comprehensive income attributable to Unifi, Inc. |
| $ | 10,051 |
|
| $ | 3,550 |
|
| $ | 22,185 |
|
| $ | 12,150 |
|
|
| Shares |
|
| Common Stock |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total Shareholders’ Equity |
| ||||||
Balance at October 1, 2023 |
|
| 18,085 |
|
| $ | 1,808 |
|
| $ | 69,130 |
|
| $ | 293,522 |
|
| $ | (59,431 | ) |
| $ | 305,029 |
|
Options exercised |
|
| 2 |
|
|
| — |
|
|
| 18 |
|
|
| — |
|
|
| — |
|
|
| 18 |
|
Conversion of equity units |
|
| 65 |
|
|
| 7 |
|
|
| (7 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| 7 |
|
|
| 1 |
|
|
| 1,172 |
|
|
| — |
|
|
| — |
|
|
| 1,173 |
|
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions |
|
| (9 | ) |
|
| (1 | ) |
|
| (59 | ) |
|
| — |
|
|
| — |
|
|
| (60 | ) |
Other comprehensive income, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,026 |
|
|
| 5,026 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,846 | ) |
|
| — |
|
|
| (19,846 | ) |
Balance at December 31, 2023 |
|
| 18,150 |
|
| $ | 1,815 |
|
| $ | 70,254 |
|
| $ | 273,676 |
|
| $ | (54,405 | ) |
| $ | 291,340 |
|
|
| Shares |
|
| Common Stock |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total Shareholders’ Equity |
| ||||||
Balance at July 2, 2023 |
|
| 18,081 |
|
| $ | 1,808 |
|
| $ | 68,901 |
|
| $ | 306,792 |
|
| $ | (53,891 | ) |
| $ | 323,610 |
|
Options exercised |
|
| 5 |
|
|
| — |
|
|
| 39 |
|
|
| — |
|
|
| — |
|
|
| 39 |
|
Conversion of equity units |
|
| 66 |
|
|
| 7 |
|
|
| (7 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| 7 |
|
|
| 1 |
|
|
| 1,381 |
|
|
| — |
|
|
| — |
|
|
| 1,382 |
|
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions |
|
| (9 | ) |
|
| (1 | ) |
|
| (60 | ) |
|
| — |
|
|
| — |
|
|
| (61 | ) |
Other comprehensive loss, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (514 | ) |
|
| (514 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (33,116 | ) |
|
| — |
|
|
| (33,116 | ) |
Balance at December 31, 2023 |
|
| 18,150 |
|
| $ | 1,815 |
|
| $ | 70,254 |
|
| $ | 273,676 |
|
| $ | (54,405 | ) |
| $ | 291,340 |
|
|
| Shares |
|
| Common Stock |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total Shareholders’ Equity |
| ||||||
Balance at October 2, 2022 |
|
| 18,012 |
|
| $ | 1,801 |
|
| $ | 66,709 |
|
| $ | 345,302 |
|
| $ | (65,513 | ) |
| $ | 348,299 |
|
Options exercised |
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Conversion of equity units |
|
| 31 |
|
|
| 4 |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| 12 |
|
|
| 1 |
|
|
| 1,217 |
|
|
| — |
|
|
| — |
|
|
| 1,218 |
|
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions |
|
| (6 | ) |
|
| (1 | ) |
|
| (49 | ) |
|
| — |
|
|
| — |
|
|
| (50 | ) |
Other comprehensive income, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,447 |
|
|
| 3,447 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (18,037 | ) |
|
| — |
|
|
| (18,037 | ) |
Balance at January 1, 2023 |
|
| 18,049 |
|
| $ | 1,805 |
|
| $ | 67,875 |
|
| $ | 327,265 |
|
| $ | (62,066 | ) |
| $ | 334,879 |
|
|
| Shares |
|
| Common Stock |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total Shareholders’ Equity |
| ||||||
Balance at July 3, 2022 |
|
| 17,979 |
|
| $ | 1,798 |
|
| $ | 66,120 |
|
| $ | 353,136 |
|
| $ | (59,605 | ) |
| $ | 361,449 |
|
Options exercised |
|
| 3 |
|
|
| — |
|
|
| 19 |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
Conversion of equity units |
|
| 62 |
|
|
| 7 |
|
|
| (7 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| 12 |
|
|
| 1 |
|
|
| 1,808 |
|
|
| — |
|
|
| — |
|
|
| 1,809 |
|
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions |
|
| (7 | ) |
|
| (1 | ) |
|
| (65 | ) |
|
| — |
|
|
| — |
|
|
| (66 | ) |
Other comprehensive loss, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,461 | ) |
|
| (2,461 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (25,871 | ) |
|
| — |
|
|
| (25,871 | ) |
Balance at January 1, 2023 |
|
| 18,049 |
|
| $ | 1,805 |
|
| $ | 67,875 |
|
| $ | 327,265 |
|
| $ | (62,066 | ) |
| $ | 334,879 |
|
See accompanying notes to condensed consolidated financial statements.
3
3
CONDENSED CONSOLIDATED STATEMENTSSTATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
| For the Six Months Ended |
| |||||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
| For the Six Months Ended |
| |||||||
Cash and cash equivalents at beginning of year |
| $ | 35,425 |
|
| $ | 16,646 |
| ||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||||||||||
Cash and cash equivalents at beginning of period |
| $ | 46,960 |
|
| $ | 53,290 |
| ||||||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net income including non-controlling interest |
|
| 20,762 |
|
|
| 13,496 |
| ||||||||
Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Net loss |
|
| (33,116 | ) |
|
| (25,871 | ) | ||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
| ||||||||||
Equity in earnings of unconsolidated affiliates |
|
| (3,298 | ) |
|
| (473 | ) |
|
| (293 | ) |
|
| (381 | ) |
Distributions received from unconsolidated affiliates |
|
| 8,678 |
|
|
| 1,500 |
| ||||||||
Depreciation and amortization expense |
|
| 11,135 |
|
|
| 9,731 |
|
|
| 13,988 |
|
|
| 13,478 |
|
Non-cash compensation expense |
|
| 3,569 |
|
|
| 1,862 |
|
|
| 1,387 |
|
|
| 1,976 |
|
Loss on sale of business |
|
| — |
|
|
| 1,662 |
| ||||||||
Excess tax benefit on stock-based compensation plans |
|
| — |
|
|
| (1,111 | ) | ||||||||
Recovery of income taxes |
|
| — |
|
|
| (3,799 | ) | ||||||||
Deferred income taxes |
|
| (6,282 | ) |
|
| 5,335 |
|
|
| (1,714 | ) |
|
| (304 | ) |
Other, net |
|
| (206 | ) |
|
| 34 |
|
|
| (120 | ) |
|
| 289 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Receivables, net |
|
| 267 |
|
|
| 6,043 |
|
|
| 14,367 |
|
|
| 40,552 |
|
Inventories |
|
| (4,556 | ) |
|
| (6,751 | ) |
|
| 15,081 |
|
|
| 25,422 |
|
Other current assets |
|
| (210 | ) |
|
| 837 |
|
|
| (402 | ) |
|
| 5,525 |
|
Income taxes |
|
| (945 | ) |
|
| (6,841 | ) |
|
| (727 | ) |
|
| (2,655 | ) |
Accounts payable and accrued expenses |
|
| (8,796 | ) |
|
| (8,160 | ) | ||||||||
Accounts payable and other current liabilities |
|
| (4,763 | ) |
|
| (47,599 | ) | ||||||||
Other, net |
|
| 271 |
|
|
| 132 |
|
|
| (1,171 | ) |
|
| 639 |
|
Net cash provided by operating activities |
|
| 20,389 |
|
|
| 17,296 |
|
|
| 2,517 |
|
|
| 7,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Capital expenditures |
|
| (11,360 | ) |
|
| (19,343 | ) |
|
| (5,982 | ) |
|
| (23,950 | ) |
Other, net |
|
| 15 |
|
|
| (180 | ) |
|
| 488 |
|
|
| (576 | ) |
Net cash used in investing activities |
|
| (11,345 | ) |
|
| (19,523 | ) | ||||||||
Net cash used by investing activities |
|
| (5,494 | ) |
|
| (24,526 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Proceeds from ABL Revolver |
|
| 59,200 |
|
|
| 65,200 |
|
|
| 80,600 |
|
|
| 96,800 |
|
Payments on ABL Revolver |
|
| (46,600 | ) |
|
| (61,600 | ) |
|
| (82,700 | ) |
|
| (82,200 | ) |
Proceeds from ABL Term Loan |
|
| — |
|
|
| 14,500 |
| ||||||||
Payments on ABL Term Loan |
|
| (5,000 | ) |
|
| (4,750 | ) |
|
| (4,600 | ) |
|
| (2,500 | ) |
Payments on capital lease obligations |
|
| (3,528 | ) |
|
| (2,154 | ) | ||||||||
Proceeds from stock option exercises |
|
| 219 |
|
|
| 2,481 |
| ||||||||
Excess tax benefit on stock-based compensation plans |
|
| — |
|
|
| 1,111 |
| ||||||||
Other |
|
| (328 | ) |
|
| (368 | ) | ||||||||
Net cash provided by financing activities |
|
| 3,963 |
|
|
| 14,420 |
| ||||||||
Proceeds from construction financing |
|
| — |
|
|
| 4,900 |
| ||||||||
Payments on finance lease obligations |
|
| (1,440 | ) |
|
| (899 | ) | ||||||||
Payments of debt financing fees |
|
| — |
|
|
| (658 | ) | ||||||||
Other, net |
|
| (27 | ) |
|
| (47 | ) | ||||||||
Net cash (used) provided by financing activities |
|
| (8,167 | ) |
|
| 15,396 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Effect of exchange rate changes on cash and cash equivalents |
|
| 183 |
|
|
| (349 | ) |
|
| 163 |
|
|
| (651 | ) |
Net increase in cash and cash equivalents |
|
| 13,190 |
|
|
| 11,844 |
| ||||||||
Net decrease in cash and cash equivalents |
|
| (10,981 | ) |
|
| (2,509 | ) | ||||||||
Cash and cash equivalents at end of period |
| $ | 48,615 |
|
| $ | 28,490 |
|
| $ | 35,979 |
|
| $ | 50,781 |
|
See accompanying notes to condensed consolidated financial statements.
4
4
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Background
Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, “UNIFI,” the “Company,” “we,” “us”“us,” or “our”), is a multi-nationalmultinational company that manufactures and sells innovative syntheticrecycled and recycledsynthetic products, made from polyester and nylon, primarily to other yarn manufacturers and knitters and weavers (UNIFI’s “direct customers”) that produce yarn and/or fabric for the apparel, hosiery, home furnishings, automotive, industrial, medical, and other end-use markets.markets (UNIFI’s “indirect customers”). We sometimes refer to these indirect customers as “brand partners.” Polyester yarnsproducts include partially oriented yarn (“POY”), and textured, solution and package dyed, twisted, beamed, and draw wound yarns, and each is available in virgin or recycled varieties. Recycled solutions, made from both pre-consumer and post-consumer waste, include plastic bottle flake and(“Flake”), polyester polymer beads (“Chip”)., and staple fiber. Nylon products include virgin or recycled textured, solution dyed, and spandex covered yarns.
UNIFI maintains one of the textile industry’s most comprehensive yarn product offerings that includeincludes a range of specialized, yarns, premium value-added, (“PVA”) yarns and commodity yarns,solutions, with principal geographic markets in the AmericasNorth America, Central America, South America, Asia, and Asia.
Europe. UNIFI has direct manufacturing operations in four countries and participates in joint ventures with operations in Israel and the United States (the “U.S.”). During the most significant of which is a 34% non-controlling partnership interestquarter ended December 31, 2023, UNIFI terminated the joint venture with operations in Parkdale America, LLC (“PAL”), a producer of cotton and synthetic yarns for sale to the global textile industry and apparel market. Israel.
2. Basis of Presentation; Condensed Notes
The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles in the United States (“GAAP”) for interim financial information. As contemplated by the instructions of the Securities and Exchange Commission (the “SEC”)SEC to Form 10-Q, the following notes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to UNIFI’s year-end audited consolidated financial statements and related notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended June 25, 2017July 2, 2023 (the “2017“2023 Form 10-K”).
The financial information included in this report has been prepared by UNIFI, without audit. In the opinion of management, all adjustments, which consist of normal, recurring adjustments, considered necessary for a fair statement of the results for interim periods have been included. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the amounts reported and certain financial statement disclosures. Actual results may vary from these estimates.
All currency and share amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted.
The fiscal quarter for each of Unifi, Inc., its primary domestic operating subsidiaries and its subsidiary in El Salvador ended on December 24, 2017, the second to last Sunday in December. The fiscal quarter for31, 2023. Unifi, Inc.’s Brazilian, Chinese, Colombian and Sri Lankan subsidiariesremaining material operating subsidiaries’ fiscal quarter ended on December 31, 2017. There were no significant transactions or events that occurred between Unifi, Inc.’s fiscal quarter end and such wholly owned subsidiaries’ subsequent fiscal quarter end.2023. The three-month periods ended December 31, 2023 and January 1, 2023 both consisted of 13 weeks. The six-month periods ended December 24, 201731, 2023 and December 25, 2016 eachJanuary 1, 2023 both consisted of 13 and 26 fiscal weeks, respectively.weeks.
Reclassifications
Certain reclassifications of prior years’ data have been made to conform to the current year presentation.
3. Recent Accounting Pronouncements
Issued and Pending Adoption
In May 2014,November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers2023-07, Segment Reporting (Topic 606)280): Improvements to Reportable Segment Disclosures. Subsequent ASUs have been issued to provide clarityASU No. 2023-07 expands annual and defer the effective date of the new guidance.interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The new revenue recognition standard eliminates the transaction- and industry-specific revenue recognition guidance under current GAAP and replaces it with a principles-based approach. While UNIFI has not yet determined the effect of the new guidance on its ongoing financial reporting, UNIFI notes the following considerations: (i) UNIFI is primarily engaged in the business of manufacturing and delivering tangible products utilizing relatively straightforward contract terms without multiple performance obligations and (ii) transaction prices for UNIFI’s primary and material revenue activities are determinable and lack significant timing considerations. UNIFI is currently performing the following activities regarding implementation of the new guidance: (a) reviewing material contracts and (b) assessing accounting policy elections and disclosures under the new guidance. In
5
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
addition, implementation matters remaining include (x) evaluating the systems and processes to support revenue recognition and (y) selecting the method of adoption. The new revenue recognition guidanceASU is effective for UNIFI’s fiscal 2019.
In February 2016,year 2025 for annual reporting and in the FASB issued ASU No. 2016-02, Leases (Topic 842). The new guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Whilefirst quarter of fiscal 2026 for interim reporting, with early adoption permitted. UNIFI has not yet determined the full effect of the new guidance on its ongoing financial reporting, as of June 25, 2017,and does not expect to early adopt this standard. UNIFI had approximately $6,400 of future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) and diddoes not enter into any new material operating lease agreements during the six months ended December 24, 2017. The new lease guidance is effective for UNIFI’s fiscal 2020, and early adoption is permitted.
In connection with the SEC Staff Announcement on July 20, 2017 relating to the transition to ASU No. 2014-09 and ASU No. 2016-02, due to its status asexpect this standard will have a significant subsidiary of Unifi, Inc., PAL expects to adopt (i) the new revenue recognition guidance in its fiscal 2019 and (ii) the new lease guidance in its fiscal 2020.
Recently Adopted
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The ASU is intended to improve and simplify the rules around hedge accounting, reduce complexity for certain hedging concepts and better align financial reporting with an entity’s risk management activities. UNIFI early adopted ASU No. 2017-12 in the three months ended December 24, 2017. Early adoption will allow UNIFI to (i) eliminate consideration for hedge ineffectiveness, (ii) utilize a qualitative effectiveness assessment prospectively and (iii) contemplate hedge accounting for additional risk management activities allowed by the simplified guidance. Due to a lack of complexity in UNIFI’s recent risk management activities, there are no applicable cumulative adjustments to UNIFI’s financial statements in connection with adoption of the ASU.
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments, including the accounting and classification of the respective income tax impacts, forfeitures and statutory withholding requirements. UNIFI adopted the ASU in the three months ended September 24, 2017, on a prospective basis. The adoption resulted in a $148 decrease to the provision for income taxes for excess tax benefits and an immaterial increase in potential dilutive weighted average shares for the six months ended December 24, 2017. In connection with the adoption of the ASU, UNIFI has elected to recognize forfeitures as they occur, and there is no corresponding retrospective adjustment to retained earnings. Additionally, UNIFI is presenting the change in classification of excess tax benefits in the condensed consolidated statements of cash flows on a prospective basis.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which modifies the subsequent measurement of inventories recorded under a first-in, first-out or average cost method. Under the new standard, such inventories are required to be measured at the lower of cost and net realizable value. UNIFI adopted the ASU in the three months ended September 24, 2017, with prospective application. UNIFI’s historical principles for inventory measurement had utilized net realizable value, and, therefore, adoption of the ASU had no material impact on UNIFI’sits consolidated financial statements.position, results of operations or cash flows.
Based on UNIFI’s review of ASUs issued since the filing of the 20172023 Form 10-K, there have been no other newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a significantmaterial impact on UNIFI’s consolidated financial statements.
4. Receivables, Net
Receivables, net consists of the following:
5
|
| December 24, 2017 |
|
| June 25, 2017 |
| ||
Customer receivables |
| $ | 82,637 |
|
| $ | 83,291 |
|
Allowance for uncollectible accounts |
|
| (2,089 | ) |
|
| (2,222 | ) |
Reserves for yarn quality claims |
|
| (731 | ) |
|
| (1,278 | ) |
Net customer receivables |
|
| 79,817 |
|
|
| 79,791 |
|
Other receivables |
|
| 1,030 |
|
|
| 1,330 |
|
Total receivables, net |
| $ | 80,847 |
|
| $ | 81,121 |
|
6
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
4. Revenue
The following tables present net sales disaggregated by (i) classification of customer type and (ii) REPREVE® Fiber sales:
Third-Party Manufacturer
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||||
Third-party manufacturer |
| $ | 135,841 |
|
| $ | 135,018 |
|
| $ | 273,461 |
|
| $ | 313,230 |
|
Service |
|
| 1,076 |
|
|
| 1,194 |
|
|
| 2,300 |
|
|
| 2,501 |
|
Net sales |
| $ | 136,917 |
|
| $ | 136,212 |
|
| $ | 275,761 |
|
| $ | 315,731 |
|
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||||
REPREVE® Fiber |
| $ | 45,725 |
|
| $ | 42,866 |
|
| $ | 88,186 |
|
| $ | 92,045 |
|
All other products and services |
|
| 91,192 |
|
|
| 93,346 |
|
|
| 187,575 |
|
|
| 223,686 |
|
Net sales |
| $ | 136,917 |
|
| $ | 136,212 |
|
| $ | 275,761 |
|
| $ | 315,731 |
|
Third-party manufacturer revenue is primarily generated through sales to direct customers. Such sales represent satisfaction of UNIFI’s performance obligations required by the associated revenue contracts. Each of UNIFI’s reportable segments derives revenue from sales to third-party manufacturers.
Service Revenue
Service revenue is primarily generated, as services are rendered, through fulfillment of toll manufacturing of textile products or transportation services governed by written agreements. Such toll manufacturing and transportation services represent satisfaction of UNIFI’s performance obligations required by the associated revenue contracts.
REPREVE® Fiber
REPREVE® Fiber represents UNIFI's collection of fiber products on our recycled platform, with or without added technologies.
Variable Consideration
For all variable consideration, where appropriate, UNIFI estimates the amount using the expected value method, which takes into consideration historical experience, current contractual requirements, specific known market events, and forecasted customer buying and payment patterns. Overall, these reserves reflect UNIFI’s best estimates of the amount of consideration to which the customer is entitled based on the terms of the contracts. Variable consideration has been immaterial to UNIFI’s financial statements for all periods presented.
5. Long-Term Debt
Debt Obligations
The following table and narrative presents the detail of UNIFI’s debt obligations. Capitalized terms not otherwise defined within this Note shall have the meanings attributed to them in the Second Amended and Restated Credit Agreement, dated as of October 28, 2022 (the "2022 Credit Agreement").
|
|
|
| Weighted Average |
|
|
| ||||||||
|
| Scheduled |
| Interest Rate as of |
| Principal Amounts as of |
| ||||||||
|
| Maturity Date |
| December 31, 2023 |
| December 31, 2023 |
|
| July 2, 2023 |
| |||||
ABL Revolver |
| October 2027 |
|
| 7.0 | % |
|
| $ | 16,000 |
|
| $ | 18,100 |
|
ABL Term Loan |
| October 2027 |
|
| 7.0 | % |
|
|
| 105,800 |
|
|
| 110,400 |
|
Finance lease obligations |
| (1) |
|
| 5.1 | % |
|
|
| 10,960 |
|
|
| 10,767 |
|
Construction financing |
| (2) |
|
| 0.0 | % |
|
|
| — |
|
|
| 1,632 |
|
Total debt |
|
|
|
|
|
|
|
| 132,760 |
|
|
| 140,899 |
| |
Current ABL Term Loan |
|
|
|
|
|
|
|
| (9,200 | ) |
|
| (9,200 | ) | |
Current portion of finance lease obligations |
|
|
|
|
|
|
|
| (3,157 | ) |
|
| (2,806 | ) | |
Unamortized debt issuance costs |
|
|
|
|
|
|
|
| (259 | ) |
|
| (289 | ) | |
Total long-term debt |
|
|
|
|
|
|
| $ | 120,144 |
|
| $ | 128,604 |
|
ABL Facility and Amendments
There have been no material changes in UNIFI’s allowance for uncollectible accounts since June 25, 2017.
The changes in UNIFI’s reserves for yarn quality claims were as follows:
|
| Reserves for Yarn Quality Claims |
| |
Balance at June 25, 2017 |
| $ | (1,278 | ) |
Charged to costs and expenses |
|
| (616 | ) |
Translation activity |
|
| (12 | ) |
Deductions |
|
| 1,175 |
|
Balance at December 24, 2017 |
| $ | (731 | ) |
5. Inventories
Inventories consiststo the 2022 Credit Agreement following the filing of the following:2023 Form 10-K.
Construction Financing
In connection with the construction financing arrangement, UNIFI has borrowed a total of $9,755 and transitioned $9,755 of completed asset costs to finance lease obligations as of December 31, 2023. There were no borrowings outstanding on this financing arrangement as of December 31, 2023.
6
|
| December 24, 2017 |
|
| June 25, 2017 |
| ||
Raw materials |
| $ | 38,342 |
|
| $ | 36,748 |
|
Supplies |
|
| 6,537 |
|
|
| 6,104 |
|
Work in process |
|
| 6,819 |
|
|
| 7,399 |
|
Finished goods |
|
| 66,872 |
|
|
| 63,121 |
|
Gross inventories |
|
| 118,570 |
|
|
| 113,372 |
|
Inventory reserves |
|
| (2,331 | ) |
|
| (1,967 | ) |
Total inventories |
| $ | 116,239 |
|
| $ | 111,405 |
|
6. Property, Plant and Equipment, Net
Property, plant and equipment, net (“PP&E”) consists of the following:
|
| December 24, 2017 |
|
| June 25, 2017 |
| ||
Land |
| $ | 2,931 |
|
| $ | 2,931 |
|
Land improvements |
|
| 15,099 |
|
|
| 15,066 |
|
Buildings and improvements |
|
| 157,984 |
|
|
| 157,115 |
|
Assets under capital leases |
|
| 34,568 |
|
|
| 34,568 |
|
Machinery and equipment |
|
| 586,798 |
|
|
| 579,211 |
|
Computers, software and office equipment |
|
| 19,850 |
|
|
| 19,360 |
|
Transportation equipment |
|
| 4,780 |
|
|
| 4,798 |
|
Construction in progress |
|
| 8,820 |
|
|
| 7,371 |
|
Gross property, plant and equipment |
|
| 830,830 |
|
|
| 820,420 |
|
Less: accumulated depreciation |
|
| (621,107 | ) |
|
| (612,355 | ) |
Less: accumulated amortization – capital leases |
|
| (6,024 | ) |
|
| (4,677 | ) |
Total PP&E |
| $ | 203,699 |
|
| $ | 203,388 |
|
Depreciation expense and repair and maintenance expenses were as follows:
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||||
Depreciation expense |
| $ | 5,237 |
|
| $ | 4,486 |
|
| $ | 10,360 |
|
| $ | 8,700 |
|
Repair and maintenance expenses |
|
| 4,779 |
|
|
| 4,514 |
|
|
| 9,504 |
|
|
| 8,754 |
|
7
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Accrued expenses consists of the following:
|
| December 24, 2017 |
|
| June 25, 2017 |
| ||
Payroll and fringe benefits |
| $ | 7,277 |
|
| $ | 10,469 |
|
Other |
|
| 5,713 |
|
|
| 5,675 |
|
Total accrued expenses |
| $ | 12,990 |
|
| $ | 16,144 |
|
Other consists primarily of accruals for utilities, property taxes, employee-related claims and payments, interest, marketing expenses, freight expenses, rent, other non-income related taxes and deferred revenue.
8. Long-Term Debt
Debt Obligations
The following table presents the total balances outstanding for UNIFI’s debt obligations, their scheduled maturity dates and the weighted average interest rates for borrowings as well as the applicable current portion of long-term debt:
|
|
|
| Weighted Average |
|
|
|
| ||||||
|
| Scheduled |
| Interest Rate as of |
|
| Principal Amounts as of |
| ||||||
|
| Maturity Date |
| December 24, 2017 |
|
| December 24, 2017 |
|
| June 25, 2017 |
| |||
ABL Revolver |
| March 2020 |
| 3.3% |
|
| $ | 21,900 |
|
| $ | 9,300 |
| |
ABL Term Loan (1) |
| March 2020 |
| 3.3% |
|
|
| 90,000 |
|
|
| 95,000 |
| |
Capital lease obligations |
| (2) |
| 3.7% |
|
|
| 21,640 |
|
|
| 25,168 |
| |
Total debt |
|
|
|
|
|
|
|
| 133,540 |
|
|
| 129,468 |
|
Current portion of capital lease obligations |
|
|
|
|
|
|
|
| (7,112 | ) |
|
| (7,060 | ) |
Current portion of other long-term debt |
|
|
|
|
|
|
|
| (10,000 | ) |
|
| (10,000 | ) |
Unamortized debt issuance costs |
|
|
|
|
|
|
|
| (840 | ) |
|
| (1,026 | ) |
Total long-term debt |
|
|
|
|
|
|
| $ | 115,588 |
|
| $ | 111,382 |
|
|
|
|
|
On March 26, 2015, Unifi, Inc. and its subsidiary, Unifi Manufacturing, Inc., entered into an Amended and Restated Credit Agreement for a $200,000 senior secured credit facility (the “ABL Facility”) with a syndicate of lenders. The ABL Facility consists of a $100,000 revolving credit facility (the “ABL Revolver”) and a term loan that can be reset up to a maximum amount of $100,000, once per fiscal year, if certain conditions are met (the “ABL Term Loan”). The ABL Facility has a maturity date of March 26, 2020.
Scheduled Debt Maturities
The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the remainder of fiscal 2018 and the fiscal years thereafter:
|
| Fiscal 2018 |
|
| Fiscal 2019 |
|
| Fiscal 2020 |
|
| Fiscal 2021 |
|
| Fiscal 2022 |
|
| Thereafter |
| ||||||
ABL Revolver |
| $ | — |
|
| $ | — |
|
| $ | 21,900 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
ABL Term Loan |
|
| 5,000 |
|
|
| 10,000 |
|
|
| 75,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Capital lease obligations |
|
| 3,533 |
|
|
| 6,996 |
|
|
| 5,519 |
|
|
| 2,624 |
|
|
| 2,417 |
|
|
| 551 |
|
Total |
| $ | 8,533 |
|
| $ | 16,996 |
|
| $ | 102,419 |
|
| $ | 2,624 |
|
| $ | 2,417 |
|
| $ | 551 |
|
8
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
9. Other Long-Term Liabilities
Other long-term liabilities consists of the following:
|
| December 24, 2017 |
|
| June 25, 2017 |
| ||
Uncertain tax positions |
| $ | 5,293 |
|
| $ | 5,077 |
|
Other |
|
| 5,800 |
|
|
| 6,727 |
|
Total other long-term liabilities |
| $ | 11,093 |
|
| $ | 11,804 |
|
Other primarily includes UNIFI’s unfunded supplemental post-employment plan, certain retiree and post-employment medical and disability liabilities, deferred revenue and deferred energy incentive credits.
10.6. Income Taxes
The provision (benefit) for income taxes wasand effective tax rate were as follows:
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||||
Provision (benefit) for income taxes |
| $ | 380 |
|
| $ | (3,070 | ) |
| $ | (83 | ) |
| $ | (336 | ) |
Effective tax rate |
|
| (2.0 | )% |
|
| 14.5 | % |
|
| 0.3 | % |
|
| 1.3 | % |
Income Tax Expense
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||||
(Benefit) provision for income taxes |
| $ | (4,826 | ) |
| $ | 1,924 |
|
| $ | (1,630 | ) |
| $ | 5,650 |
|
Effective tax rate |
|
| (69.2 | )% |
|
| 30.6 | % |
|
| (8.5 | )% |
|
| 29.5 | % |
UNIFI’s provision (benefit) for income taxes for the six months ended December 31, 2023 and January 1, 2023 was calculated by applying the estimated annual effective tax rate to year-to-date pre-tax book income and adjusting for discrete items that occurred during the period.
H.R. 1, formerly known asThe effective tax rate for the Tax Cutsthree and Jobs Act, was enacted onsix months ended December 22, 2017. H.R. 1 includes significant changes to existing tax law, including a permanent reduction31, 2023 varied from the U.S. federal statutory rate primarily due to the U.S. federal corporate incomegenerated losses for which UNIFI does not expect to realize a future tax ratebenefit.
During the six months ended December 31, 2023, the Internal Revenue Service (“IRS”) audit of fiscal years 2014 through 2019 was concluded with a refund of $1,275, which has been received along with $457 of interest on the overpayments. The impact from 35% to 21%, a one-time mandatory deemed repatriation of foreign earning and profits (the “toll charge”), deductions, credits and business-related exclusions.
The permanent reductionthe IRS audit adjustments to the U.S. federal corporate income tax rate from 35% to 21%prior periods was effective January 1, 2018. When a U.S. federal tax rate change occurs during a fiscal year, taxpayers are required to compute a weighted daily average rate for the fiscal year of enactment. As a result of H.R. 1, UNIFI has calculated a U.S. federal corporate income tax rate of 28.25% for its fiscal 2018 tax year.insignificant.
The effective tax rates for the periods presented above are lower thanthree and six months ended January 1, 2023 varied from the U.S. federal statutory tax rate primarily due to the one-timelosses for which UNIFI does not expect to realize a future benefit and a discrete tax benefit resulting from the revaluation of UNIFI’s domestic deferred tax balances for the lower U.S. statutory tax rate, the release of a valuation allowance on certain historical net operating losses (“NOLs”) and foreign income being taxed at lower rates. These benefits were partially offset by a provisional amount for the toll charge, net of foreign tax credits, and losses in tax jurisdictions for which no tax benefit can currently be recognized.
UNIFI revalued its measurable deferred tax balances based upon the new tax rate at which the temporary differences and carryforwards are expected to reverse. UNIFI recorded a tax benefit of approximately $4,500 as a result of the net change in deferred tax balances. UNIFI determined that the impact of the U.S. federal corporate income tax rate change on the U.S. deferred tax assets and liabilities is provisional because the number cannot be calculated until the underlying timing differences are known rather than estimated.
Specificrelated to the toll charge, UNIFI has recorded a $1,700 provisional charge, netrecovery of foreign tax credits, based on the following estimates: (i) earnings and profits of foreign jurisdictions that will not be complete until the end of fiscal 2018, (ii) the aggregate cash position at June 24, 2018 and (iii) finalization ofcertain Brazilian income taxes paid in foreign jurisdictions. Additionally, the estimates have been made based on UNIFI’s interpretation of H.R. 1. The U.S. Treasury has indicated in Notice 2018-07 that it expects to issue further guidance to clarify certain technical aspects of H.R. 1, which could impact UNIFI’s computations and provisional amounts recorded.prior years.
Unrecognized Tax Benefits
Within the calculation of the annual effective tax rate, UNIFI has used assumptions and estimates that may change as a result of future guidance, interpretation, and rulemaking from the Internal Revenue Service, the SEC, the FASB and/or various other taxing authorities. For example, UNIFI anticipates that state taxing authorities will continue to determine and announce their conformity to H.R. 1 which could have an impact on UNIFI’s annual effective tax rate.
UNIFI continues to review the anticipated impacts of the global intangible low-taxed income (“GILTI”) and base erosion anti-abuse tax (“BEAT”), which are not effective until fiscal 2019. UNIFI has not recorded any impact associated with either GILTI or BEAT.
9
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
UNIFI has recorded all known and estimable impacts of H.R. 1 that are effective for fiscal 2018. Future adjustments to the provisional numbers will be recorded as discrete adjustments to income tax expense in the period in which those adjustments become estimable and/or are finalized.
UNIFI regularly assesses the outcomes of both completed and ongoing examinations to ensure that UNIFI’sits provision for income taxes is sufficient. Certain returns that remain open to examination have utilized carryforward tax attributes generated in prior tax years, including NOLs, which could potentially be revised upon examination.
UNIFI also regularly assesses whether it is more-likely-than-not that some portion or all of its deferred tax assets will not be realized. UNIFI considersFollowing the scheduled reversal of taxable temporary differences, taxable income in carryback years, projected future taxable income and tax planning strategies in making this assessment. Since UNIFI operates in multiple jurisdictions, the assessment is made on a jurisdiction-by-jurisdiction basis, taking into account the effects of local tax law. Due to new facts and circumstances in the second quarter of fiscal 2018, UNIFI has determined it can utilize certain NOLs to offset future taxable income and has reduced the corresponding valuation allowance by $3,807. There was also a reduction to valuation allowances on U.S. deferred tax assets in the current period as a resultconclusion of the lower U.S. statutoryIRS audit, UNIFI adjusted the uncertain tax rate under H.R. 1. positions for fiscal years 2014 through 2019 that were effectively settled. The impact from releasing the netted uncertain tax position liabilities was insignificant.
The components of UNIFI’s deferred tax valuation allowance are as follows:
|
| December 24, 2017 |
|
| June 25, 2017 |
| ||
Investment in a former domestic unconsolidated affiliate |
| $ | (3,958 | ) |
| $ | (6,269 | ) |
Equity-method investment in PAL |
|
| (1,217 | ) |
|
| (1,520 | ) |
Certain losses carried forward (1) |
|
| (1,548 | ) |
|
| (5,924 | ) |
State NOLs |
|
| (108 | ) |
|
| (108 | ) |
Other foreign NOLs (2) |
|
| (2,963 | ) |
|
| (3,347 | ) |
Foreign tax credits |
|
| (1,167 | ) |
|
| (789 | ) |
Total deferred tax valuation allowance |
| $ | (10,961 | ) |
| $ | (17,957 | ) |
|
|
|
|
11. Shareholders’ Equity
|
| Shares |
|
| Common Stock |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total Shareholders’ Equity |
| ||||||
Balance at June 25, 2017 |
|
| 18,230 |
|
| $ | 1,823 |
|
| $ | 51,923 |
|
| $ | 339,940 |
|
| $ | (32,880 | ) |
| $ | 360,806 |
|
Options exercised |
|
| 54 |
|
|
| 6 |
|
|
| 213 |
|
|
| — |
|
|
| — |
|
|
| 219 |
|
Conversion of restricted stock units |
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| 4 |
|
|
| — |
|
|
| 3,079 |
|
|
| — |
|
|
| — |
|
|
| 3,079 |
|
Other comprehensive income, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,423 |
|
|
| 1,423 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20,762 |
|
|
| — |
|
|
| 20,762 |
|
Balance at December 24, 2017 |
|
| 18,291 |
|
| $ | 1,829 |
|
| $ | 55,215 |
|
| $ | 360,702 |
|
| $ | (31,457 | ) |
| $ | 386,289 |
|
No dividends were paid duringDuring the sixthree months ended December 24, 2017 or31, 2023, UNIFI released $853 accrued for interest and penalties after receiving the final assessment from the IRS.
7. Shareholders’ Equity
On October 31, 2018, UNIFI announced that the Company's Board of Directors (the “Board”) approved a share repurchase program (the “2018 SRP”) under which UNIFI is authorized to acquire up to $50,000 of its common stock. The share repurchase authorization is discretionary and has no expiration date. No shares have been repurchased in fiscal 2023 and 2024 and $38,859 remains available for repurchase.
8. Stock-Based Compensation
On October 31, 2023, UNIFI’s shareholders approved a First Amendment (the "First Amendment") to the two most recently completed fiscal years.
10
Unifi, Inc.
Notes Second Amended and Restated 2013 Incentive Compensation Plan (the “2020 Plan”). The 2020 Plan set the initial number of shares available for future issuance ("share reserve") pursuant to Condensed Consolidated Financial Statements (Continued)awards granted under the 2020 Plan to 850. The First Amendment increased the remaining share reserve by 1,100. No additional awards can be granted under prior plans; however, awards outstanding under a respective prior plan remain subject to that plan’s provisions.
The following table provides information as of December 24, 201731, 2023 with respect to the number of securities remaining available for future issuance under the Unifi, Inc. 2013 Incentive Compensation Plan (the “2013 Plan”):2020 Plan:
Authorized under the |
| |||
Plus: | 1,100 | |||
Plus: Awards expired, forfeited or otherwise terminated unexercised |
| |||
Less: Awards granted to employees | ( | ) | ||
Less: Awards granted to non-employee directors | ( | ) | ||
Available for issuance under the |
|
During the six months ended December 24, 2017 and December 25, 2016, UNIFI granted stock options to purchase 54 and 128 shares of common stock, respectively.
During the six months ended December 24, 2017 and December 25, 2016, UNIFI granted 90 and 31 restricted stock units (“RSUs”), respectively.
13.9. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities
UNIFI may use derivative financial instruments such as foreign currency forward contracts or interest rate swaps to reduce its ongoing business exposures to fluctuations in foreign currency exchange rates or interest rates. UNIFI does not enter into derivative contracts for speculative purposes. The following table presents details regarding UNIFI’s hedging activities:Financial Instruments
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||||
Interest expense |
| $ | 1,190 |
|
| $ | 914 |
|
| $ | 2,375 |
|
| $ | 1,606 |
|
Increase in fair value of interest rate swaps |
|
| (1,077 | ) |
|
| (89 | ) |
|
| (1,492 | ) |
|
| (188 | ) |
Impact of interest rate swaps on interest expense |
|
| 123 |
|
|
| 65 |
|
|
| 254 |
|
|
| 137 |
|
For the six months ended December 24, 201731, 2023 and December 25, 2016,January 1, 2023, there were no significant changes to UNIFI’s assets and liabilities measured at fair value, and there were no transfers into or out of the levels of the fair value hierarchy.
UNIFI believes that there have been no significant changes to its credit risk profile or the interest rates available to UNIFI for debt issuances with similar terms and average maturities, and UNIFI estimates that the fair values of its debt obligations approximate the carrying amounts. Other financial instruments
7
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
include cash and cash equivalents, receivables, accounts payable, and accrued expenses. The financial statement carrying amounts of these items approximate the fair valuevalues due to their short-term nature.
Grantor Trust
14. Accumulated Other Comprehensive Loss
The components of and the changesUNIFI, Inc. Deferred Compensation Plan (the “DCP”), established in accumulated other comprehensive loss, net of tax, as applicable, consistfiscal 2022, is an unfunded non-qualified deferred compensation plan in which certain key employees are eligible to participate. The fair values of the following:
|
| Foreign Currency Translation Adjustments |
|
| Changes in Interest Rate Swaps |
|
| Accumulated Other Comprehensive Loss |
| |||
Balance at June 25, 2017 |
| $ | (32,372 | ) |
| $ | (508 | ) |
| $ | (32,880 | ) |
Other comprehensive (loss) income, net of tax |
|
| (69 | ) |
|
| 1,492 |
|
|
| 1,423 |
|
Balance at December 24, 2017 |
| $ | (32,441 | ) |
| $ | 984 |
|
| $ | (31,457 | ) |
11
Unifi, Inc.
Notesinvestment assets held by the grantor trust established in connection with the DCP were approximately $2,618 and $2,496 as of December 31, 2023 and July 2, 2023, respectively, and are classified as trading securities within Other non-current assets. The grantor trust assets have readily-available market values and are classified as Level 1 trading securities in the fair value hierarchy. Trading gains and losses associated with these investments are recorded to Condensed Consolidated Financial Statements (Continued)
A summary ofOther operating expense (income), net. The associated DCP liability is recorded within Other long-term liabilities, and any increase or decrease in the after-tax effects ofliability is also recorded in Other operating expense (income), net. During the components of other comprehensive (loss) income, net for the three-month and six-month periodssix months ended December 24, 201731, 2023 and December 25, 2016 is included inJanuary 1, 2023, we recorded net gains on investments held by the accompanying condensed consolidated statementstrust of comprehensive income.$122 and $11, respectively.
15.10. Earnings Per Share
The components of the calculation of earnings per share (“EPS”) are as follows:
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||||||||||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
| December 24, 2017 |
|
| December 25, 2016 |
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||||||
Net income attributable to Unifi, Inc. |
| $ | 11,802 |
|
| $ | 4,591 |
|
| $ | 20,762 |
|
| $ | 13,994 |
| ||||||||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||||||||||||||||||||
Net loss |
| $ | (19,846 | ) |
| $ | (18,037 | ) |
| $ | (33,116 | ) |
| $ | (25,871 | ) | ||||||||||||||||
Basic weighted average shares |
|
| 18,273 |
|
|
| 18,128 |
|
|
| 18,260 |
|
|
| 18,045 |
|
|
| 18,110 |
|
|
| 18,034 |
|
|
| 18,097 |
|
|
| 18,017 |
|
Net potential common share equivalents – stock options and RSUs |
|
| 378 |
|
|
| 314 |
|
|
| 338 |
|
|
| 346 |
| ||||||||||||||||
Net potential common share equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Diluted weighted average shares |
|
| 18,651 |
|
|
| 18,442 |
|
|
| 18,598 |
|
|
| 18,391 |
|
|
| 18,110 |
|
|
| 18,034 |
|
|
| 18,097 |
|
|
| 18,017 |
|
Excluded from diluted weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Excluded from the calculation of common share equivalents: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Anti-dilutive common share equivalents |
|
| 60 |
|
|
| 185 |
|
|
| 290 |
|
|
| 271 |
|
|
| 577 |
|
|
| 739 |
|
|
| 577 |
|
|
| 703 |
|
Excluded from the calculation of diluted shares: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Unvested stock options that vest upon achievement of certain market conditions |
|
| 333 |
|
|
| 333 |
|
|
| 333 |
|
|
| 333 |
|
The calculation of EPS is based on the weighted average number of Unifi, Inc.’s common shares outstanding for the applicable period. The calculation of diluted EPS presents the effect of all potential dilutive common shares that were outstanding during the respective period, unless the effect of doing so is anti-dilutive.
11. Commitments and Contingencies
Collective Bargaining Agreements
While employees of UNIFI’s Brazilian operations are unionized, none of the labor force employed by UNIFI’s domestic or other foreign subsidiaries is currently covered by a collective bargaining agreement.
12. Related Party Transactions
16.
Related party balances and transactions are not material to the condensed consolidated financial statements and, accordingly, are not presented separately from other financial statement captions.
There were no related party receivables as of December 31, 2023 and July 2, 2023.
Related party payables for Salem Leasing Corporation consisted of the following:
|
| December 31, 2023 |
|
| July 2, 2023 |
| ||
Accounts payable |
| $ | 350 |
|
| $ | 457 |
|
Operating lease obligations |
|
| 403 |
|
|
| 502 |
|
Finance lease obligations |
|
| 3,031 |
|
|
| 3,677 |
|
Total related party payables |
| $ | 3,784 |
|
| $ | 4,636 |
|
The following were the Company’s significant related party transactions:
|
|
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
Affiliated Entity |
| Transaction Type |
| December 31, 2023 |
|
| January 1, 2023 |
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||||
Salem Leasing Corporation |
| Payments for transportation equipment costs and finance lease debt service |
| $ | 1,228 |
|
| $ | 1,184 |
|
| $ | 2,437 |
|
| $ | 2,383 |
|
8
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
13. Business Segment Information
UNIFI defines operating segments as components of the organization for which discrete financial information is available and operating results are evaluated on a regular basis by UNIFI’s principal executive officer, who is the chief operating decision maker (the “CODM”), in order to assess performance and allocate resources. Characteristics of UNIFI which were relied upon in making the determination of reportable segments include the nature of the products sold, the internal organizational structure, the trade policies in the geographic regions in which UNIFI operates, and the information that is regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.
UNIFI's three reportable segments are organized as follows:
UNIFI evaluates the operating performance of its segments based upon Segment Profit, which represents segment gross profit (loss) plus segment depreciation expense. This measurement of segment profit or loss best aligns segment reporting with the current assessments and evaluations performed by, and information provided to, the CODM.
The accounting policies for the segments are consistent with UNIFI’s accounting policies. Intersegment sales are omitted from segment disclosures, as they are (i) insignificant to UNIFI’s segments and eliminated from consolidated reporting and (ii) excluded from segment evaluations performed by the CODM.
Selected financial information is presented below:
|
| For the Three Months Ended December 31, 2023 |
| |||||||||||||
|
| Americas |
|
| Brazil |
|
| Asia |
|
| Total |
| ||||
Net sales |
| $ | 80,549 |
|
| $ | 26,061 |
|
| $ | 30,307 |
|
| $ | 136,917 |
|
Cost of sales |
|
| 87,287 |
|
|
| 22,922 |
|
|
| 25,072 |
|
|
| 135,281 |
|
Gross (loss) profit |
|
| (6,738 | ) |
|
| 3,139 |
|
|
| 5,235 |
|
|
| 1,636 |
|
Segment depreciation expense |
|
| 5,508 |
|
|
| 766 |
|
|
| — |
|
|
| 6,274 |
|
Segment (Loss) Profit |
| $ | (1,230 | ) |
| $ | 3,905 |
|
| $ | 5,235 |
|
| $ | 7,910 |
|
|
| For the Three Months Ended January 1, 2023 |
| |||||||||||||
|
| Americas |
|
| Brazil |
|
| Asia |
|
| Total |
| ||||
Net sales |
| $ | 85,242 |
|
| $ | 25,687 |
|
| $ | 25,283 |
|
| $ | 136,212 |
|
Cost of sales |
|
| 98,326 |
|
|
| 24,357 |
|
|
| 21,529 |
|
|
| 144,212 |
|
Gross (loss) profit |
|
| (13,084 | ) |
|
| 1,330 |
|
|
| 3,754 |
|
|
| (8,000 | ) |
Segment depreciation expense |
|
| 5,542 |
|
|
| 391 |
|
|
| — |
|
|
| 5,933 |
|
Segment (Loss) Profit |
| $ | (7,542 | ) |
| $ | 1,721 |
|
| $ | 3,754 |
|
| $ | (2,067 | ) |
|
| For the Six Months Ended December 31, 2023 |
| |||||||||||||
|
| Americas |
|
| Brazil |
|
| Asia |
|
| Total |
| ||||
Net sales |
| $ | 162,122 |
|
| $ | 55,970 |
|
| $ | 57,669 |
|
| $ | 275,761 |
|
Cost of sales |
|
| 176,240 |
|
|
| 50,664 |
|
|
| 47,796 |
|
|
| 274,700 |
|
Gross (loss) profit |
|
| (14,118 | ) |
|
| 5,306 |
|
|
| 9,873 |
|
|
| 1,061 |
|
Segment depreciation expense |
|
| 11,005 |
|
|
| 1,606 |
|
|
| — |
|
|
| 12,611 |
|
Segment (Loss) Profit |
| $ | (3,113 | ) |
| $ | 6,912 |
|
| $ | 9,873 |
|
| $ | 13,672 |
|
|
| For the Six Months Ended January 1, 2023 |
| |||||||||||||
|
| Americas |
|
| Brazil |
|
| Asia |
|
| Total |
| ||||
Net sales |
| $ | 192,886 |
|
| $ | 64,566 |
|
| $ | 58,279 |
|
| $ | 315,731 |
|
Cost of sales |
|
| 210,839 |
|
|
| 56,449 |
|
|
| 49,880 |
|
|
| 317,168 |
|
Gross (loss) profit |
|
| (17,953 | ) |
|
| 8,117 |
|
|
| 8,399 |
|
|
| (1,437 | ) |
Segment depreciation expense |
|
| 11,022 |
|
|
| 861 |
|
|
| — |
|
|
| 11,883 |
|
Segment (Loss) Profit |
| $ | (6,931 | ) |
| $ | 8,978 |
|
| $ | 8,399 |
|
| $ | 10,446 |
|
9
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The reconciliations of segment gross profit (loss) to consolidated loss before income taxes are as follows:
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||||
Americas |
| $ | (6,738 | ) |
| $ | (13,084 | ) |
| $ | (14,118 | ) |
| $ | (17,953 | ) |
Brazil |
|
| 3,139 |
|
|
| 1,330 |
|
|
| 5,306 |
|
|
| 8,117 |
|
Asia |
|
| 5,235 |
|
|
| 3,754 |
|
|
| 9,873 |
|
|
| 8,399 |
|
Segment gross profit (loss) |
|
| 1,636 |
|
|
| (8,000 | ) |
|
| 1,061 |
|
|
| (1,437 | ) |
Selling, general and administrative expenses |
|
| 12,408 |
|
|
| 11,748 |
|
|
| 24,017 |
|
|
| 23,521 |
|
Provision (benefit) for bad debts |
|
| 1,289 |
|
|
| (156 | ) |
|
| 1,080 |
|
|
| 18 |
|
Restructuring costs |
|
| 5,101 |
|
|
| — |
|
|
| 5,101 |
|
|
| — |
|
Other operating expense (income), net |
|
| 481 |
|
|
| 226 |
|
|
| 535 |
|
|
| (463 | ) |
Operating loss |
|
| (17,643 | ) |
|
| (19,818 | ) |
|
| (29,672 | ) |
|
| (24,513 | ) |
Interest income |
|
| (697 | ) |
|
| (514 | ) |
|
| (1,278 | ) |
|
| (1,061 | ) |
Interest expense |
|
| 2,613 |
|
|
| 1,889 |
|
|
| 5,098 |
|
|
| 3,136 |
|
Equity in earnings of unconsolidated affiliates |
|
| (93 | ) |
|
| (86 | ) |
|
| (293 | ) |
|
| (381 | ) |
Loss before income taxes |
| $ | (19,466 | ) |
| $ | (21,107 | ) |
| $ | (33,199 | ) |
| $ | (26,207 | ) |
There have been no material changes in segment assets during fiscal 2024.
14. Investments in Unconsolidated Affiliates and Variable Interest Entities
UNIFI currently maintainsIncluded within Other non-current assets are UNIFI’s investments in three entities classified as unconsolidated affiliates: PAL; U.N.F. Industries, Ltd. (“UNF”); and UNF America LLC (“UNFA”). As
U.N.F. Industries, Ltd.
In December 2023, UNIFI dissolved its interest in UNF under an agreement whereby UNIFI agreed to pay the former joint venture partner $2,750 and recorded it as an associated contract termination cost within Restructuring costs on the Condensed Consolidated Statements of Operations and Comprehensive Loss. UNIFI made a payment to the former joint venture partner of $1,200 in the second quarter of fiscal 2024 and the remaining $1,550 is included in Other current liabilities, expected to be paid in the third quarter of fiscal 2024. Accordingly, the balance sheet information presented below as of December 24, 2017, UNIFI’s investment in PAL was $110,321 and UNIFI’s combined investments in UNF and UNFA were $3,302, each of which is reflected within investments in unconsolidated affiliates in the accompanying condensed consolidated balance sheets.
Parkdale America, LLC
PAL is a limited liability company treated as a partnership for income tax reporting purposes. UNIFI accounts for its investment in PAL using the equity method of accounting. PAL is subject to price risk31, 2023 does not include any amounts related to anticipated fixed-price yarn sales. To protect the gross margin of these sales, PAL may enter into cotton futures to manage changes in raw material prices. The derivative instruments used are listed and traded on an exchange and are valued using quoted prices classified within Level 1 of the fair value hierarchy. As of December 2017, PAL had no futures contracts designated as cash flow hedges.UNF.
The reconciliation between UNIFI’s share of the underlying equity of PAL and its investment is as follows:
Underlying equity as of December 24, 2017 |
| $ | 128,412 |
|
Initial excess capital contributions |
|
| 53,363 |
|
Impairment charge recorded by UNIFI in fiscal 2007 |
|
| (74,106 | ) |
Anti-trust lawsuit against PAL in which UNIFI did not participate |
|
| 2,652 |
|
Investment as of December 24, 2017 |
| $ | 110,321 |
|
U.N.F. Industries, Ltd.
Raw material and production services for UNF are provided by Nilit Ltd. under separate supply and services agreements. UNF’s fiscal year end is December 31, and it is a registered Israeli private company located in Migdal Ha-Emek, Israel.
UNF America LLC
Raw material and production services for UNFA are provided by Nilit America Inc. under separate supply and services agreements. UNFA’s fiscal year end is December 31, and it is a limited liability company located in Ridgeway, Virginia. UNFA is treated as a partnership for its income tax reporting purposes located in Ridgeway, Virginia.reporting.
12
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
In conjunction with the formation of UNFA, UNIFI entered into a supply agreement with UNF and UNFA whereby UNIFI agreed to purchase all of its first quality nylon POY requirements for texturing (subject to certain exceptions) from either UNF or UNFA. The supply agreement has no stated minimum purchase quantities and pricing is typically negotiated every six months, based on market rates. As of December 24, 2017,31, 2023, UNIFI’s open purchase orders related to this supply agreement, all with UNFA, were $3,158.$571.
UNIFI’s raw material purchases under this supply agreement consistconsisted of the following:
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||||
UNFA |
| $ | 3,787 |
|
| $ | 5,390 |
|
| $ | 6,913 |
|
| $ | 12,791 |
|
UNF |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 37 |
|
Total |
| $ | 3,787 |
|
| $ | 5,390 |
|
| $ | 6,913 |
|
| $ | 12,828 |
|
|
| For the Six Months Ended |
| |||||
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||
UNF |
| $ | 1,141 |
|
| $ | 1,250 |
|
UNFA |
|
| 10,406 |
|
|
| 9,579 |
|
Total |
| $ | 11,547 |
|
| $ | 10,829 |
|
As of December 24, 201731, 2023, UNIFI had accounts payable due to UNFA of $2,020, and June 25, 2017,as of July 2, 2023, UNIFI had combined accounts payable due to UNF and UNFA of $1,483 and $2,301, respectively.$3,440.
UNIFI haspreviously determined that UNF and UNFA arewere variable interest entities (“VIEs”) and also determined that UNIFI is the primary beneficiary of these entities, based on the terms of the supply agreement discussed above.agreement. As a result, these entities should be consolidated with UNIFI’s financial results. As (i) UNIFI purchases substantially all of the output from the twothese entities and all intercompany sales would be eliminated in consolidation, (ii) the two entities’ balance sheets constitute 3%5% or less of UNIFI’s current assets and total assets, and total liabilities and because(iii) such balances are not expected to comprise a larger portion in the future, UNIFI has not included the accounts of UNF and UNFA in its consolidated financial statements.statements and instead is accounting for these entities as equity investments. The financial results of UNF and UNFA are included in UNIFI’s consolidated financial statements with a one-month lag, using the equity method of accounting and with intercompany profits eliminated in accordance with UNIFI’s accounting policy. Other than the supply agreement discussed above, UNIFI does not provide any other commitments or guarantees related to either UNF or UNFA. As of December 31, 2023, UNIFI’s investment in UNFA was $3,101.
10
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Condensed balance sheet and income statement information for UNIFI’s unconsolidated affiliates (including reciprocal balances) isare presented in the tables below. PAL is defined as significant and its information is separately disclosed. PAL does not meet the criteria for segment reporting.
|
| As of December 24, 2017 |
| |||||||||||||||||
|
| PAL |
|
| Other |
|
| Total |
|
| December 31, 2023 |
|
| July 2, 2023 |
| |||||
Current assets |
| $ | 265,491 |
|
| $ | 8,797 |
|
| $ | 274,288 |
|
| $ | 9,363 |
|
| $ | 10,608 |
|
Noncurrent assets |
|
| 171,256 |
|
|
| 971 |
|
|
| 172,227 |
| ||||||||
Non-current assets |
|
| 473 |
|
|
| 494 |
| ||||||||||||
Current liabilities |
|
| 56,134 |
|
|
| 3,262 |
|
|
| 59,396 |
|
|
| 3,634 |
|
|
| 7,304 |
|
Noncurrent liabilities |
|
| 2,933 |
|
|
| — |
|
|
| 2,933 |
| ||||||||
Non-current liabilities |
|
| — |
|
|
| — |
| ||||||||||||
Shareholders’ equity and capital accounts |
|
| 377,680 |
|
|
| 6,506 |
|
|
| 384,186 |
|
|
| 6,202 |
|
|
| 3,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
UNIFI’s portion of undistributed earnings |
|
| 41,432 |
|
|
| 1,411 |
|
|
| 42,843 |
|
|
| 3,042 |
|
|
| 2,938 |
|
|
| As of June 25, 2017 |
| |||||||||
|
| PAL |
|
| Other |
|
| Total |
| |||
Current assets |
| $ | 247,820 |
|
| $ | 10,340 |
|
| $ | 258,160 |
|
Noncurrent assets |
|
| 183,418 |
|
|
| 1,039 |
|
|
| 184,457 |
|
Current liabilities |
|
| 54,389 |
|
|
| 3,588 |
|
|
| 57,977 |
|
Noncurrent liabilities |
|
| 3,263 |
|
|
| — |
|
|
| 3,263 |
|
Shareholders’ equity and capital accounts |
|
| 373,586 |
|
|
| 7,791 |
|
|
| 381,377 |
|
13
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
|
| For the Three Months Ended December 24, 2017 |
| |||||||||
|
| PAL |
|
| Other |
|
| Total |
| |||
Net sales |
| $ | 176,577 |
|
| $ | 6,756 |
|
| $ | 183,333 |
|
Gross profit |
|
| 2,379 |
|
|
| 1,628 |
|
|
| 4,007 |
|
(Loss) income from operations |
|
| (1,922 | ) |
|
| 1,185 |
|
|
| (737 | ) |
Net (loss) income |
|
| (1,398 | ) |
|
| 1,198 |
|
|
| (200 | ) |
Depreciation and amortization |
|
| 10,885 |
|
|
| 47 |
|
|
| 10,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received by PAL under cotton rebate program |
|
| 4,701 |
|
|
| — |
|
|
| 4,701 |
|
Earnings recognized by PAL for cotton rebate program |
|
| 3,191 |
|
|
| — |
|
|
| 3,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received |
|
| — |
|
|
| 1,500 |
|
|
| 1,500 |
|
|
| For the Three Months Ended December 25, 2016 |
| |||||||||
|
| PAL |
|
| Other |
|
| Total |
| |||
Net sales |
| $ | 153,074 |
|
| $ | 5,056 |
|
| $ | 158,130 |
|
Gross profit |
|
| 1,765 |
|
|
| 983 |
|
|
| 2,748 |
|
(Loss) income from operations |
|
| (2,849 | ) |
|
| 509 |
|
|
| (2,340 | ) |
Net (loss) income |
|
| (2,238 | ) |
|
| 513 |
|
|
| (1,725 | ) |
Depreciation and amortization |
|
| 11,708 |
|
|
| 45 |
|
|
| 11,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received by PAL under cotton rebate program |
|
| 3,635 |
|
|
| — |
|
|
| 3,635 |
|
Earnings recognized by PAL for cotton rebate program |
|
| 2,907 |
|
|
| — |
|
|
| 2,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received |
|
| — |
|
|
| 750 |
|
|
| 750 |
|
|
| For the Six Months Ended December 24, 2017 |
| |||||||||
|
| PAL |
|
| Other |
|
| Total |
| |||
Net sales |
| $ | 379,368 |
|
| $ | 12,449 |
|
| $ | 391,817 |
|
Gross profit |
|
| 16,089 |
|
|
| 2,582 |
|
|
| 18,671 |
|
Income from operations |
|
| 8,034 |
|
|
| 1,694 |
|
|
| 9,728 |
|
Net income |
|
| 6,948 |
|
|
| 1,716 |
|
|
| 8,664 |
|
Depreciation and amortization |
|
| 20,485 |
|
|
| 94 |
|
|
| 20,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received by PAL under cotton rebate program |
|
| 6,942 |
|
|
| — |
|
|
| 6,942 |
|
Earnings recognized by PAL for cotton rebate program |
|
| 6,446 |
|
|
| — |
|
|
| 6,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received |
|
| 7,178 |
|
|
| 1,500 |
|
|
| 8,678 |
|
|
| For the Six Months Ended December 25, 2016 |
| |||||||||
|
| PAL |
|
| Other |
|
| Total |
| |||
Net sales |
| $ | 358,974 |
|
| $ | 11,058 |
|
| $ | 370,032 |
|
Gross profit |
|
| 7,261 |
|
|
| 2,528 |
|
|
| 9,789 |
|
(Loss) income from operations |
|
| (1,988 | ) |
|
| 1,594 |
|
|
| (394 | ) |
Net (loss) income |
|
| (1,364 | ) |
|
| 1,610 |
|
|
| 246 |
|
Depreciation and amortization |
|
| 23,184 |
|
|
| 84 |
|
|
| 23,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received by PAL under cotton rebate program |
|
| 7,762 |
|
|
| — |
|
|
| 7,762 |
|
Earnings recognized by PAL for cotton rebate program |
|
| 6,796 |
|
|
| — |
|
|
| 6,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received |
|
| — |
|
|
| 1,500 |
|
|
| 1,500 |
|
14
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
17. Commitments and Contingencies
Collective Bargaining Agreements
While employees of UNIFI’s Brazilian operations are unionized, none of the labor force employed by UNIFI’s domestic or other foreign subsidiaries is currently covered by a collective bargaining agreement.
Environmental
On September 30, 2004, UNIFI completed its acquisition of polyester filament manufacturing assets located in Kinston, North Carolina from Invista S.a.r.l. (“INVISTA”). The land for the Kinston site was leased pursuant to a 99-year ground lease (the “Ground Lease”) with E.I. DuPont de Nemours (“DuPont”). Since 1993, DuPont has been investigating and cleaning up the Kinston site under the supervision of the U.S. Environmental Protection Agency and the North Carolina Department of Environmental Quality (“DEQ”) pursuant to the Resource Conservation and Recovery Act Corrective Action program. The program requires DuPont to identify all potential areas of environmental concern (“AOCs”), assess the extent of containment at the identified AOCs and remediate the AOCs to comply with applicable regulatory standards. Effective March 20, 2008, UNIFI entered into a lease termination agreement associated with conveyance of certain assets at the Kinston site to DuPont. This agreement terminated the Ground Lease and relieved UNIFI of any future responsibility for environmental remediation, other than participation with DuPont, if so called upon, with regard to UNIFI’s period of operation of the Kinston site, which was from 2004 to 2008. At this time, UNIFI has no basis to determine if or when it will have any responsibility or obligation with respect to the AOCs or the extent of any potential liability for the same.
UNIFI continues to own property acquired in the 2004 transaction with INVISTA that has contamination from DuPont’s operations and is monitored by DEQ. This site has been remediated by DuPont, and DuPont has received authority from DEQ to discontinue further remediation, other than natural attenuation. Prior to transfer of responsibility to UNIFI, DuPont has a duty to monitor and report the environmental status of the site to DEQ. UNIFI expects to assume that responsibility in fiscal 2018 and will be entitled to receive from DuPont seven years of monitoring and reporting costs, less certain adjustments. At that time, UNIFI will assume responsibility for any future remediation of the site. At this time, UNIFI has no basis to determine if or when it will have any obligation to perform further remediation or the potential cost thereof.
Leases
UNIFI routinely leases sales and administrative office space, warehousing and distribution centers, manufacturing space, transportation equipment, manufacturing equipment, and other information technology and office equipment from third parties.
UNIFI has assumed various financial obligations and commitments in the normal course of its operating and financing activities. Financial obligations are considered to represent known future cash payments that UNIFI is required to make under existing contractual arrangements, such as debt and lease agreements.
18. Related Party Transactions
For details regarding the nature of certain related party relationships, see Note 24, “Related Party Transactions,” to the consolidated financial statements in the 2017 Form 10-K.
Related party receivables consists of the following:
|
| December 24, 2017 |
|
| June 25, 2017 |
| ||
Salem Global Logistics, Inc. |
| $ | 7 |
|
| $ | 6 |
|
Total related party receivables (included within receivables, net) |
| $ | 7 |
|
| $ | 6 |
|
Related party payables consists of the following:
|
| December 24, 2017 |
|
| June 25, 2017 |
| ||
Salem Leasing Corporation (included within accounts payable) |
| $ | 294 |
|
| $ | 298 |
|
Salem Leasing Corporation (capital lease obligation) |
|
| 911 |
|
|
| 947 |
|
Total related party payables |
| $ | 1,205 |
|
| $ | 1,245 |
|
15
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Related party transactions in excess of $120 for the current or prior two fiscal years consist of the following amounts for the periods presented:
|
|
|
| For the Three Months Ended |
| |||||
Affiliated Entity |
| Transaction Type |
| December 24, 2017 |
|
| December 25, 2016 |
| ||
Salem Leasing Corporation |
| Transportation equipment costs and capital lease debt service |
| $ | 969 |
|
| $ | 1,291 |
|
Salem Global Logistics, Inc. |
| Freight service income |
|
| 50 |
|
|
| 31 |
|
|
|
|
| For the Six Months Ended |
| |||||
Affiliated Entity |
| Transaction Type |
| December 24, 2017 |
|
| December 25, 2016 |
| ||
Salem Leasing Corporation |
| Transportation equipment costs and capital lease debt service |
| $ | 1,950 |
|
| $ | 2,269 |
|
Salem Global Logistics, Inc. |
| Freight service income |
|
| 92 |
|
|
| 52 |
|
19. Business Segment Information
UNIFI defines operating segments as components of the organization for which discrete financial information is available and operating results are evaluated on a regular basis by UNIFI’s Chief Executive Officer, who is the chief operating decision maker (the “CODM”), in order to assess performance and allocate resources. Characteristics of the organization which were relied upon in making the determination of reportable segments include the nature of the products sold, the organization’s internal structure, the trade policies in the geographic regions in which UNIFI operates and the information that is regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.
UNIFI’s operating segments are aggregated into three reportable segments based on similarities between the operating segments’ economic characteristics, nature of products sold, type of customer, methods of distribution and regulatory environment.
The operations within the Polyester Segment exhibit similar long-term economic characteristics and sell into an economic trading zone covered by the North American Free Trade Agreement (“NAFTA”) and the Dominican Republic—Central America Free Trade Agreement (“CAFTA-DR”) to similar customers utilizing similar methods of distribution. These operations derive revenues from polyester-based products with sales primarily to other yarn manufacturers and knitters and weavers that produce yarn and/or fabric for the apparel, hosiery, automotive, home furnishings, industrial and other end-use markets. The Polyester Segment consists of sales and manufacturing operations in the United States and El Salvador.
The operations within the Nylon Segment exhibit similar long-term economic characteristics and sell into an economic trading zone covered by NAFTA and CAFTA-DR to similar customers utilizing similar methods of distribution. The Nylon Segment includes an immaterial operating segment in Colombia that sells similar nylon-based textile products to similar customers in Colombia and Mexico utilizing similar methods of distribution. These operations derive revenues from nylon-based products with sales to knitters and weavers that produce fabric primarily for the apparel and hosiery markets. The Nylon Segment consists of sales and manufacturing operations in the United States and Colombia.
The operations within the International Segment exhibit similar long-term economic characteristics and sell to similar customers utilizing similar methods of distribution in geographic regions that are outside of the economic trading zone covered by NAFTA and CAFTA-DR. The International Segment primarily sells polyester-based products to knitters and weavers that produce fabric for the apparel, automotive, home furnishings, industrial and other end-use markets primarily in the South American and Asian regions. The International Segment includes a manufacturing location in Brazil and sales offices in Brazil, China and Sri Lanka.
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||||
Net sales |
| $ | 4,368 |
|
| $ | 7,224 |
|
| $ | 9,109 |
|
| $ | 16,035 |
|
Gross profit |
|
| 9 |
|
|
| 444 |
|
|
| 647 |
|
|
| 933 |
|
(Loss) income from operations |
|
| (467 | ) |
|
| 26 |
|
|
| (271 | ) |
|
| 51 |
|
Net (loss) income |
|
| (483 | ) |
|
| 14 |
|
|
| (318 | ) |
|
| 29 |
|
Depreciation and amortization |
|
| 7 |
|
|
| 28 |
|
|
| 21 |
|
|
| 56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Distributions received |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
In addition to UNIFI’s reportable segments, the selected financial information presented below includes an All Other category. All Other consists primarily of for-hire transportation services and Repreve Renewables, LLC (“Renewables”) (up through December 23, 2016, the date of the sale by UNIFI of its 60% equity ownership interest in Renewables). For-hire transportation services revenue is derived from performing common carrier services utilizing UNIFI’s fleet of transportation equipment. Revenue for Renewables was primarily derived from (i) facilitating the use of miscanthus grass as bio-fuel through service agreements and (ii) delivering harvested miscanthus grass to poultry producers for animal bedding.
16
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
The operations within All Other (i) are not subject to review by the CODM at a level consistent with UNIFI’s other operations, (ii) are not regularly evaluated using the same metrics applied to UNIFI’s other operations and (iii) do not qualify for aggregation with an existing reportable segment. Therefore, such operations are excluded from reportable segments.
UNIFI evaluates the operating performance of its segments based upon Segment Profit (Loss), which represents segment gross profit (loss) plus segment depreciation expense. This measurement of segment profit or loss best aligns segment reporting with the current assessments and evaluations performed by, and information provided to, the CODM.
The accounting policies for the segments are consistent with UNIFI’s accounting policies. Intersegment sales are omitted from the below financial information, as they are (i) insignificant to UNIFI’s segments and eliminated from consolidated reporting and (ii) excluded from segment evaluations performed by the CODM.
Selected financial information is presented below:
|
| For the Three Months Ended December 24, 2017 |
| |||||||||||||||||
|
| Polyester |
|
| Nylon |
|
| International |
|
| All Other |
|
| Total |
| |||||
Net sales |
| $ | 90,316 |
|
| $ | 25,103 |
|
| $ | 51,046 |
|
| $ | 1,013 |
|
| $ | 167,478 |
|
Cost of sales |
|
| 81,740 |
|
|
| 22,027 |
|
|
| 40,072 |
|
|
| 963 |
|
|
| 144,802 |
|
Gross profit |
|
| 8,576 |
|
|
| 3,076 |
|
|
| 10,974 |
|
|
| 50 |
|
|
| 22,676 |
|
Segment depreciation expense |
|
| 3,973 |
|
|
| 552 |
|
|
| 397 |
|
|
| 64 |
|
|
| 4,986 |
|
Segment Profit |
| $ | 12,549 |
|
| $ | 3,628 |
|
| $ | 11,371 |
|
| $ | 114 |
|
| $ | 27,662 |
|
|
| For the Three Months Ended December 25, 2016 |
| |||||||||||||||||
|
| Polyester |
|
| Nylon |
|
| International |
|
| All Other |
|
| Total |
| |||||
Net sales |
| $ | 86,671 |
|
| $ | 28,302 |
|
| $ | 38,868 |
|
| $ | 1,314 |
|
| $ | 155,155 |
|
Cost of sales |
|
| 76,200 |
|
|
| 25,679 |
|
|
| 29,419 |
|
|
| 1,727 |
|
|
| 133,025 |
|
Gross profit (loss) |
|
| 10,471 |
|
|
| 2,623 |
|
|
| 9,449 |
|
|
| (413 | ) |
|
| 22,130 |
|
Segment depreciation expense |
|
| 3,384 |
|
|
| 530 |
|
|
| 228 |
|
|
| 244 |
|
|
| 4,386 |
|
Segment Profit (Loss) |
| $ | 13,855 |
|
| $ | 3,153 |
|
| $ | 9,677 |
|
| $ | (169 | ) |
| $ | 26,516 |
|
The reconciliations of segment gross profit (loss) to consolidated income before income taxes are as follows:
|
| For the Three Months Ended |
| |||||
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||
Polyester |
| $ | 8,576 |
|
| $ | 10,471 |
|
Nylon |
|
| 3,076 |
|
|
| 2,623 |
|
International |
|
| 10,974 |
|
|
| 9,449 |
|
All Other |
|
| 50 |
|
|
| (413 | ) |
Segment gross profit |
|
| 22,676 |
|
|
| 22,130 |
|
Selling, general and administrative expenses |
|
| 14,626 |
|
|
| 12,868 |
|
Benefit for bad debts |
|
| (72 | ) |
|
| (95 | ) |
Other operating expense, net |
|
| 348 |
|
|
| 319 |
|
Operating income |
|
| 7,774 |
|
|
| 9,038 |
|
Interest income |
|
| (181 | ) |
|
| (183 | ) |
Interest expense |
|
| 1,190 |
|
|
| 914 |
|
Loss on sale of business |
|
| — |
|
|
| 1,662 |
|
Equity in (earnings) loss of unconsolidated affiliates |
|
| (211 | ) |
|
| 367 |
|
Income before income taxes |
| $ | 6,976 |
|
| $ | 6,278 |
|
17
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Selected financial information is presented below:
|
| For the Six Months Ended December 24, 2017 |
| |||||||||||||||||
|
| Polyester |
|
| Nylon |
|
| International |
|
| All Other |
|
| Total |
| |||||
Net sales |
| $ | 178,054 |
|
| $ | 51,930 |
|
| $ | 99,705 |
|
| $ | 2,031 |
|
| $ | 331,720 |
|
Cost of sales |
|
| 160,565 |
|
|
| 45,540 |
|
|
| 77,733 |
|
|
| 1,914 |
|
|
| 285,752 |
|
Gross profit |
|
| 17,489 |
|
|
| 6,390 |
|
|
| 21,972 |
|
|
| 117 |
|
|
| 45,968 |
|
Segment depreciation expense |
|
| 7,840 |
|
|
| 1,089 |
|
|
| 813 |
|
|
| 129 |
|
|
| 9,871 |
|
Segment Profit |
| $ | 25,329 |
|
| $ | 7,479 |
|
| $ | 22,785 |
|
| $ | 246 |
|
| $ | 55,839 |
|
|
| For the Six Months Ended December 25, 2016 |
| |||||||||||||||||
|
| Polyester |
|
| Nylon |
|
| International |
|
| All Other |
|
| Total |
| |||||
Net sales |
| $ | 171,356 |
|
| $ | 56,797 |
|
| $ | 84,212 |
|
| $ | 2,759 |
|
| $ | 315,124 |
|
Cost of sales |
|
| 152,435 |
|
|
| 51,037 |
|
|
| 62,493 |
|
|
| 3,482 |
|
|
| 269,447 |
|
Gross profit (loss) |
|
| 18,921 |
|
|
| 5,760 |
|
|
| 21,719 |
|
|
| (723 | ) |
|
| 45,677 |
|
Segment depreciation expense |
|
| 6,492 |
|
|
| 1,040 |
|
|
| 474 |
|
|
| 496 |
|
|
| 8,502 |
|
Segment Profit (Loss) |
| $ | 25,413 |
|
| $ | 6,800 |
|
| $ | 22,193 |
|
| $ | (227 | ) |
| $ | 54,179 |
|
The reconciliations of segment gross profit (loss) to consolidated income before income taxes are as follows:
|
| For the Six Months Ended |
| |||||
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||
Polyester |
| $ | 17,489 |
|
| $ | 18,921 |
|
Nylon |
|
| 6,390 |
|
|
| 5,760 |
|
International |
|
| 21,972 |
|
|
| 21,719 |
|
All Other |
|
| 117 |
|
|
| (723 | ) |
Segment gross profit |
|
| 45,968 |
|
|
| 45,677 |
|
Selling, general and administrative expenses |
|
| 27,489 |
|
|
| 24,278 |
|
Benefit for bad debts |
|
| (131 | ) |
|
| (462 | ) |
Other operating expense, net |
|
| 663 |
|
|
| 249 |
|
Operating income |
|
| 17,947 |
|
|
| 21,612 |
|
Interest income |
|
| (262 | ) |
|
| (329 | ) |
Interest expense |
|
| 2,375 |
|
|
| 1,606 |
|
Loss on sale of business |
|
| — |
|
|
| 1,662 |
|
Equity in earnings of unconsolidated affiliates |
|
| (3,298 | ) |
|
| (473 | ) |
Income before income taxes |
| $ | 19,132 |
|
| $ | 19,146 |
|
The reconciliations of segment total assets to consolidated total assets are as follows:
|
| December 24, 2017 |
|
| June 25, 2017 |
| ||
Polyester |
| $ | 266,522 |
|
| $ | 270,819 |
|
Nylon |
|
| 60,210 |
|
|
| 57,789 |
|
International |
|
| 95,198 |
|
|
| 80,824 |
|
Segment total assets |
|
| 421,930 |
|
|
| 409,432 |
|
Other current assets |
|
| 33,033 |
|
|
| 27,375 |
|
Other PP&E |
|
| 15,988 |
|
|
| 14,904 |
|
Other non-current assets |
|
| 2,891 |
|
|
| 279 |
|
Investments in unconsolidated affiliates |
|
| 113,623 |
|
|
| 119,513 |
|
Total assets |
| $ | 587,465 |
|
| $ | 571,503 |
|
18
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
20.15. Supplemental Cash Flow Information
Cash payments for interest and taxes consist of the following:
|
| For the Six Months Ended |
| |||||
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||
Interest, net of capitalized interest of $104 and $239, respectively |
| $ | 4,740 |
|
| $ | 2,739 |
|
Income tax payments, net |
|
| 2,606 |
|
|
| 4,064 |
|
|
| For the Six Months Ended |
| |||||
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||
Interest, net of capitalized interest of $85 and $395, respectively |
| $ | 2,130 |
|
| $ | 1,527 |
|
Income taxes, net of refunds |
|
| 5,340 |
|
|
| 5,695 |
|
Cash payments for taxes shown above consist primarily of income and withholding tax payments made by UNIFI in both U.S. and foreign jurisdictions.jurisdictions, net of refunds.
Non-Cash Investing and Financing Activities
As of December 24, 201731, 2023 and June 25, 2017, $2,610July 2, 2023, $621 and $3,234,$1,137, respectively, were included in accounts payable for unpaid capital expenditures. As of December 25, 2016January 1, 2023 and June 26, 2016, $3,700July 3, 2022, $1,594 and $4,197,$2,456, respectively, were included in accounts payable for unpaid capital expenditures.
During the six months ended December 25, 2016,31, 2023 and January 1, 2023, UNIFI recorded $5,139non-cash activity relating to construction in progressfinance leases of $1,633 and long-term debt, in$729, respectively.
In connection with the commencement of the 2022 Credit Agreement in October 2022, $52,500 of borrowings outstanding on the revolving credit facility were transferred to the term loan, such that revolver borrowings were reduced by $52,500 and term loan borrowings were increased by $52,500 with no flow of cash.
11
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
16. Other Financial Data
Select balance sheet information is presented in the following table.
|
| December 31, 2023 |
|
| July 2, 2023 |
| ||
Receivables, net: |
|
|
|
|
|
| ||
Customer receivables |
| $ | 66,537 |
|
| $ | 79,174 |
|
Allowance for uncollectible accounts |
|
| (2,452 | ) |
|
| (1,362 | ) |
Reserves for quality claims |
|
| (709 | ) |
|
| (682 | ) |
Net customer receivables |
|
| 63,376 |
|
|
| 77,130 |
|
Banker's acceptance notes |
|
| 5,446 |
|
|
| 5,870 |
|
Other receivables |
|
| 761 |
|
|
| 725 |
|
Total receivables, net |
| $ | 69,583 |
|
| $ | 83,725 |
|
|
|
|
|
|
|
| ||
Inventories: |
|
|
|
|
|
| ||
Raw materials |
| $ | 58,448 |
|
| $ | 59,983 |
|
Supplies |
|
| 11,871 |
|
|
| 11,787 |
|
Work in process |
|
| 7,077 |
|
|
| 6,633 |
|
Finished goods |
|
| 65,646 |
|
|
| 78,032 |
|
Gross inventories |
|
| 143,042 |
|
|
| 156,435 |
|
Net realizable value adjustment |
|
| (7,366 | ) |
|
| (5,625 | ) |
Total inventories |
| $ | 135,676 |
|
| $ | 150,810 |
|
|
|
|
|
|
|
| ||
Other current assets: |
|
|
|
|
|
| ||
Vendor deposits |
| $ | 4,608 |
|
| $ | 3,863 |
|
Prepaid expenses and other |
|
| 3,826 |
|
|
| 2,584 |
|
Value-added taxes receivable |
|
| 2,893 |
|
|
| 3,398 |
|
Contract assets |
|
| 769 |
|
|
| 549 |
|
Recovery of non-income taxes, net |
|
| 194 |
|
|
| 1,933 |
|
Total other current assets |
| $ | 12,290 |
|
| $ | 12,327 |
|
|
|
|
|
|
|
| ||
Property, plant and equipment, net: |
|
|
|
|
|
| ||
Land |
| $ | 2,512 |
|
| $ | 2,512 |
|
Land improvements |
|
| 16,445 |
|
|
| 16,443 |
|
Buildings and improvements |
|
| 168,231 |
|
|
| 167,589 |
|
Assets under finance leases |
|
| 18,030 |
|
|
| 16,397 |
|
Machinery and equipment |
|
| 659,553 |
|
|
| 656,431 |
|
Computers, software and office equipment |
|
| 25,370 |
|
|
| 26,654 |
|
Transportation equipment |
|
| 10,731 |
|
|
| 10,710 |
|
Construction in progress |
|
| 3,635 |
|
|
| 10,003 |
|
Gross property, plant and equipment |
|
| 904,507 |
|
|
| 906,739 |
|
Less: accumulated depreciation |
|
| (688,687 | ) |
|
| (682,768 | ) |
Less: accumulated amortization – finance leases |
|
| (6,385 | ) |
|
| (5,450 | ) |
Total property, plant and equipment, net |
| $ | 209,435 |
|
| $ | 218,521 |
|
|
|
|
|
|
|
| ||
Other non-current assets: |
|
|
|
|
|
| ||
Recovery of taxes |
| $ | 6,156 |
|
| $ | 5,957 |
|
Investments in unconsolidated affiliates |
|
| 3,101 |
|
|
| 2,997 |
|
Grantor trust |
|
| 2,618 |
|
|
| 2,496 |
|
Intangible assets, net |
|
| 736 |
|
|
| 1,210 |
|
Other |
|
| 2,228 |
|
|
| 1,848 |
|
Total other non-current assets |
| $ | 14,839 |
|
| $ | 14,508 |
|
|
|
|
|
|
|
| ||
Other current liabilities: |
|
|
|
|
|
| ||
Payroll and fringe benefits |
| $ | 4,827 |
|
| $ | 6,981 |
|
Severance (1) |
|
| 2,351 |
|
|
| — |
|
Incentive compensation |
|
| 1,856 |
|
|
| 298 |
|
Dissolution of joint venture |
|
| 1,550 |
|
|
| — |
|
Utilities |
|
| 1,476 |
|
|
| 1,634 |
|
Deferred revenue |
|
| 1,293 |
|
|
| 1,441 |
|
Property taxes, interest and other |
|
| 4,056 |
|
|
| 2,578 |
|
Total other current liabilities |
| $ | 17,409 |
|
| $ | 12,932 |
|
|
|
|
|
|
|
| ||
Other long-term liabilities: |
|
|
|
|
|
| ||
Nonqualified deferred compensation plan obligation |
| $ | 2,675 |
|
| $ | 2,659 |
|
Uncertain tax positions |
|
| 1,032 |
|
|
| 1,973 |
|
Other |
|
| 426 |
|
|
| 468 |
|
Total other long-term liabilities |
| $ | 4,133 |
|
| $ | 5,100 |
|
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of certain significant factors that have affected UNIFI’s operations, along with material changes in financial condition, during the periods included in the accompanying condensed consolidated financial statements. A reference to a “note” in this section refers to the accompanying notes to condensed consolidated financial statements. A reference to the “current period” refers to the three-month period ended December 24, 2017,31, 2023, while a reference to the “prior period” refers to the three-month period ended December 25, 2016.January 1, 2023. A reference to the “current six-month period” refers to the six-month period ended December 24, 2017,31, 2023, while a reference to the “prior six-month period” refers to the six-month period ended December 25, 2016.January 1, 2023. Such references may be accompanied by certain phrases for added clarity. The current period and the prior period each consisted of 13 weeks. The current six-month period and the prior six-month period each consisted of 26 weeks.
Our discussions in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in the 2017 Form 10-K. These discussions focus on our results during, or as of, the three months and six months ended December 24, 201731, 2023 and December 25, 2016,January 1, 2023, and, to the extent applicable, any material changes from the information discussed in the 20172023 Form 10-K or other important intervening developments or information. These discussions should be read in conjunction with the 20172023 Form 10-K for more detailed and background information.information about our business, operations, and financial condition.
AllDiscussion of foreign currency translation is primarily associated with changes in the Brazilian Real (“BRL”) and sharechanges in the Chinese Renminbi (“RMB”) versus the U.S. Dollar (“USD”). Weighted average exchange rates were as follows:
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
| December 31, 2023 |
|
| January 1, 2023 |
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||||
BRL to USD |
| 4.96 |
|
|
| 5.26 |
|
|
| 4.92 |
|
|
| 5.25 |
|
RMB to USD |
| 7.22 |
|
|
| 7.09 |
|
|
| 7.23 |
|
|
| 6.95 |
|
All amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted.
Overview and Significant General Matters
UNIFI remains focusedfocuses on delivering PVA products and solutions to direct customers and brand partners throughout the world, leveraging our internal manufacturing capabilities and an enhanced global supply chain that delivers a diverse range of synthetic and recycled fibers and polymers. This strategic and synergistic focus includes a number of supporting pillars, such as investing in commercial expansion; growing our existing portfolio of technologies and capabilities; engaging in strategic partnerships; and investing in UNIFI’s people and teams. UNIFI remains committed to theseOur strategic initiatives which it believesinclude (i) leveraging our competitive advantages to grow market share in each of the major geographies we serve, (ii) expanding our presence in non-apparel markets with additional REPREVE® products, (iii) advancing the development and commercialization of innovative and sustainable solutions, and (iv) increasing brand awareness for REPREVE®. We have increased our focus on sales opportunities beyond traditional apparel customers and continue to drive innovation throughout our portfolio to further diversify the business and enhance gross profit. We believe our strategic initiatives will increase revenue and profitability and generate improved cash flows from operations.
UNIFI has three reportable segments for its operations – the Polyester Segment, the Nylon SegmentCurrent Economic Environment
The current economic environment and significant decrease in textile product demand adversely impacted our consolidated sales and profitability in fiscal 2023 and the International Segment – as well as certain ancillary operations, which comprise an All Other category. The ancillary operations classified within All Other are insignificant for all periods presented; therefore, UNIFI’s discussion and analysisfirst half of those activities is generally limitedfiscal 2024. In addition to their impact on consolidated results, where appropriate.
Significant highlights for the current periodunfavorable economic environment and the current six-month period includeinventory destocking measures taken by brands and retailers, the following each of which is outlined in more detail below:
Net sales for the current period increased $12,323, or 7.9%, to $167,478, compared to $155,155 for the prior period, and increased $11,433, or 7.4%, when excludingpressures have been present: (i) the impact of foreign currency translation;
Net salesinflation on consumer spending, (ii) rising interest rates for consumers and customers, including the impact on the carrying costs of customer inventories, (iii) the Russia-Ukraine conflict, and (iv) the conflict in the Middle East and the potential impacts to petroleum pricing and geopolitics. UNIFI will continue to monitor these and other aspects of the current six-month period increased $16,596,economic environment and work closely with stakeholders to ensure business continuity and liquidity.
We recognize the disruption to global markets and supply chains caused by (i) Russia’s invasion of Ukraine and (ii) the conflict in the Middle East. While we had a raw material supplier based in Israel for which the recent supply levels have been insignificant, we have not been directly impacted by either conflict. Indirectly, we recognize that additional or 5.3%, to $331,720, compared to $315,124 for the prior six-month period, and increased $14,985, or 4.8%, when excluding the impact of foreign currency translation;
Revenues from PVA products for the current period grew more than 20% comparedprolonged impacts to the prior period,petroleum or other global markets could cause further inflationary pressures to our global raw material costs or unforeseen adverse impacts.
Input Costs and representedGlobal Production Volatility
Despite lowered input and freight costs and a marginally more than 45%stable labor pool during fiscal 2023 and 2024, the global demand volatility and uncertainty that existed in fiscal 2023 continued into fiscal 2024. The threat of recession and global tensions continue to create uncertainty. Such existing challenges and future uncertainty, particularly for rising input costs, labor productivity, and global demand, could worsen and/or continue for prolonged periods, materially impacting our consolidated net sales;
Gross margin was 13.5%sales and gross profit. Also, the need for future selling price adjustments in connection with inflationary costs could impact our ability to retain current customer programs and compete successfully for new programs in certain regions.
Cash Deposits and Financial Institution Risk
During fiscal 2023, certain regional bank crises and failures generated additional uncertainty and volatility in the financial and credit markets. UNIFI currently holds the vast majority of its cash deposits with large foreign banks in our associated operating regions, and management maintains the ability to repatriate cash to the U.S. relatively quickly when presently available. Accordingly, UNIFI has not modified its mix of financial institutions holding cash deposits, but UNIFI will continue to monitor the environment and current period, comparedevents to 14.3% forensure any increase in concentration or credit risk is appropriately and timely addressed. If any of our lending counterparties are unable to perform on their commitments, our liquidity could be impacted. We actively monitor all lending counterparties, and none have indicated that they may be unable to perform on their commitments. In addition, we periodically review our lending counterparties, considering the prior period,stability of the institutions and was 13.9% forother aspects of the current six-month period, comparedrelationships. Based on our monitoring activities, we currently believe our lending counterparties will be able to 14.5% for the prior six-month period;perform their commitments.
13
Operating income was $7,774 for the current period, compared to $9,038 for the prior period, and was $17,947 for the current six-month period, compared to $21,612 for the prior six-month period; and
Diluted EPS was $0.63 for the current period, compared to $0.25 for the prior period, and was $1.12 for the current six-month period, compared to $0.76 for the prior six-month period.
Key Performance Indicators and Non-GAAP Financial Measures
UNIFI continuously reviews performance indicators to measure its success. These performance indicators form the basis of management’s discussion and analysis included below:
sales volume and revenue for UNIFI and for each reportable segment;
gross (loss) profit and gross margin for UNIFI and for each reportable segment;
Net income attributable to Unifi, Inc. (“Net Income”)net loss and diluted EPS;
|
|
unit conversion margin, which represents unit net sales price less unit raw material costs, for UNIFI and for each reportable segment;
working capital, which represents current assets less current liabilities;
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), which represents Net Incomenet loss before net interest expense, income tax expense, and depreciation and amortization expense;
Adjusted EBITDA, which represents EBITDA adjusted to exclude, equity in loss (earnings) of PAL, and, from time to time, certain other adjustments necessary to understand and compare the underlying results of UNIFI;
Adjusted Net Income,Loss, which represents Net Incomenet loss calculated under GAAP, adjusted to exclude the approximate after-tax impact of certain income or expense items (as well as specific impacts to the provision for income taxes) necessary to understand and compare the underlying results of UNIFI. Adjusted Net Income excludes certain amounts which management believes do not reflect the ongoing operations and performance of UNIFI and/or for which exclusion may be necessary to understand and compare the underlying results of UNIFI;
Adjusted EPS, which represents Adjusted Net IncomeLoss divided by UNIFI’s diluted weighted average common shares outstanding; and
Adjusted Working Capital, which representsequals receivables plus inventory,inventories and other current assets, less accounts payable and accrued expenses.
EBITDA, Adjusted EBITDA, Adjusted Net Income,Loss, Adjusted EPS, and Adjusted Working Capital, and Net Debt (collectively, the “non-GAAP financial measures”) are not determined in accordance with GAAP and should not be considered a substitute for performance measures determined in accordance with GAAP. The calculations of the non-GAAP financial measures are subjective, based on management’s belief as to which items should be included or excluded in order to provide the most reasonable and comparable view of the underlying operating performance of the business. We may, from time to time, modify the amounts used to determine our non-GAAP financial measures. When applicable, management’s discussion and analysis includes specific consideration for items that comprise the reconciliations of its non-GAAP financial measures.
We believe that these non-GAAP financial measures better reflect UNIFI’s underlying operations and performance and that their use, as operating performance measures, provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets, among otherwise comparable companies.
Management uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of items (a) items directly related to our asset base (primarily depreciation and amortization) andand/or (b) items that we would not expect to occur as a part of our normal business on a regular basis; (ii) for planning purposes, including the preparation of our annual operating budget; (iii) as a valuation measure for evaluating our operating performance and our capacity to incur and service debt, fund capital expenditures, and expand our business; and (iv) as one measure in determining the value of other acquisitions and dispositions. Adjusted EBITDA is a key performance metric utilized in the determination of variable compensation. We also believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity because it serves as a high-level proxy for cash generated from operations and is relevant to our fixed charge coverage ratio. Equity in loss (earnings) of PAL is excluded from Adjusted EBITDA because such results do not reflect our operating performance.
Management uses Adjusted Net IncomeLoss and Adjusted EPS (i) as measurements of net operating performance because they assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to occur as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not expect to occur as a part of our underlying taxable operations; (ii) for planning purposes, including the preparation of our annual operating budget; and (iii) as measures in determining the value of other acquisitions and dispositions.
Historically, EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted EPS aimed to exclude the impact of the non-controlling interest in Renewables, while the consolidated amounts for such entity were required to be included in UNIFI’s financial amounts reported under GAAP.
Management uses Adjusted Working Capital as an indicator of UNIFI’s production efficiency and ability to manage inventoryinventories and receivables.
Management uses Net Debt as a liquidity and leverage metric to determine how much debt would remain if all cash and cash equivalents were used to pay down debt principal.
14
Review of Results of Operations
Three Months Ended December 31, 2023 Compared to Three Months Ended January 1, 2023
Consolidated Overview
The below tables provide:
following the tables is a discussion and analysis of the significant components of net loss.
Net loss
|
| For the Three Months Ended |
|
|
|
| ||||||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
|
|
| |||||||||||
|
|
|
|
| % of |
|
|
|
|
| % of |
|
| % |
| |||||
Net sales |
| $ | 136,917 |
|
|
| 100.0 |
|
| $ | 136,212 |
|
|
| 100.0 |
|
|
| 0.5 |
|
Cost of sales |
|
| 135,281 |
|
|
| 98.8 |
|
|
| 144,212 |
|
|
| 105.9 |
|
|
| (6.2 | ) |
Gross profit (loss) |
|
| 1,636 |
|
|
| 1.2 |
|
|
| (8,000 | ) |
|
| (5.9 | ) |
|
| (120.5 | ) |
SG&A |
|
| 12,408 |
|
|
| 9.1 |
|
|
| 11,748 |
|
|
| 8.6 |
|
|
| 5.6 |
|
Provision (benefit) for bad debts |
|
| 1,289 |
|
|
| 0.9 |
|
|
| (156 | ) |
|
| (0.1 | ) |
| nm |
| |
Restructuring costs |
|
| 5,101 |
|
|
| 3.7 |
|
|
| — |
|
|
| — |
|
| nm |
| |
Other operating expense, net |
|
| 481 |
|
|
| 0.4 |
|
|
| 226 |
|
|
| 0.2 |
|
|
| 112.8 |
|
Operating loss |
|
| (17,643 | ) |
|
| (12.9 | ) |
|
| (19,818 | ) |
|
| (14.6 | ) |
|
| (11.0 | ) |
Interest expense, net |
|
| 1,916 |
|
|
| 1.4 |
|
|
| 1,375 |
|
|
| 1.0 |
|
|
| 39.3 |
|
Equity in earnings of unconsolidated affiliates |
|
| (93 | ) |
|
| (0.1 | ) |
|
| (86 | ) |
|
| (0.1 | ) |
|
| 8.1 |
|
Loss before income taxes |
|
| (19,466 | ) |
|
| (14.2 | ) |
|
| (21,107 | ) |
|
| (15.5 | ) |
|
| (7.8 | ) |
Provision (benefit) for income taxes |
|
| 380 |
|
|
| 0.3 |
|
|
| (3,070 | ) |
|
| (2.3 | ) |
|
| (112.4 | ) |
Net loss |
| $ | (19,846 | ) |
|
| (14.5 | ) |
| $ | (18,037 | ) |
|
| (13.2 | ) |
|
| 10.0 |
|
nm = not meaningful
EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
The reconciliations of the amounts reported under GAAP for Net Incomeloss to EBITDA and Adjusted EBITDA arewere as follows:
|
| For the Three Months Ended |
| |||||
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||
Net loss |
| $ | (19,846 | ) |
| $ | (18,037 | ) |
Interest expense, net |
|
| 1,916 |
|
|
| 1,375 |
|
Provision (benefit) for income taxes |
|
| 380 |
|
|
| (3,070 | ) |
Depreciation and amortization expense (1) |
|
| 6,922 |
|
|
| 6,693 |
|
EBITDA |
|
| (10,628 | ) |
|
| (13,039 | ) |
|
|
|
|
|
|
| ||
Loss on joint venture dissolution (2) |
|
| 2,750 |
|
|
| — |
|
Severance (3) |
|
| 2,351 |
|
|
| — |
|
Adjusted EBITDA |
| $ | (5,527 | ) |
| $ | (13,039 | ) |
|
| For the Three Months Ended |
|
| For the Six Months Ended |
| ||||||||||
| December 24, 2017 |
|
| December 25, 2016 |
|
| December 24, 2017 |
|
| December 25, 2016 |
| |||||
Net income attributable to Unifi, Inc. |
| $ | 11,802 |
|
| $ | 4,591 |
|
| $ | 20,762 |
|
| $ | 13,994 |
|
Interest expense, net |
|
| 1,009 |
|
|
| 716 |
|
|
| 2,113 |
|
|
| 1,246 |
|
(Benefit) provision for income taxes |
|
| (4,826 | ) |
|
| 1,924 |
|
|
| (1,630 | ) |
|
| 5,650 |
|
Depreciation and amortization expense |
|
| 5,532 |
|
|
| 4,830 |
|
|
| 10,949 |
|
|
| 9,396 |
|
EBITDA |
|
| 13,517 |
|
|
| 12,061 |
|
|
| 32,194 |
|
|
| 30,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in loss (earnings) of PAL |
|
| 376 |
|
|
| 745 |
|
|
| (2,478 | ) |
|
| 431 |
|
EBITDA excluding PAL |
|
| 13,893 |
|
|
| 12,806 |
|
|
| 29,716 |
|
|
| 30,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of business (1) |
|
| — |
|
|
| 1,662 |
|
|
| — |
|
|
| 1,662 |
|
Adjusted EBITDA |
| $ | 13,893 |
|
| $ | 14,468 |
|
| $ | 29,716 |
|
| $ | 32,379 |
|
|
|
Amounts presentedWithin this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are reflected in the reconciliations above may not be consistent with amounts included ininterest expense, net. Within the accompanying condensed consolidated financial statements. Any such inconsistencies are insignificantstatements of cash flows, amortization of debt issuance costs is reflected in depreciation and are integralamortization expense.
Adjusted Net IncomeLoss and Adjusted EPS (Non-GAAP Financial Measures)
|
| For the Three Months Ended December 31, 2023 |
|
| For the Three Months Ended January 1, 2023 |
| ||||||||||||||||||||||||||
|
| Pre-tax Loss |
|
| Tax Impact |
|
| Net Loss |
|
| Diluted EPS |
|
| Pre-tax Loss |
|
| Tax Impact |
|
| Net Loss |
|
| Diluted EPS |
| ||||||||
GAAP results |
| $ | (19,466 | ) |
| $ | (380 | ) |
| $ | (19,846 | ) |
| $ | (1.10 | ) |
| $ | (21,107 | ) |
| $ | 3,070 |
|
| $ | (18,037 | ) |
| $ | (1.00 | ) |
Loss on joint venture dissolution (1) |
|
| 2,750 |
|
|
| — |
|
|
| 2,750 |
|
|
| 0.15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Severance (2) |
|
| 2,351 |
|
|
| — |
|
|
| 2,351 |
|
|
| 0.14 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Recovery of income taxes (3) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,799 | ) |
|
| (3,799 | ) |
|
| (0.21 | ) |
Adjusted results |
| $ | (14,365 | ) |
| $ | (380 | ) |
| $ | (14,745 | ) |
| $ | (0.81 | ) |
| $ | (21,107 | ) |
| $ | (729 | ) |
| $ | (21,836 | ) |
| $ | (1.21 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Weighted average common shares outstanding |
|
|
| 18,110 |
|
|
|
|
|
|
|
|
|
|
|
| 18,034 |
|
15
Net Sales
Consolidated net sales for the current period increased by $705, or 0.5%, and consolidated sales volumes increased 13.0%, compared to the prior period. The tablesincrease was primarily due to improvements in volumes in all segments, however sales levels remain below set forth reconciliationshistorical averages, primarily due to lower global demand in connection with the weakness in apparel sector and inventory destocking efforts of major brands and retailers, especially those impacting the Americas and Asia Segments.
Consolidated weighted average sales prices decreased 13.5%, primarily attributable to lower selling prices in response to lower input costs, along with (a) competitive pricing pressures in Brazil and (b) a greater mix of Chip product sales in the Americas Segment.
REPREVE® Fiber products for the current period comprised 33%, or $45,725, of consolidated net sales, compared to 31%, or $42,866, for the prior period.
Gross Profit (Loss)
Gross profit for the current period improved by $9,636, or 120.5%, compared to the prior period. Gross profit improved as a result of (i) increased sales volumes, (ii) cost saving initiatives, and (iii) more stable raw material costs. However, gross profit continues to be negatively impacted by weak fixed cost absorption in the Americas Segment, where utilization and productivity remain below historical averages due to depressed demand.
SG&A
SG&A for the current period increased compared to the prior period, primarily due to (i) higher compensation expenses prior to the cost reduction actions executed in the current period.
Provision (Benefit) for Bad Debts
The current period's provision reflects an increase for a specifically identified customer balance originating in the U.S. fiber market.
Restructuring Costs
Restructuring costs consisted of (i) a loss of $2,750 for the dissolution of UNF and (ii) severance charges of $2,351 in connection with overall cost reduction efforts in the U.S.
Other Operating Expense, Net
The current period and prior period include foreign currency transaction losses (gains) of $464 and ($78), respectively, with no other meaningful activity.
Interest Expense, Net
Interest expense, net increased in connection with higher debt principal and higher interest rates.
Equity in Earnings of Unconsolidated Affiliates
There was no material activity for the current period or the prior period.
Income Taxes
Provision (benefit) for income taxes and the effective tax rate were as follows:
|
| For the Three Months Ended |
| |||||
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||
Provision (benefit) for income taxes |
| $ | 380 |
|
| $ | (3,070 | ) |
Effective tax rate |
|
| (2.0 | )% |
|
| 14.5 | % |
16
The effective tax rate is subject to variation due to a number of factors, including: variability in pre-tax book income; the mix of income by jurisdiction; changes in deferred tax valuation allowances; and changes in statutes, regulations, and case law. Additionally, the impacts of discrete and other rate impacting items are more pronounced when income (loss) before income taxes (“Pre-tax Income”), Provision foris lower.
The decrease in the effective tax rate from the prior period to the current period is primarily attributable to a discrete tax benefit related to the recovery of certain Brazilian income taxes (“Tax Impact”)in the prior period.
Net Loss
The increase in net loss was primarily attributable to restructuring costs, higher bad debt expense, higher interest expense, net, and Net Income to higher income tax expense, partially offset by improved gross profit.
Adjusted Net Income and (ii) Diluted EPS to Adjusted EPS:
|
| For the Three Months Ended December 24, 2017 |
|
| For the Three Months Ended December 25, 2016 |
| ||||||||||||||||||||||||||
|
| Pre-tax Income |
|
| Tax Impact |
|
| Net Income |
|
| Diluted EPS |
|
| Pre-tax Income |
|
| Tax Impact |
|
| Net Income |
|
| Diluted EPS |
| ||||||||
GAAP results |
| $ | 6,976 |
|
| $ | 4,826 |
|
| $ | 11,802 |
|
| $ | 0.63 |
|
| $ | 6,278 |
|
| $ | (1,924 | ) |
| $ | 4,591 |
|
| $ | 0.25 |
|
Certain tax valuation allowance reversal (1) |
|
| — |
|
|
| (3,807 | ) |
|
| (3,807 | ) |
|
| (0.20 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Loss on sale of business (2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,662 |
|
|
| — |
|
|
| 1,662 |
|
|
| 0.09 |
|
Adjusted results |
| $ | 6,976 |
|
| $ | 1,019 |
|
| $ | 7,995 |
|
| $ | 0.43 |
|
| $ | 7,940 |
|
| $ | (1,924 | ) |
| $ | 6,253 |
|
| $ | 0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
|
|
|
|
|
| 18,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 18,442 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| For the Six Months Ended December 24, 2017 |
|
| For the Six Months Ended December 25, 2016 |
| ||||||||||||||||||||||||||
|
| Pre-tax Income |
|
| Tax Impact |
|
| Net Income |
|
| Diluted EPS |
|
| Pre-tax Income |
|
| Tax Impact |
|
| Net Income |
|
| Diluted EPS |
| ||||||||
GAAP results |
| $ | 19,132 |
|
| $ | 1,630 |
|
| $ | 20,762 |
|
| $ | 1.12 |
|
| $ | 19,146 |
|
| $ | (5,650 | ) |
| $ | 13,994 |
|
| $ | 0.76 |
|
Certain tax valuation allowance reversal (1) |
|
| — |
|
|
| (3,807 | ) |
|
| (3,807 | ) |
|
| (0.21 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Loss on sale of business (2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,662 |
|
|
| — |
|
|
| 1,662 |
|
|
| 0.09 |
|
Adjusted results |
| $ | 19,132 |
|
| $ | (2,177 | ) |
| $ | 16,955 |
|
| $ | 0.91 |
|
| $ | 20,808 |
|
| $ | (5,650 | ) |
| $ | 15,656 |
|
| $ | 0.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
|
|
|
|
|
| 18,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 18,391 |
|
|
|
Working CapitalEBITDA and Adjusted Working CapitalEPS (Non-GAAP Financial Measures)
Adjusted EBITDA and Adjusted EPS increased primarily due to improved gross profit, partially offset by higher bad debt and SG&A expenses.
SeeSegment Overview
Following is a discussion and analysis of the discussion underrevenue and profitability performance of UNIFI’s reportable segments for the heading “Working Capital” within “Liquidity and Capital Resources” below.current period.
Americas Segment
Results of Operations
Three Months Ended December 24, 2017 Compared to Three Months Ended December 25, 2016
Consolidated Overview
The components of Net Income,Segment Loss, each component as a percentage of net sales and the percentage increase or decrease over the prior period amounts arefor the Americas Segment, were as follows:
|
| For the Three Months Ended |
|
|
|
| ||||||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
|
|
| |||||||||||
|
|
|
|
| % of |
|
|
|
|
| % of |
|
| % |
| |||||
Net sales |
| $ | 80,549 |
|
|
| 100.0 |
|
| $ | 85,242 |
|
|
| 100.0 |
|
|
| (5.5 | ) |
Cost of sales |
|
| 87,287 |
|
|
| 108.4 |
|
|
| 98,326 |
|
|
| 115.3 |
|
|
| (11.2 | ) |
Gross loss |
|
| (6,738 | ) |
|
| (8.4 | ) |
|
| (13,084 | ) |
|
| (15.3 | ) |
|
| (48.5 | ) |
Depreciation expense |
|
| 5,508 |
|
|
| 6.9 |
|
|
| 5,542 |
|
|
| 6.5 |
|
|
| (0.6 | ) |
Segment Loss |
| $ | (1,230 | ) |
|
| (1.5 | ) |
| $ | (7,542 | ) |
|
| (8.8 | ) |
|
| (83.7 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Segment net sales as a percentage of |
|
| 58.8 | % |
|
|
|
|
| 62.6 | % |
|
|
|
|
|
| |||
Segment Loss as a percentage of |
|
| (15.5 | )% |
|
|
|
| nm |
|
|
|
|
|
|
|
|
| For the Three Months Ended |
|
|
|
|
| |||||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
|
|
|
| ||||||||||
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
| |||
Net sales |
| $ | 167,478 |
|
|
| 100.0 |
|
| $ | 155,155 |
|
|
| 100.0 |
|
|
| 7.9 |
|
Cost of sales |
|
| 144,802 |
|
|
| 86.5 |
|
|
| 133,025 |
|
|
| 85.7 |
|
|
| 8.9 |
|
Gross profit |
|
| 22,676 |
|
|
| 13.5 |
|
|
| 22,130 |
|
|
| 14.3 |
|
|
| 2.5 |
|
Selling, general and administrative expenses |
|
| 14,626 |
|
|
| 8.7 |
|
|
| 12,868 |
|
|
| 8.3 |
|
|
| 13.7 |
|
Benefit for bad debts |
|
| (72 | ) |
|
| — |
|
|
| (95 | ) |
|
| (0.1 | ) |
|
| (24.2 | ) |
Other operating expense, net |
|
| 348 |
|
|
| 0.2 |
|
|
| 319 |
|
|
| 0.2 |
|
|
| 9.1 |
|
Operating income |
|
| 7,774 |
|
|
| 4.6 |
|
|
| 9,038 |
|
|
| 5.9 |
|
|
| (14.0 | ) |
Interest expense, net |
|
| 1,009 |
|
|
| 0.6 |
|
|
| 731 |
|
|
| 0.5 |
|
|
| 38.0 |
|
Loss on sale of business |
|
| — |
|
|
| — |
|
|
| 1,662 |
|
|
| 1.1 |
|
| nm |
| |
Equity in (earnings) loss of unconsolidated affiliates |
|
| (211 | ) |
|
| (0.1 | ) |
|
| 367 |
|
|
| 0.2 |
|
|
| (157.5 | ) |
Income before income taxes |
|
| 6,976 |
|
|
| 4.1 |
|
|
| 6,278 |
|
|
| 4.1 |
|
|
| 11.1 |
|
(Benefit) provision for income taxes |
|
| (4,826 | ) |
|
| (2.9 | ) |
|
| 1,924 |
|
|
| 1.2 |
|
|
| (350.8 | ) |
Net income including non-controlling interest |
|
| 11,802 |
|
|
| 7.0 |
|
|
| 4,354 |
|
|
| 2.9 |
|
|
| 171.1 |
|
Less: net loss attributable to non-controlling interest |
|
| — |
|
|
| — |
|
|
| (237 | ) |
|
| (0.1 | ) |
|
| (100.0 | ) |
Net income attributable to Unifi, Inc. |
| $ | 11,802 |
|
|
| 7.0 |
|
| $ | 4,591 |
|
|
| 3.0 |
|
|
| 157.1 |
|
nm – Not meaningful
Consolidated Net Sales
ConsolidatedThe change in net sales for the current period increased by $12,323, or 7.9%,Americas Segment was as compared to the prior period.follows:
Net sales for the prior period |
| $ | 85,242 |
|
Net change in average selling price and sales mix |
|
| (12,152 | ) |
Increase in sales volumes |
|
| 7,459 |
|
Net sales for the current period |
| $ | 80,549 |
|
Consolidated sales volumes increased 14.5%, attributable to continued growth in sales of recycled polyester Chip and plastic bottle flake in the Polyester Segment and sales of staple fiber and other PVA products in the International Segment. Sales continue to expand in the International Segment as our PVA portfolio resonates with numerous customers. The increasechange in sales volumes in our Polyester and International Segments was partially offset by soft yarn sales in the Nylon Segment. We believe the softness in the domestic environment continues to be a challenge for the textile supply chain, while our nylon business results also reflect the current global trend of declines in demand for nylon socks, ladies’ hosiery and intimate apparel.
Consolidated average sales prices decreased 6.3%, attributable to disproportionate growth of lower-priced recycled polyester Chip, plastic bottle flake and staple fiber among the Polyester and International Segments, as well as a lower proportion of nylon products that carry higher selling prices. The decrease in consolidated average sales prices was partially offset by a net favorable foreign currency translation compared to the prior period of approximately $900, primarily associated with the strengthening of the Chinese Renminbi (“RMB”) and the Brazilian Real (“BRL”). PVA products comprised more than 45% of net sales for the currentAmericas Segment from the prior period while representing approximately 40% of net sales for fiscal 2017.
Gross profit forto the current period increased by $546, or 2.5%, as comparedwas primarily attributable to (i) the prior period. For the International Segment,net change in average selling price and sales mix that reflects both (a) lower input costs and (b) a larger proportion of lower-priced Chip sales in the current period gross margin rateand (ii) lower proportion of fiber sales volumes following continued weak global textile demand.
The change in Segment Loss for the Americas Segment was impacted by disproportionate growthas follows:
Segment Loss for the prior period |
| $ | (7,542 | ) |
Net increase in underlying margins |
|
| 6,972 |
|
Change in sales volumes |
|
| (660 | ) |
Segment Loss for the current period |
| $ | (1,230 | ) |
The improvement in lower-margin sales mix and pressure brought by higher costs comparedSegment Loss for the Americas Segment from the prior period to the prior period. For the Polyester Segment, the decline in gross margin ratecurrent period was primarily dueattributable to a rise invariable cost management efforts and more stable raw material costs a greater mix of lower margin product sales and incremental depreciation, primarily due to expanded recycling operations, partially offset by the conversion services performed for Eastman Chemical Company (“Eastman”) on bi-component machinery, a revenue stream that did not exist in the prior period. The Nylon Segment achieved an increase in gross margin rate due in part to a more favorable sales mix and cost management. Consolidated gross profit for the current period, also included approximately $200along with volume improvements. Segment Loss for the Americas Segment continued to be negatively impacted by weak fixed cost absorption as fiber production remains below historical averages. As fiber products carry a higher selling price and allocation of favorable foreign currency translation reflected in the International Segment.
Further details regarding the changes in net salesproduction costs versus Flake and Chip, lower fiber production drives weaker fixed cost absorption and adversely impacts gross profit and gross profit, by reportable segment, follow.margin.
Polyester17
Brazil Segment
The components of Segment Profit, each component as a percentage of net sales and the percentage increase or decrease over the prior period amounts for the PolyesterBrazil Segment, arewere as follows:
|
| For the Three Months Ended |
|
|
|
| ||||||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
|
|
| |||||||||||
|
|
|
|
| % of |
|
|
|
|
| % of |
|
| % |
| |||||
Net sales |
| $ | 26,061 |
|
|
| 100.0 |
|
| $ | 25,687 |
|
|
| 100.0 |
|
|
| 1.5 |
|
Cost of sales |
|
| 22,922 |
|
|
| 87.9 |
|
|
| 24,357 |
|
|
| 94.8 |
|
|
| (5.9 | ) |
Gross profit |
|
| 3,139 |
|
|
| 12.1 |
|
|
| 1,330 |
|
|
| 5.2 |
|
|
| 136.0 |
|
Depreciation expense |
|
| 766 |
|
|
| 2.9 |
|
|
| 391 |
|
|
| 1.5 |
|
|
| 95.9 |
|
Segment Profit |
| $ | 3,905 |
|
|
| 15.0 |
|
| $ | 1,721 |
|
|
| 6.7 |
|
|
| 126.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Segment net sales as a percentage of |
|
| 19.0 | % |
|
|
|
|
| 18.9 | % |
|
|
|
|
|
| |||
Segment Profit as a percentage of |
|
| 49.4 | % |
|
|
|
|
| (83.3 | )% |
|
|
|
|
|
|
|
| For the Three Months Ended |
|
|
|
|
| |||||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
|
|
|
| ||||||||||
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
| |||
Net sales |
| $ | 90,316 |
|
|
| 100.0 |
|
| $ | 86,671 |
|
|
| 100.0 |
|
|
| 4.2 |
|
Cost of sales |
|
| 81,740 |
|
|
| 90.5 |
|
|
| 76,200 |
|
|
| 87.9 |
|
|
| 7.3 |
|
Gross profit |
|
| 8,576 |
|
|
| 9.5 |
|
|
| 10,471 |
|
|
| 12.1 |
|
|
| (18.1 | ) |
Depreciation expense |
|
| 3,973 |
|
|
| 4.4 |
|
|
| 3,384 |
|
|
| 3.9 |
|
|
| 17.4 |
|
Segment Profit |
| $ | 12,549 |
|
|
| 13.9 |
|
| $ | 13,855 |
|
|
| 16.0 |
|
|
| (9.4 | ) |
The change in net sales for the PolyesterBrazil Segment iswas as follows:
Net sales for the prior period |
| $ | 25,687 |
|
Increase in sales volumes |
|
| 3,782 |
|
Favorable foreign currency translation effects |
|
| 1,522 |
|
Decrease in average selling price |
|
| (4,930 | ) |
Net sales for the current period |
| $ | 26,061 |
|
Net sales for the prior period |
| $ | 86,671 |
|
Increase in sales volumes |
|
| 6,192 |
|
Net change in average selling price and sales mix |
|
| (2,547 | ) |
Net sales for the current period |
| $ | 90,316 |
|
The increase in net sales for the PolyesterBrazil Segment from the prior period to the current period was primarily attributable to (i) higher sales of plastic bottle flake, recycled polyester Chip and POYvolumes and (ii) the conversion services performed for Eastman on bi-component machinery. The unfavorable change in salesfavorable foreign currency translation effects, partially offset by selling price and mix was due to (a) lower sales volumes of higher-priced textured and dyed yarns and (b) higher sales volumes of lower-priced plastic bottle flake, recycled polyester Chip and POY.pressures from low-priced imports.
The change in Segment Profit for the PolyesterBrazil Segment iswas as follows:
Segment Profit for the prior period |
| $ | 1,721 |
|
Increase in underlying unit margins |
|
| 1,848 |
|
Increase in sales volumes |
|
| 251 |
|
Favorable foreign currency translation effects |
|
| 85 |
|
Segment Profit for the current period |
| $ | 3,905 |
|
Segment Profit for the prior period |
| $ | 13,855 |
|
Net decrease in underlying margins |
|
| (2,296 | ) |
Increase in sales volumes |
|
| 990 |
|
Segment Profit for the current period |
| $ | 12,549 |
|
The decreaseincrease in Segment Profit for the PolyesterBrazil Segment from the prior period to the current period was primarily attributable to the unfavorablean overall increase in underlying unit margins and improved sales mix shift towards lower-margin products discussed above in the net sales analysis, along with raw material cost pressures,volumes, partially offset by the benefit of the conversion services performed for Eastmanpressure on bi-component machineryselling prices from low-priced import competition. We continue to prioritize innovation and an increasedifferentiation to improve our portfolio and competitive position in sales volumes.Brazil.
PolyesterAsia Segment net sales and Segment Profit, as a percentage of total consolidated amounts, were 53.9% and 45.4%, respectively, for the current period, compared to 55.9% and 52.3%, respectively, for the prior period.
The components of Segment Profit, each component as a percentage of net sales and the percentage increase or decrease over the prior period amounts for the NylonAsia Segment, arewere as follows:
|
| For the Three Months Ended |
|
|
|
| ||||||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
|
|
| |||||||||||
|
|
|
|
| % of |
|
|
|
|
| % of |
|
| % |
| |||||
Net sales |
| $ | 30,307 |
|
|
| 100.0 |
|
| $ | 25,283 |
|
|
| 100.0 |
|
|
| 19.9 |
|
Cost of sales |
|
| 25,072 |
|
|
| 82.7 |
|
|
| 21,529 |
|
|
| 85.2 |
|
|
| 16.5 |
|
Gross profit |
|
| 5,235 |
|
|
| 17.3 |
|
|
| 3,754 |
|
|
| 14.8 |
|
|
| 39.5 |
|
Depreciation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Segment Profit |
| $ | 5,235 |
|
|
| 17.3 |
|
| $ | 3,754 |
|
|
| 14.8 |
|
|
| 39.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Segment net sales as a percentage of |
|
| 22.1 | % |
|
|
|
|
| 18.6 | % |
|
|
|
|
|
| |||
Segment Profit as a percentage of |
|
| 66.2 | % |
|
|
|
|
| (181.6 | )% |
|
|
|
|
|
|
|
| For the Three Months Ended |
|
|
|
|
| |||||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
|
|
|
| ||||||||||
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
| |||
Net sales |
| $ | 25,103 |
|
|
| 100.0 |
|
| $ | 28,302 |
|
|
| 100.0 |
|
|
| (11.3 | ) |
Cost of sales |
|
| 22,027 |
|
|
| 87.7 |
|
|
| 25,679 |
|
|
| 90.7 |
|
|
| (14.2 | ) |
Gross profit |
|
| 3,076 |
|
|
| 12.3 |
|
|
| 2,623 |
|
|
| 9.3 |
|
|
| 17.3 |
|
Depreciation expense |
|
| 552 |
|
|
| 2.2 |
|
|
| 530 |
|
|
| 1.8 |
|
|
| 4.2 |
|
Segment Profit |
| $ | 3,628 |
|
|
| 14.5 |
|
| $ | 3,153 |
|
|
| 11.1 |
|
|
| 15.1 |
|
The change in net sales for the NylonAsia Segment iswas as follows:
Net sales for the prior period |
| $ | 25,283 |
|
Net increase in sales volumes |
|
| 4,811 |
|
Change in average selling price and sales mix |
|
| 592 |
|
Unfavorable foreign currency translation effects |
|
| (379 | ) |
Net sales for the current period |
| $ | 30,307 |
|
18
Net sales for the prior period |
| $ | 28,302 |
|
Decrease in sales volumes |
|
| (1,993 | ) |
Net change in average selling price and sales mix |
|
| (1,206 | ) |
Net sales for the current period |
| $ | 25,103 |
|
The decreaseincrease in net sales for the NylonAsia Segment from the prior period to the current period was primarily attributable to (i) lowerincrease in sales volumes as a result of soft domestic market conditions in which nylon socks, ladies’ hosiery and intimates have experiencedvolume compared to the prior period despite continued weak global demand declinesduring the current period and (ii) a lower-pricedimproved sales mix.mix compared to the prior period, partially offset by unfavorable foreign currency translation effects due to the weakening of the RMB versus the USD.
The change in Segment Profit for the NylonAsia Segment iswas as follows:
Segment Profit for the prior period |
| $ | 3,754 |
|
Change in underlying margins and sales mix |
|
| 836 |
|
Increase in sales volumes |
|
| 712 |
|
Unfavorable foreign currency translation effects |
|
| (67 | ) |
Segment Profit for the current period |
| $ | 5,235 |
|
Segment Profit for the prior period |
| $ | 3,153 |
|
Net improvement in underlying margins |
|
| 697 |
|
Decrease in sales volumes |
|
| (222 | ) |
Segment Profit for the current period |
| $ | 3,628 |
|
The increase in Segment Profit for the NylonAsia Segment was attributablefrom the prior period to a more profitable sales mix and cost management.
Nylon Segment net sales and Segment Profit, as a percentage of total consolidated amounts, were 15.0% and 13.1%, respectively, for the current period comparedis attributable to 18.2%(i) an improved gross margin rate associated with a strong sales mix of REPREVE products and 11.9%, respectively, for(ii) the prior period.increase in sales volumes discussed above.
International SegmentSix Months Ended December 31, 2023 Compared to Six Months Ended January 1, 2023
Consolidated Overview
The below tables provide:
following the tables is a discussion and analysis of the significant components of net loss.
Net loss
|
| For the Six Months Ended |
|
|
|
| ||||||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
|
|
| |||||||||||
|
|
|
|
| % of |
|
|
|
|
| % of |
|
| % |
| |||||
Net sales |
| $ | 275,761 |
|
|
| 100.0 |
|
| $ | 315,731 |
|
|
| 100.0 |
|
|
| (12.7 | ) |
Cost of sales |
|
| 274,700 |
|
|
| 99.6 |
|
|
| 317,168 |
|
|
| 100.5 |
|
|
| (13.4 | ) |
Gross profit (loss) |
|
| 1,061 |
|
|
| 0.4 |
|
|
| (1,437 | ) |
|
| (0.5 | ) |
|
| (173.8 | ) |
SG&A |
|
| 24,017 |
|
|
| 8.7 |
|
|
| 23,521 |
|
|
| 7.4 |
|
|
| 2.1 |
|
Provision for bad debts |
|
| 1,080 |
|
|
| 0.4 |
|
|
| 18 |
|
|
| — |
|
| nm |
| |
Restructuring costs |
|
| 5,101 |
|
|
| 1.8 |
|
|
| — |
|
|
| — |
|
| nm |
| |
Other operating expense (income), net |
|
| 535 |
|
|
| 0.2 |
|
|
| (463 | ) |
|
| (0.1 | ) |
| nm |
| |
Operating loss |
|
| (29,672 | ) |
|
| (10.7 | ) |
|
| (24,513 | ) |
|
| (7.8 | ) |
|
| 21.0 |
|
Interest expense, net |
|
| 3,820 |
|
|
| 1.4 |
|
|
| 2,075 |
|
|
| 0.6 |
|
|
| 84.1 |
|
Equity in earnings of unconsolidated affiliates |
|
| (293 | ) |
|
| (0.1 | ) |
|
| (381 | ) |
|
| (0.1 | ) |
|
| (23.1 | ) |
Loss before income taxes |
|
| (33,199 | ) |
|
| (12.0 | ) |
|
| (26,207 | ) |
|
| (8.3 | ) |
|
| 26.7 |
|
Benefit for income taxes |
|
| (83 | ) |
|
| — |
|
|
| (336 | ) |
|
| (0.1 | ) |
|
| (75.3 | ) |
Net loss |
| $ | (33,116 | ) |
|
| (12.0 | ) |
| $ | (25,871 | ) |
|
| (8.2 | ) |
|
| 28.0 |
|
nm = not meaningful
EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
The reconciliations of the amounts reported under GAAP for the International Segment areNet loss to EBITDA and Adjusted EBITDA were as follows:
|
| For the Six Months Ended |
| |||||
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||
Net loss |
| $ | (33,116 | ) |
| $ | (25,871 | ) |
Interest expense, net |
|
| 3,820 |
|
|
| 2,075 |
|
Benefit for income taxes |
|
| (83 | ) |
|
| (336 | ) |
Depreciation and amortization expense (1) |
|
| 13,910 |
|
|
| 13,390 |
|
EBITDA |
|
| (15,469 | ) |
|
| (10,742 | ) |
|
|
|
|
|
|
| ||
Loss on joint venture dissolution (2) |
|
| 2,750 |
|
|
| — |
|
Severance (3) |
|
| 2,351 |
|
|
| — |
|
Adjusted EBITDA |
| $ | (10,368 | ) |
| $ | (10,742 | ) |
19
Adjusted Net Loss and Adjusted EPS (Non-GAAP Financial Measures)
|
| For the Six Months Ended December 31, 2023 |
|
| For the Six Months Ended January 1, 2023 |
| ||||||||||||||||||||||||||
|
| Pre-tax Loss |
|
| Tax Impact |
|
| Net Loss |
|
| Diluted EPS |
|
| Pre-tax Loss |
|
| Tax Impact |
|
| Net Loss |
|
| Diluted EPS |
| ||||||||
GAAP results |
| $ | (33,199 | ) |
| $ | 83 |
|
| $ | (33,116 | ) |
| $ | (1.83 | ) |
| $ | (26,207 | ) |
| $ | 336 |
|
| $ | (25,871 | ) |
| $ | (1.44 | ) |
Loss on joint venture dissolution (1) |
|
| 2,750 |
|
|
| — |
|
|
| 2,750 |
|
|
| 0.15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Severance (2) |
|
| 2,351 |
|
|
| — |
|
|
| 2,351 |
|
|
| 0.13 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Recovery of income taxes (3) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,799 | ) |
|
| (3,799 | ) |
|
| (0.21 | ) |
Adjusted results |
| $ | (28,098 | ) |
| $ | 83 |
|
| $ | (28,015 | ) |
| $ | (1.55 | ) |
| $ | (26,207 | ) |
| $ | (3,463 | ) |
| $ | (29,670 | ) |
| $ | (1.65 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Weighted average common shares outstanding |
|
|
| 18,097 |
|
|
|
|
|
|
|
|
|
|
|
| 18,017 |
|
|
| For the Three Months Ended |
|
|
|
|
| |||||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
|
|
|
| ||||||||||
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
| |||
Net sales |
| $ | 51,046 |
|
|
| 100.0 |
|
| $ | 38,868 |
|
|
| 100.0 |
|
|
| 31.3 |
|
Cost of sales |
|
| 40,072 |
|
|
| 78.5 |
|
|
| 29,419 |
|
|
| 75.7 |
|
|
| 36.2 |
|
Gross profit |
|
| 10,974 |
|
|
| 21.5 |
|
|
| 9,449 |
|
|
| 24.3 |
|
|
| 16.1 |
|
Depreciation expense |
|
| 397 |
|
|
| 0.8 |
|
|
| 228 |
|
|
| 0.6 |
|
|
| 74.1 |
|
Segment Profit |
| $ | 11,371 |
|
|
| 22.3 |
|
| $ | 9,677 |
|
|
| 24.9 |
|
|
| 17.5 |
|
Consolidated net sales for the International Segment iscurrent six-month period decreased by $39,970, or 12.7%, while consolidated sales volumes increased 3.1%, compared to the prior six-month period. Despite modest sales volume improvements in each of the reportable segments, volumes remain depressed, particularly in the Americas and Asia Segments as follows:a result of low global demand in connection with the apparel market.
Net sales for the prior period |
| $ | 38,868 |
|
Increase in sales volumes |
|
| 11,985 |
|
Favorable foreign currency translation effects (RMB and BRL) |
|
| 882 |
|
Net change in average selling price and sales mix |
|
| (689 | ) |
Net sales for the current period |
| $ | 51,046 |
|
The increaseConsolidated weighted average sales prices decreased 15.8% which drove the decrease in net sales. The decrease in sales for the International Segmentprice was primarily attributable to (i) higher sales volumes from our Asian subsidiaries, primarily relatinglower selling prices in response to our recycled polyester Chiplower input costs, along with (a) competitive pricing pressures in Brazil and staple fiber products, with strong demand for REPREVE®, (ii) higher sales volumes at our Brazilian subsidiary due to increased demand for synthetic yarns, including air-covered PVA products for use in applications such as stretch denim, and (iii) favorable foreign currency translation due to the strengthening of the RMB and the BRL. These benefits were partially offset by a decrease in the average selling price in Asia due to(b) a greater mix of lower-pricedChip and Flake product sales.sales in the Americas Segment.
The RMB weighted average exchange rate was 6.61 RMB/U.S. Dollar (“USD”) and 6.84 RMB/USDREPREVE® Fiber products for the current six-month period andcomprised 32%, or $88,186, of consolidated net sales, compared to 29%, or $92,045, for the prior period, respectively. The BRL weighted average exchange rate was 3.24 BRL/USD and 3.29 BRL/USDsix-month period.
Gross Profit (Loss)
Gross profit for the current six-month period and the prior period, respectively.
The change in Segment Profit for the International Segment is as follows:
Segment Profit for the prior period |
| $ | 9,677 |
|
Increase in sales volumes |
|
| 2,985 |
|
Favorable foreign currency translation effects (RMB and BRL) |
|
| 221 |
|
Decrease in underlying margins |
|
| (1,512 | ) |
Segment Profit for the current period |
| $ | 11,371 |
|
The increase in Segment Profit for the International Segment was attributable to (i) improved sales volumes and (ii) favorable foreign currency translation effects due to the strengthening of the RMB and the BRL versus the USD, partially offset by a greater mix of lower-priced product sales in Asia.
International Segment net sales and Segment Profit, as a percentage of total consolidated amounts, were 30.5% and 41.1%$2,498, or 173.8%, respectively, for the current period, compared to 25.1% and 36.5%, respectively, for the prior period.
Consolidated Selling, General and Administrative Expenses
The change in selling, general and administrative (“SG&A”) expenses is as follows:
SG&A expenses for the prior period |
| $ | 12,868 |
|
Increase in compensation expenses |
|
| 1,895 |
|
Increase in supplemental retirement plan expenses |
|
| 141 |
|
Other net decreases |
|
| (278 | ) |
SG&A expenses for the current period |
| $ | 14,626 |
|
Total SG&A expenses were higher for the current period compared to the prior period, primarilysix-month period. Gross profit improved as a result of (i) an increasevariable cost management efforts and more stable raw material costs, along with increased sales volume. Gross profit was negatively impacted by weak fixed cost absorption in compensation expensesthe Americas Segment, where utilization and productivity are materially impactful to gross profit. Although raw material costs for the Americas Segment were stable in fiscal 2024, low production levels and weak demand were significantly adverse.
Consolidated Benefit for Bad Debts
There is no significant activity reflecteddecreasing market prices in Brazil due to low-cost import competition.
Consolidated Other Operating Expense, Net
The change in other operating expense, net is primarily attributable to foreign currency losses in the current period, mostly resulting from changes in the value of USDs held by our subsidiary in China, while the prior period includes executive relocation expenses.
Consolidated Interest Expense, Net
Interest expense, netAsia Segment, gross profit increased from the prior period, as reflected below, primarily due to (i) a strong sales mix and (ii) higher weighted averagesales volumes compared to the period six-month period despite weak global demand.
SG&A
SG&A did not change meaningfully from the prior six-month period to the current period, nor did the change include any significant offsetting impacts.
Provision for Bad Debts
The current six-month period's provision reflects an increase for a specifically identified customer balance originating in the U.S. fiber market.
Restructuring Costs
Restructuring costs consisted of (i) a loss of $2,750 when UNIFI dissolved its interest rate resulting from fixing the variable portion of the interest rate on $75,000 of debt principal, beginning in May 2017, (ii) less interest capitalized to project costs and (iii) a prior period favorable mark-to-market adjustment on the historical interest rate swap that terminated in May 2017.
|
| For the Three Months Ended |
| |||||
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||
Interest and fees on the ABL Facility |
| $ | 932 |
|
| $ | 806 |
|
Other interest |
|
| 211 |
|
|
| 259 |
|
Subtotal of interest on debt obligations |
|
| 1,143 |
|
|
| 1,065 |
|
Other components of interest expense |
|
| 47 |
|
|
| (151 | ) |
Total interest expense |
|
| 1,190 |
|
|
| 914 |
|
Interest income |
|
| (181 | ) |
|
| (183 | ) |
Interest expense, net |
| $ | 1,009 |
|
| $ | 731 |
|
Loss on Sale of Business
On December 23, 2016, UNIFI, through a wholly owned foreign subsidiary, entered intoUNF under an agreement to sellwith its historical 60% equity ownership interest in Renewables to the existing third-partyformer joint venture partner and (ii) severance charges of $2,351 in connection with overall cost reduction efforts in the U.S.
Other Operating Expense (Income), Net
The current six-month period and prior six-month period include foreign currency transaction losses (gains) of $430 and ($803), respectively, with no other meaningful activity.
20
Interest Expense, Net
Interest expense, net increased in connection with higher debt principal and higher interest rates.
Equity in Earnings of Unconsolidated Affiliates
There was no material activity for $500the current six-month period or the prior six-month period.
Income Taxes
Benefit for income taxes and the effective tax rate were as follows:
|
| For the Six Months Ended |
| |||||
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||
Benefit for income taxes |
| $ | (83 | ) |
| $ | (336 | ) |
Effective tax rate |
|
| 0.3 | % |
|
| 1.3 | % |
The effective tax rate is subject to variation due to a number of factors, including variability in cashpre-tax book income; the mix of income by jurisdiction; changes in deferred tax valuation allowances; and releasechanges in statutes, regulations, and case law. Additionally, the impacts of discrete and other rate impacting items are more pronounced when income (loss) before income taxes is lower.
The decrease in the effective tax rate from the prior six-month period to the current six-month period is primarily attributable to a discrete tax benefit related to the recovery of certain debt obligations. In connection with the transaction, UNIFI recognized a loss on sale of business of $1,662.
Consolidated (Earnings) Loss from Unconsolidated Affiliates
The components of (earnings) loss from unconsolidated affiliates are as follows:
|
| For the Three Months Ended |
| |||||
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||
Loss from PAL |
| $ | 376 |
|
| $ | 745 |
|
Earnings from nylon joint ventures |
|
| (587 | ) |
|
| (378 | ) |
Total equity in (earnings) loss of unconsolidated affiliates |
| $ | (211 | ) |
| $ | 367 |
|
|
|
|
|
|
|
|
|
|
As a percentage of consolidated income before income taxes |
|
| 3.0 | % |
|
| (5.8 | )% |
UNIFI’s 34% share of PAL’s loss decreasedBrazilian income taxes in the current period versus the prior period, whichsix-month period.
Net Loss
The increase in net loss was primarily attributable to lower depreciation expense. The earnings from the nylon joint ventures experienced an increaserestructuring costs, higher bad debt expense, and higher interest expense, net, partially offset by improved gross profit.
Adjusted EBITDA and Adjusted EPS (Non-GAAP Financial Measures)
Adjusted EBITDA and Adjusted EPS increased primarily due to higher volumes and improved margins for the current period despite overall softness in the nylon market.
Consolidated Income Taxes
The change in consolidated income taxes is as follows:
|
| For the Three Months Ended |
| |||||
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||
(Benefit) provision for income taxes |
| $ | (4,826 | ) |
| $ | 1,924 |
|
Effective tax rate |
|
| (69.2 | )% |
|
| 30.6 | % |
The effective tax rate for the current period is lower than the U.S. statutory tax rate primarily due to the $4,500 tax benefit resulting from the revaluation of UNIFI’s domestic deferred tax balances for the lower U.S. statutory tax rate, the release of a $3,807 valuation allowance and foreign income being taxed at lower rates. These benefits were partially offset by a $1,700 provisional charge for the deemed mandatory repatriation of foreign earnings and profits, net of foreign tax credits, and by losses in tax jurisdictions for which no tax benefit can currently be recognized.
The effective tax rate for the prior period is lower than the U.S. statutory tax rate primarily due to foreign income being taxed at lower rates and a decrease in the valuation allowance for UNIFI’s investment in PAL. These benefits were partially offset by losses in tax jurisdictions for which no tax benefit can currently be recognized and state and local income taxes net of federal benefits.
Consolidated Net Income
Net Income for the current period was $11,802, or $0.63 per diluted share, compared to $4,591, or $0.25 per diluted share, for the prior period. The increase was primarily attributable to (i) a significantly lower effective tax rate and (ii) a prior period loss on sale of business,gross profit, partially offset by higher bad debt expense and other operating expenses.
Consolidated Adjusted EBITDASegment Overview
Adjusted EBITDAFollowing is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for the current period was $13,893, compared to $14,468 for the priorsix-month period. The decrease was primarily attributable to higher operating expenses, as described in the discussions above.
Americas Segment
Results of Operations
Six Months Ended December 24, 2017 Compared to Six Months Ended December 25, 2016
Consolidated Overview
The components of Net Income,Segment Loss, each component as a percentage of net sales and the percentage increase or decrease over the prior six-month period amounts arefor the Americas Segment, were as follows:
|
| For the Six Months Ended |
|
|
|
| ||||||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
|
|
| |||||||||||
|
|
|
|
| % of |
|
|
|
|
| % of |
|
| % |
| |||||
Net sales |
| $ | 162,122 |
|
|
| 100.0 |
|
| $ | 192,886 |
|
|
| 100.0 |
|
|
| (15.9 | ) |
Cost of sales |
|
| 176,240 |
|
|
| 108.7 |
|
|
| 210,839 |
|
|
| 109.3 |
|
|
| (16.4 | ) |
Gross loss |
|
| (14,118 | ) |
|
| (8.7 | ) |
|
| (17,953 | ) |
|
| (9.3 | ) |
|
| (21.4 | ) |
Depreciation expense |
|
| 11,005 |
|
| 6.8 |
|
|
| 11,022 |
|
|
| 5.7 |
|
|
| (0.2 | ) | |
Segment Loss |
| $ | (3,113 | ) |
|
| (1.9 | ) |
| $ | (6,931 | ) |
|
| (3.6 | ) |
|
| (55.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Segment net sales as a percentage of |
|
| 58.8 | % |
|
|
|
|
| 61.1 | % |
|
|
|
|
|
| |||
Segment Loss as a percentage of |
|
| (22.8 | )% |
|
|
|
|
| (66.4 | )% |
|
|
|
|
|
|
|
| For the Six Months Ended |
|
|
|
|
| |||||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
|
|
|
| ||||||||||
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
| |||
Net sales |
| $ | 331,720 |
|
|
| 100.0 |
|
| $ | 315,124 |
|
|
| 100.0 |
|
|
| 5.3 |
|
Cost of sales |
|
| 285,752 |
|
|
| 86.1 |
|
|
| 269,447 |
|
|
| 85.5 |
|
|
| 6.1 |
|
Gross profit |
|
| 45,968 |
|
|
| 13.9 |
|
|
| 45,677 |
|
|
| 14.5 |
|
|
| 0.6 |
|
Selling, general and administrative expenses |
|
| 27,489 |
|
|
| 8.3 |
|
|
| 24,278 |
|
|
| 7.7 |
|
|
| 13.2 |
|
Benefit for bad debts |
|
| (131 | ) |
|
| — |
|
|
| (462 | ) |
|
| (0.1 | ) |
|
| (71.6 | ) |
Other operating expense, net |
|
| 663 |
|
|
| 0.2 |
|
|
| 249 |
|
|
| 0.1 |
|
|
| 166.3 |
|
Operating income |
|
| 17,947 |
|
|
| 5.4 |
|
|
| 21,612 |
|
|
| 6.8 |
|
|
| (17.0 | ) |
Interest expense, net |
|
| 2,113 |
|
|
| 0.6 |
|
|
| 1,277 |
|
|
| 0.4 |
|
|
| 65.5 |
|
Loss on sale of business |
|
| — |
|
|
| — |
|
|
| 1,662 |
|
|
| 0.5 |
|
| nm |
| |
Equity in earnings of unconsolidated affiliates |
|
| (3,298 | ) |
|
| (1.0 | ) |
|
| (473 | ) |
|
| (0.2 | ) |
|
| 597.3 |
|
Income before income taxes |
|
| 19,132 |
|
|
| 5.8 |
|
|
| 19,146 |
|
|
| 6.1 |
|
|
| (0.1 | ) |
(Benefit) provision for income taxes |
|
| (1,630 | ) |
|
| (0.5 | ) |
|
| 5,650 |
|
|
| 1.8 |
|
|
| (128.8 | ) |
Net income including non-controlling interest |
|
| 20,762 |
|
|
| 6.3 |
|
|
| 13,496 |
|
|
| 4.3 |
|
|
| 53.8 |
|
Less: net loss attributable to non-controlling interest |
|
| — |
|
|
| — |
|
|
| (498 | ) |
|
| (0.1 | ) |
|
| (100.0 | ) |
Net income attributable to Unifi, Inc. |
| $ | 20,762 |
|
|
| 6.3 |
|
| $ | 13,994 |
|
|
| 4.4 |
|
|
| 48.4 |
|
nm – Not meaningful
Consolidated Net Sales
ConsolidatedThe change in net sales for the current six-month period increased by $16,596, or 5.3%,Americas Segment was as compared tofollows:
Net sales for the prior six-month period |
| $ | 192,886 |
|
Net change in average selling price and sales mix |
|
| (35,980 | ) |
Increase in sales volumes |
|
| 5,216 |
|
Net sales for the current six-month period |
| $ | 162,122 |
|
The change in net sales for the Americas Segment from the prior six-month period.
Consolidated sales volumes increased 11.0%, attributableperiod to continued growth in sales of recycled polyester Chip and plastic bottle flake in the Polyester Segment and staple fiber and other PVA products in the International Segment. Sales continue to expand in the International Segment as our PVA portfolio resonates with numerous customers. The increase in sales volumes was partially offset by soft yarn sales in the Polyester and Nylon Segments. We believe the softness in the domestic environment continues to be a challenge for the textile supply chain. Our nylon business results also reflect the current global trend of declines in demand for nylon socks, ladies’ hosiery and intimate apparel.
Consolidated average sales prices decreased 5.5%, attributable to disproportionate growth of lower-priced recycled polyester Chip, plastic bottle flake and staple fiber among the Polyester and International Segments, as well as a lower proportion of nylon products
that carry higher selling prices. The decrease in consolidated sales pricing was partially offset by a benefit from net favorable foreign currency translation compared to the prior period of approximately $1,600, primarily associated with the strengthening of the BRL and the RMB.
Consolidated Gross Profit
Gross profit for the current six-month period increased by $291, or 0.6%, as comparedwas primarily attributable to (i) the prior six-month period. The Nylon Segment achieved an increasenet change in gross margin rate due in part to a more favorableaverage selling price and sales mix that reflects both (a) lower input costs and cost management. For the International Segment, gross profit increased due to(b) a larger proportion of lower-priced Chip and Flake sales growth; however, margins were lower due to a less favorable sales mix and pressure from higher costs. For the Polyester Segment, the decline in gross margin rate was primarily due to a greater mix of lower margin product sales and incremental depreciation, primarily due to expanded recycling operations, partially offset by the conversion services performed for Eastman on bi-component machinery, a revenue stream that did not exist in the prior six-month period. Consolidated gross profit for the current six-month period also included approximately $400and (ii) lower fiber sales volumes following weaker global textile demand.
21
The change in Segment Loss for the Americas Segment was as follows:
Segment Loss for the prior six-month period |
| $ | (6,931 | ) |
Change in underlying margins and sales mix |
|
| 4,005 |
|
Change in sales volumes |
|
| (187 | ) |
Segment Loss for the current six-month period |
| $ | (3,113 | ) |
The improvement in Segment Loss for the Americas Segment from the prior six-month period to the current six-month period was primarily attributable to variable cost management efforts and more stable raw material costs in the current six-month period. Segment Loss for the Americas Segment continued to be negatively impacted by low fiber sales volumes. As fiber products carry a higher selling price and allocation of favorable foreign currency translation.
Further details regarding the changes in net salesproduction costs versus Chip and Flake, lower fiber production drives weaker fixed cost absorption and adversely impacts gross profit and gross profit, by reportable segment, follow.margin.
PolyesterBrazil Segment
The components of Segment Profit, each component as a percentage of net sales and the percentage increase or decrease over the prior six-month period amounts for the PolyesterBrazil Segment, arewere as follows:
|
| For the Six Months Ended |
|
|
|
| ||||||||||||||
|
| December 31, 2023 |
|
| January 1, 2023 |
|
|
|
| |||||||||||
|
|
|
|
| % of |
|
|
|
|
| % of |
|
| % |
| |||||
Net sales |
| $ | 55,970 |
|
|
| 100.0 |
|
| $ | 64,566 |
|
|
| 100.0 |
|
|
| (13.3 | ) |
Cost of sales |
|
| 50,664 |
|
|
| 90.5 |
|
|
| 56,449 |
|
|
| 87.4 |
|
|
| (10.2 | ) |
Gross profit |
|
| 5,306 |
|
|
| 9.5 |
|
|
| 8,117 |
|
|
| 12.6 |
|
|
| (34.6 | ) |
Depreciation expense |
|
| 1,606 |
|
|
| 2.8 |
|
|
| 861 |
|
|
| 1.3 |
|
|
| 86.5 |
|
Segment Profit |
| $ | 6,912 |
|
|
| 12.3 |
|
| $ | 8,978 |
|
|
| 13.9 |
|
|
| (23.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Segment net sales as a percentage of |
|
| 20.3 | % |
|
|
|
|
| 20.4 | % |
|
|
|
|
|
| |||
Segment Profit as a percentage of |
|
| 50.6 | % |
|
|
|
|
| 85.9 | % |
|
|
|
|
|
|
|
| For the Six Months Ended |
|
|
|
|
| |||||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
|
|
|
| ||||||||||
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
| |||
Net sales |
| $ | 178,054 |
|
|
| 100.0 |
|
| $ | 171,356 |
|
|
| 100.0 |
|
|
| 3.9 |
|
Cost of sales |
|
| 160,565 |
|
|
| 90.2 |
|
|
| 152,435 |
|
|
| 89.0 |
|
|
| 5.3 |
|
Gross profit |
|
| 17,489 |
|
|
| 9.8 |
|
|
| 18,921 |
|
|
| 11.0 |
|
|
| (7.6 | ) |
Depreciation expense |
|
| 7,840 |
|
|
| 4.4 |
|
|
| 6,492 |
|
|
| 3.8 |
|
|
| 20.8 |
|
Segment Profit |
| $ | 25,329 |
|
|
| 14.2 |
|
| $ | 25,413 |
|
|
| 14.8 |
|
|
| (0.3 | ) |
The change in net sales for the PolyesterBrazil Segment iswas as follows:
Net sales for the prior six-month period |
| $ | 64,566 |
|
Decrease in average selling price and change in sales mix |
|
| (15,632 | ) |
Favorable foreign currency translation effects |
|
| 4,409 |
|
Increase in sales volumes |
|
| 2,627 |
|
Net sales for the current six-month period |
| $ | 55,970 |
|
Net sales for the prior six-month period |
| $ | 171,356 |
|
Increase in sales volumes |
|
| 12,200 |
|
Decrease in average selling price and change in sales mix |
|
| (5,502 | ) |
Net sales for the current six-month period |
| $ | 178,054 |
|
The increasedecrease in net sales for the PolyesterBrazil Segment from the prior six-month period to the current six-month period was primarily attributable to (i) higher sales of plastic bottle flake, recycled polyester Chipselling price pressures from low-priced imports, partially offset by favorable foreign currency translation effects and POY and (ii) the conversion services performed for Eastman on bi-component machinery. The unfavorable changean improvement in sales mix was due to (a) lower sales volumes of higher-priced textured, dyed and beamed yarns and (b) higher sales volumes of lower-priced plastic bottle flake, recycled polyester Chip and POY.volumes.
The change in Segment Profit for the PolyesterBrazil Segment iswas as follows:
Segment Profit for the prior six-month period |
| $ | 8,978 |
|
Decrease in underlying margins |
|
| (3,044 | ) |
Favorable foreign currency translation effects |
|
| 613 |
|
Increase in sales volumes |
|
| 365 |
|
Segment Profit for the current six-month period |
| $ | 6,912 |
|
|
|
| ||
|
|
| ||
|
| |||
|
|
|
The decrease in Segment Profit for the PolyesterBrazil Segment from the prior six-month period to the current six-month period was primarily attributable to the unfavorable sales mix shift towards lower-margin products discussed abovean overall decrease in the net sales analysis, along with raw material cost pressures, partially offset by the benefit of the conversion services performed for Eastmangross margin mainly due to pressure on bi-component machineryselling prices from low-priced import competition. We continue to prioritize innovation and an increasedifferentiation to improve our portfolio and competitive position in sales volumes.Brazil.
Polyester22
Asia Segment net sales and Segment Profit, as a percentage of total consolidated amounts, were 53.7% and 45.4%, respectively, for the current six-month period, compared to 54.4% and 46.9%, respectively, for the prior six-month period.
The components of Segment Profit, each component as a percentage of net sales and the percentage increase or decrease over the prior six-month period amounts for the NylonAsia Segment, arewere as follows:
|
| For the Six Months Ended |
|
|
|
|
|
| For the Six Months Ended |
|
|
|
| |||||||||||||||||||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
|
|
|
|
| December 31, 2023 |
|
| January 1, 2023 |
|
|
|
| |||||||||||||||||||||
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
|
|
|
|
| % of |
|
|
|
|
| % of |
|
| % |
| ||||||||
Net sales |
| $ | 51,930 |
|
|
| 100.0 |
|
| $ | 56,797 |
|
|
| 100.0 |
|
|
| (8.6 | ) |
| $ | 57,669 |
|
|
| 100.0 |
|
| $ | 58,279 |
|
|
| 100.0 |
|
|
| (1.0 | ) |
Cost of sales |
|
| 45,540 |
|
|
| 87.7 |
|
|
| 51,037 |
|
|
| 89.9 |
|
|
| (10.8 | ) |
|
| 47,796 |
|
|
| 82.9 |
|
|
| 49,880 |
|
|
| 85.6 |
|
|
| (4.2 | ) |
Gross profit |
|
| 6,390 |
|
|
| 12.3 |
|
|
| 5,760 |
|
|
| 10.1 |
|
|
| 10.9 |
|
|
| 9,873 |
|
|
| 17.1 |
|
|
| 8,399 |
|
|
| 14.4 |
|
|
| 17.5 |
|
Depreciation expense |
|
| 1,089 |
|
|
| 2.1 |
|
|
| 1,040 |
|
|
| 1.9 |
|
|
| 4.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Segment Profit |
| $ | 7,479 |
|
|
| 14.4 |
|
| $ | 6,800 |
|
|
| 12.0 |
|
|
| 10.0 |
|
| $ | 9,873 |
|
|
| 17.1 |
|
| $ | 8,399 |
|
|
| 14.4 |
|
|
| 17.5 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Segment net sales as a percentage of |
|
| 20.9 | % |
|
|
|
| 18.5 | % |
|
|
|
|
| |||||||||||||||||||||||||
Segment Profit as a percentage of |
|
| 72.2 | % |
|
|
|
| 80.4 | % |
|
|
|
|
|
The change in net sales for the NylonAsia Segment iswas as follows:
Net sales for the prior six-month period |
| $ | 58,279 |
|
Unfavorable foreign currency translation effects |
|
| (2,040 | ) |
Change in average selling price and sales mix |
|
| (277 | ) |
Net increase in sales volumes |
|
| 1,707 |
|
Net sales for the current six-month period |
| $ | 57,669 |
|
Net sales for the prior six-month period |
| $ | 56,797 |
|
Decrease in sales volumes |
|
| (3,284 | ) |
Decrease in average selling price and change in sales mix |
|
| (1,583 | ) |
Net sales for the current six-month period |
| $ | 51,930 |
|
The decreasenominal change in net sales for the NylonAsia Segment from the prior six-month period to the current six-month period was primarily attributable to (i) lowerunfavorable foreign currency translation effects due to the weakening of the RMB versus the USD, offset by an improvement in sales volumes as a result of soft domestic market conditions in which nylon socks, ladies’ hosieryvolume compared to the prior six-month period despite continued weak global demand and intimates have experienced demand declinesinventory destocking by brands and (ii) a lower-priced sales mix.retailers, particularly for apparel.
The change in Segment Profit for the NylonAsia Segment iswas as follows:
Segment Profit for the prior six-month period |
| $ | 8,399 |
|
Change in underlying margins and sales mix |
|
| 1,550 |
|
Increase in sales volumes |
|
| 245 |
|
Unfavorable foreign currency translation effects |
|
| (321 | ) |
Segment Profit for the current six-month period |
| $ | 9,873 |
|
Segment Profit for the prior six-month period |
| $ | 6,800 |
|
Increase in underlying margins |
|
| 1,072 |
|
Decrease in sales volumes |
|
| (393 | ) |
Segment Profit for the current six-month period |
| $ | 7,479 |
|
The increase in Segment Profit for the NylonAsia Segment was attributable to a more profitable sales mix and cost management.
Nylon Segment net sales and Segment Profit, as a percentage of total consolidated amounts, were 15.7% and 13.4%, respectively, for the current six-month period, compared to 18.0% and 12.6%, respectively, for the prior six-month period.
International Segment
The components of Segment Profit, each component as a percentage of net sales and the percentage increase or decrease over the prior six-month period amounts for the International Segment are as follows:
|
| For the Six Months Ended |
|
|
|
|
| |||||||||||||
|
| December 24, 2017 |
|
| December 25, 2016 |
|
|
|
|
| ||||||||||
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
| |||
Net sales |
| $ | 99,705 |
|
|
| 100.0 |
|
| $ | 84,212 |
|
|
| 100.0 |
|
|
| 18.4 |
|
Cost of sales |
|
| 77,733 |
|
|
| 78.0 |
|
|
| 62,493 |
|
|
| 74.2 |
|
|
| 24.4 |
|
Gross profit |
|
| 21,972 |
|
|
| 22.0 |
|
|
| 21,719 |
|
|
| 25.8 |
|
|
| 1.2 |
|
Depreciation expense |
|
| 813 |
|
|
| 0.9 |
|
|
| 474 |
|
|
| 0.6 |
|
|
| 71.5 |
|
Segment Profit |
| $ | 22,785 |
|
|
| 22.9 |
|
| $ | 22,193 |
|
|
| 26.4 |
|
|
| 2.7 |
|
The change in net sales for the International Segment is as follows:
Net sales for the prior six-month period |
| $ | 84,212 |
|
Increase in sales volumes |
|
| 16,807 |
|
Net favorable foreign currency translation effects (BRL and RMB) |
|
| 1,611 |
|
Decrease in average selling price and change in sales mix |
|
| (2,925 | ) |
Net sales for the current six-month period |
| $ | 99,705 |
|
The increase in net sales for the International Segment was attributable to (i) higher sales volumes from our Asian subsidiaries due to growth in our REPREVE® portfolios, particularly staple fiber and recycled polyester Chip, (ii) higher sales volumes at our Brazilian subsidiary due to increased demand for synthetic yarns, including air-covered PVA products for use in applications such as stretch denim, and (iii) favorable foreign currency translation due to the strengthening of the BRL and the RMB. These benefits were partially offset by a decrease in the average selling price in Asia due to a greater mix of lower-priced product sales.
The BRL weighted average exchange rate was 3.20 BRL/USD and 3.27 BRL/USD for the current six-month period and the prior six-month period, respectively. The RMB weighted average exchange rate was 6.64 RMB/USD and 6.75 RMB/USD for the current six-month period and the prior six-month period, respectively.
The change in Segment Profit for the International Segment is as follows:
Segment Profit for the prior six-month period |
| $ | 22,193 |
|
Increase in sales volumes |
|
| 4,432 |
|
Net favorable foreign currency translation effects (BRL and RMB) |
|
| 427 |
|
Decrease in underlying margins |
|
| (4,267 | ) |
Segment Profit for the current six-month period |
| $ | 22,785 |
|
The increase in Segment Profit for the International Segment was attributable to (i) improved sales volumes and (ii) favorable foreign currency translation effects due to the strengthening of both the BRL and the RMB versus the USD, partially offset by a greater mix of lower-margin product sales in Asia.
International Segment net sales and Segment Profit, as a percentage of total consolidated amounts, were 30.1% and 40.8%, respectively, for the current six-month period, compared to 26.7% and 41.0%, respectively, for the prior six-month period.
Consolidated Selling, General and Administrative Expenses
The change in SG&A expenses is as follows:
SG&A expenses for the prior six-month period | $ | 24,278 |
|
Increase in compensation expenses |
| 3,115 |
|
Other net increases |
| 96 |
|
SG&A expenses for the current six-month period | $ | 27,489 |
|
Total SG&A expenses were higher for the current six-month period compared to the prior six-month period, primarily as a result of an increase in compensation expenses due to recent talent acquisition and other net increases.
Consolidated Benefit for Bad Debts
The benefit in the prior six-month period reflects a decrease in the reserve against specifically identified customer balances in the Polyester and International Segments.
Consolidated Other Operating Expense, Net
The change in other operating expense, net is primarily attributable to foreign currency losses in the current six-month period, mostly resulting from changes in the value of USDs held by our subsidiary in China.
Consolidated Interest Expense, Net
Interest expense, net increased from the prior six-month period as reflected below, primarily due to (i) a higher weighted average interest rate resulting from fixing the variable portion of the interest rate on $75,000 of debt principal, beginning in May 2017, (ii) less interest capitalized to project costs and (iii) a prior period favorable mark-to-market adjustment on the historical interest rate swap that terminated in May 2017.
|
| For the Six Months Ended |
| |||||
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||
Interest and fees on the ABL Facility |
| $ | 1,837 |
|
| $ | 1,454 |
|
Other interest |
|
| 437 |
|
|
| 514 |
|
Subtotal of interest on debt obligations |
|
| 2,274 |
|
|
| 1,968 |
|
Other components of interest expense |
|
| 101 |
|
|
| (362 | ) |
Total interest expense |
|
| 2,375 |
|
|
| 1,606 |
|
Interest income |
|
| (262 | ) |
|
| (329 | ) |
Interest expense, net |
| $ | 2,113 |
|
| $ | 1,277 |
|
Loss on Sale of Business
On December 23, 2016, UNIFI, through a wholly owned foreign subsidiary, entered into an agreement to sell its historical 60% equity ownership interest in Renewables to the existing third-party joint venture partner for $500 in cash and release of certain debt obligations. In connection with the transaction, UNIFI recognized a loss on sale of business of $1,662.
Consolidated Earnings from Unconsolidated Affiliates
The components of earnings from unconsolidated affiliates are as follows:
|
| For the Six Months Ended |
| |||||
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||
(Earnings) loss from PAL |
| $ | (2,478 | ) |
| $ | 431 |
|
Earnings from nylon joint ventures |
|
| (820 | ) |
|
| (904 | ) |
Total equity in earnings of unconsolidated affiliates |
| $ | (3,298 | ) |
| $ | (473 | ) |
|
|
|
|
|
|
|
|
|
As a percentage of consolidated income before income taxes |
|
| 17.2 | % |
|
| 2.5 | % |
UNIFI’s 34% share of PAL’s earnings increased in the current six-month period versus the prior six-month period, which was primarily attributable to improved operating margins and lower depreciation expense. The earnings from the nylon joint ventures experienced a decrease primarily due to softness in the nylon market, consistent with the results of the Nylon Segment, as well as higher raw material costs.
Consolidated Income Taxes
The change in consolidated income taxes is as follows:
|
| For the Six Months Ended |
| |||||
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||
(Benefit) provision for income taxes |
| $ | (1,630 | ) |
| $ | 5,650 |
|
Effective tax rate |
|
| (8.5 | )% |
|
| 29.5 | % |
The effective tax rate for the current six-month period is lower thanattributable to (i) an improved gross margin rate associated with a strong sales mix of REPREVE products and (ii) the U.S. statutory tax rate primarily due to the $4,500 tax benefit resulting from the revaluation of UNIFI’s domestic deferred tax balances for the lower U.S. statutory tax rate, the release of a $3,807 valuation allowance and foreign income being taxed at lower rates. These benefits were partiallyincrease in sales volumes discussed above, offset by a $1,700 provisional charge for the deemed mandatory repatriation ofunfavorable foreign earnings and profits, net of foreign tax credits, and by losses in tax jurisdictions for which no tax benefit can currently be recognized.
currency translation effects.
The effective tax rate for the prior six-month period is lower than the U.S. statutory tax rate primarily due to foreign income being taxed at lower rates and a decrease in the valuation allowance for UNIFI’s investment in PAL. These benefits were partially offset by losses in tax jurisdictions for which no tax benefit can currently be recognized and state and local income taxes net of federal benefits.
Consolidated Net Income
Net Income for the current six-month period was $20,762, or $1.12 per diluted share, compared to $13,994, or $0.76 per diluted share, for the prior six-month period. The increase was primarily attributable to a significantly lower effective tax rate, higher earnings from PAL and a loss on sale of business in the prior six-month period, partially offset by higher operating expenses and interest expense.
Consolidated Adjusted EBITDA
Adjusted EBITDA for the current six-month period was $29,716, compared to $32,379 for the prior six-month period. The decrease was primarily attributable to higher operating expenses, as described in the discussions above.
Liquidity and Capital Resources
Note 5, “Long-Term Debt” to the condensed consolidated financial statements includes the detail of UNIFI’s debt obligations and terms and conditions thereof. Further discussion and analysis of liquidity and capital resources follow.
UNIFI’s primary capital requirements are for working capital, capital expenditures, debt service, and stockshare repurchases. UNIFI’s primary sources of capital are cash generated from operations, and borrowings available under the ABL Revolver.2022 Credit Agreement, and asset financing arrangements. For the current six-month period, cash generated fromprovided by operations was $20,389,$2,517, and, at December 24, 2017, excess31, 2023, availability under the ABL Revolver was $54,379.$43,082.
As of December 24, 2017,31, 2023, all of UNIFI’s $133,540$132,760 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, while nearly all of UNIFI’s cash and cash equivalents were held by its foreign subsidiaries. Cash and cash equivalents held by such foreign subsidiaries may not be presently available to fund UNIFI’s domestic capital requirements, including its domestic debt obligations. UNIFI employs a variety of tax planning and financing strategies to ensure that its worldwide cash is available in the locations where it is needed.
The following table presents a summary of cash and cash equivalents, borrowings available under financing arrangements, liquidity, working capital, and total debt obligations as of December 24, 201731, 2023 for domestic andoperations compared to foreign operations:
|
| Domestic |
|
| Foreign |
|
| Total |
| |||
Cash and cash equivalents |
| $ | 25 |
|
| $ | 35,954 |
|
| $ | 35,979 |
|
Borrowings available under financing arrangements |
|
| 43,082 |
|
|
| — |
|
|
| 43,082 |
|
Liquidity |
| $ | 43,107 |
|
| $ | 35,954 |
|
| $ | 79,061 |
|
|
|
|
|
|
|
|
|
|
| |||
Working capital |
| $ | 73,768 |
|
| $ | 113,710 |
|
| $ | 187,478 |
|
Total debt obligations |
| $ | 132,760 |
|
| $ | — |
|
| $ | 132,760 |
|
23
|
| Domestic |
|
| Foreign |
|
| Total |
| |||
Cash and cash equivalents |
| $ | 14 |
|
| $ | 48,601 |
|
| $ | 48,615 |
|
Borrowings available under financing arrangements |
|
| 54,379 |
|
|
| — |
|
|
| 54,379 |
|
Liquidity |
| $ | 54,393 |
|
| $ | 48,601 |
|
| $ | 102,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
| $ | 90,441 |
|
| $ | 105,371 |
|
| $ | 195,812 |
|
Total debt obligations |
| $ | 133,540 |
|
| $ | — |
|
| $ | 133,540 |
|
Debt Obligations
ABL FacilityUNIFI’s primary cash requirements, in addition to normal course operating activities (e.g. working capital and payroll), primarily include (i) capital expenditures that generally have commitments of up to 12 months, (ii) contractual obligations that support normal course ongoing operations and production, (iii) operating leases and finance leases, (iv) debt service, and (v) share repurchases.
On March 26, 2015, Unifi, Inc. and its subsidiary, Unifi Manufacturing, Inc., entered into an Amended and RestatedLiquidity Considerations
Following the establishment of the 2022 Credit Agreement, (as subsequently amended, the “Amended Credit Agreement”) for a $200,000 senior secured credit facility (the ABL Facility) with a syndicate of lenders. The ABL Facility consists of a $100,000 revolving credit facility (the ABL Revolver)UNIFI’s global cash and a term loan that can be reset upliquidity positions are sufficient to a maximum amount of $100,000, once per fiscal year, if certain conditions are met (the ABL Term Loan). The ABL Facility has a maturity date of March 26, 2020.
The ABL Facility is secured by a first-priority perfected security interest in substantially all owned propertysustain its operations and assets (together with all proceedsmeet its growth needs. Additionally, UNIFI considers opportunities to repatriate existing cash to reduce debt and products) of Unifi, Inc., Unifi Manufacturing, Inc. and certain subsidiary guarantors (the “Loan Parties”). It is also secured by a first-priority security interest in all (or 65%preserve or enhance liquidity. However, further degradation in the casemacroeconomic environment could introduce additional liquidity risk and require UNIFI to limit cash outflows for discretionary activities while further utilizing available and additional forms of certain first-tier controlled foreign corporations, as required bycredit.
We do not currently anticipate that any adverse events or circumstances will place critical pressure on our liquidity position or our ability to fund our operations and expected business growth. Should global demand, economic activity, or input availability decline considerably for an even longer period of time, UNIFI maintains the lenders)ability to (i) seek additional credit or financing arrangements and/or (ii) re-implement cost reduction initiatives to preserve cash and secure the longevity of the stockbusiness and operations. Management continues to (i) explore cost savings opportunities and (ii) prioritize repayment of (or other ownership interests in) eachdebt in the current operating environment.
When business levels increase, we expect to use cash in support of working capital needs.
The following outlines the Loan Parties (other than Unifi, Inc.) and certain subsidiaries of the Loan Parties, together with all proceeds and products thereof.
If excess availability under the ABL Revolver falls below the defined Trigger Level, a financial covenant requiring the Loan Partiesattributes relating to maintain a fixed charge coverage ratio on a monthly basis of at least 1.05 to 1.00 becomes effective. The Trigger Levelour credit facility as of December 24, 2017 was $23,750. In addition, the ABL Facility contains restrictions on particular payments and investments, including31, 2023:
certain restrictions on the payment of dividends and share repurchases. Subject to specific provisions, the ABL Term Loan may be prepaid at par, in whole or in part, at any time before the maturity date, at UNIFI’s discretion.
ABL Facility borrowings bear interest at the London Interbank Offer Rate (“LIBOR”) plus an applicable margin of 1.50% to 2.00%, or the Base Rate (as defined below) plus an applicable margin of 0.50% to 1.00%, with interest currently being paid on a monthly basis. The applicable margin is based on (i) the excess availability under the ABL Revolver and (ii) the consolidated leverage ratio, calculated as of the end of each fiscal quarter. The Base Rate means the greater of (a) the prime lending rate as publicly announced from time to time by Wells Fargo Bank, National Association, (b) the Federal Funds Rate plus 0.50% or (c) LIBOR plus 1.00%. UNIFI’s ability to borrow under the ABL Revolver is limited to a borrowing base equal to specified percentages of eligible accounts receivable and inventory and is subject to certain conditions and limitations. There is also a monthly unused line fee under the ABL Revolver of 0.25%. As of December 24, 2017, •
UNIFI currently maintains three interest rate swaps that fix LIBOR at approximately 1.9% on $75,000 of variable-rate debt under the ABL Facility. Such swaps are scheduled to terminate in May 2022.
Summary of Debt Obligations
The following table presents the total balances outstanding for UNIFI’s debt obligations, their scheduled maturity dates and the weighted average interest rates for borrowings as well as the applicable current portion of long-term debt:
|
|
|
| Weighted Average |
|
|
|
| ||||||
|
| Scheduled |
| Interest Rate as of |
|
| Principal Amounts as of |
| ||||||
|
| Maturity Date |
| December 24, 2017 |
|
| December 24, 2017 |
|
| June 25, 2017 |
| |||
ABL Revolver |
| March 2020 |
| 3.3% |
|
| $ | 21,900 |
|
| $ | 9,300 |
| |
ABL Term Loan (1) |
| March 2020 |
| 3.3% |
|
|
| 90,000 |
|
|
| 95,000 |
| |
Capital lease obligations |
| (2) |
| 3.7% |
|
|
| 21,640 |
|
|
| 25,168 |
| |
Total debt |
|
|
|
|
|
|
|
| 133,540 |
|
|
| 129,468 |
|
Current portion of capital lease obligations |
|
|
|
|
|
|
|
| (7,112 | ) |
|
| (7,060 | ) |
Current portion of other long-term debt |
|
|
|
|
|
|
|
| (10,000 | ) |
|
| (10,000 | ) |
Unamortized debt issuance costs |
|
|
|
|
|
|
|
| (840 | ) |
|
| (1,026 | ) |
Total long-term debt |
|
|
|
|
|
|
| $ | 115,588 |
|
| $ | 111,382 |
|
(1) Includes the effects of interest rate swaps.
(2) Scheduled maturity dates for capital lease obligations range from July 2018 to November 2027.
In addition to making payments in accordance with the scheduled maturities of debt required under its existing debt obligations, UNIFI may, from time to time, elect to repay additional amounts borrowed under the ABL Facility. Funds to make such repayments may come from the operating cash flows of the business or other sources and will depend upon UNIFI’s strategy, prevailing market conditions, liquidity requirements, contractual restrictions, and other factors.
Scheduled Debt Maturities
The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the remainder of fiscal 2018 and the fiscal years thereafter:
|
| Fiscal 2018 |
|
| Fiscal 2019 |
|
| Fiscal 2020 |
|
| Fiscal 2021 |
|
| Fiscal 2022 |
|
| Thereafter |
| ||||||
ABL Revolver |
| $ | — |
|
| $ | — |
|
| $ | 21,900 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
ABL Term Loan |
|
| 5,000 |
|
|
| 10,000 |
|
|
| 75,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Capital lease obligations |
|
| 3,533 |
|
|
| 6,996 |
|
|
| 5,519 |
|
|
| 2,624 |
|
|
| 2,417 |
|
|
| 551 |
|
Total |
| $ | 8,533 |
|
| $ | 16,996 |
|
| $ | 102,419 |
|
| $ | 2,624 |
|
| $ | 2,417 |
|
| $ | 551 |
|
The following table presents the components of working capital and the reconciliation of working capital to Adjusted Working Capital:
|
| December 24, 2017 |
|
| June 25, 2017 |
| ||
Cash and cash equivalents |
| $ | 48,615 |
|
| $ | 35,425 |
|
Receivables, net |
|
| 80,847 |
|
|
| 81,121 |
|
Inventories |
|
| 116,239 |
|
|
| 111,405 |
|
Other current assets |
|
| 17,466 |
|
|
| 15,686 |
|
Accounts payable |
|
| (35,420 | ) |
|
| (41,499 | ) |
Accrued expenses |
|
| (12,990 | ) |
|
| (16,144 | ) |
Other current liabilities |
|
| (18,945 | ) |
|
| (18,411 | ) |
Working capital |
| $ | 195,812 |
|
| $ | 167,583 |
|
|
|
|
|
|
|
|
|
|
Less: Cash and cash equivalents |
|
| (48,615 | ) |
|
| (35,425 | ) |
Less: Other current assets |
|
| (17,466 | ) |
|
| (15,686 | ) |
Less: Other current liabilities |
|
| 18,945 |
|
|
| 18,411 |
|
Adjusted Working Capital |
| $ | 148,676 |
|
| $ | 134,883 |
|
Working capital increased from $167,583 as of June 25, 2017 to $195,812 as of December 24, 2017, while Adjusted Working Capital increased from $134,883 to $148,676. Working capital and Adjusted Working Capital are within our range of expectations based on the composition of the underlying business and global structure.
The increase in cash and cash equivalents reflects the strong performance of our international subsidiaries and the intent to leave cash available in foreign jurisdictions for future expansion. The decrease in receivables, net is attributable to lower sales associated with the routine December shutdown period. The increase in inventories is primarily attributable to increased international sales activity and the impact of the routine December shutdown period. The increase in other current assets is attributable to an increase in income taxes receivable. The decrease in accounts payable is mainly due to the routine December shutdown period. The decrease in accrued expenses is primarily attributable to a net decrease in amounts due to employees, resulting from the timing of accrual and payment of (i) variable compensation earned in fiscal 2017 and (ii) routine payrolls. The change in other current liabilities is insignificant.
Capital Projects
During the current six-month period, UNIFI invested approximately $11,400 in capital projects, primarily relating to routine maintenance expenditures as well as the completion and start-up of the fourth production line in the REPREVE® Recycling Center, which is intended to increase UNIFI’s capacity to produce recycled polyester Chip for internal consumption and external sales.
Through the remainder of fiscal 2018, UNIFI expects to invest an additional $18,600 in capital projects (for an aggregate fiscal 2018 estimate of $30,000), which include (i) making further improvements in production capabilities and technology enhancements in the Americas and (ii) routine annual maintenance capital expenditures to allow continued efficient production.
The total amount ultimately invested in fiscal 2018 could be more or less than the anticipated amount, depending on the timing and scale of contemplated initiatives and other factors, and is expected to be funded by a combination of cash from operations and borrowings under the ABL Revolver. UNIFI expects the recent capital projects to provide benefits to future profitability. The additional assets from these capital projects consist primarily of machinery and equipment.
As a result of our continued focus on REPREVE® and other PVA yarns as part of our mix enrichment strategy, we may incur additional expenditures for capital projects beyond the currently estimated amount, as we pursue new, currently unanticipated opportunities in order to expand our manufacturing capabilities for these products, for other strategic growth initiatives or to further streamline our manufacturing process, in which case we may be required to increase the amount of our working capital and long-term borrowings. If our strategy is successful, we would expect higher gross profit as a result of the combination of potentially higher sales volumes and an improved mix from higher-margin products.
On April 23, 2014, UNIFI announced a stock repurchase program (the “2014 SRP”) to authorize UNIFI to acquire up to $50,000 of its common stock. Under the 2014 SRP, UNIFI is authorized to repurchase shares at prevailing market prices, through open market purchases or privately negotiated transactions at such times and prices and in such manner as determined by management, subject to market conditions, applicable legal requirements, contractual obligations and other factors. Repurchases, if any, are expected to be financed through cash generated from operations and borrowings under the ABL Revolver, and are subject to applicable limitations and restrictions as set forth in the ABL Facility. The 2014 SRP has no stated expiration or termination date, and there is no time limit or specific time frame otherwise for repurchases. UNIFI may discontinue repurchases at any time that management determines additional purchases are not beneficial or advisable.
UNIFI made no repurchases of its shares of common stock during the current six-month period. As of December 24, 2017, UNIFI had repurchased a total of 806 shares, at an average price of $27.79 (for a total of $22,409, inclusive of commission costs) pursuant to the 2014 SRP. As of December 24, 2017, $27,603 remained available for share repurchases under the 2014 SRP.
Liquidity Summary
UNIFI has met its historical liquidity requirements for working capital, capital expenditures, debt service requirements, and other operating needs from its cash flows from operations and available borrowings. UNIFI believes that its existing cash balances, cash provided by operating activities, and borrowings available under the ABL Revolvercredit facility will enable UNIFI to comply with the terms of its indebtedness and meet its foreseeable liquidity requirements. Domestically, UNIFI’s cash balances, cash provided by operating activities, and borrowings available under the ABL Revolver continue to be sufficient to fund UNIFI’s domestic operating activities as well as cash commitments for its investing and financing activities. For its existing foreign operations, UNIFI expects its existing cash balances, and cash provided by operating activities, and available financing arrangements will provide the needed liquidity to fund its foreignthe associated operating activities and any foreign investing activities, such as future capital expenditures. However, expansionUNIFI’s operations in Asia and Brazil are in a position to obtain local country financing arrangements due to the operating results of oureach subsidiary.
Net Debt (Non-GAAP Financial Measure)
The reconciliations for Net Debt are as follows:
|
| December 31, 2023 |
|
| July 2, 2023 |
| ||
Long-term debt |
| $ | 120,144 |
|
| $ | 128,604 |
|
Current portion of long-term debt |
|
| 12,357 |
|
|
| 12,006 |
|
Unamortized debt issuance costs |
|
| 259 |
|
|
| 289 |
|
Debt principal |
|
| 132,760 |
|
|
| 140,899 |
|
Less: cash and cash equivalents |
|
| 35,979 |
|
|
| 46,960 |
|
Net Debt |
| $ | 96,781 |
|
| $ | 93,939 |
|
The increase in Net Debt primarily reflects capital expenditures during the fiscal year, partially offset by the generation of operating cash flows during fiscal 2024.
24
Working Capital and Adjusted Working Capital (Non-GAAP Financial Measure)
The following table presents the components of working capital and the reconciliation of working capital to Adjusted Working Capital:
|
| December 31, 2023 |
|
| July 2, 2023 |
| ||
Cash and cash equivalents |
| $ | 35,979 |
|
| $ | 46,960 |
|
Receivables, net |
|
| 69,583 |
|
|
| 83,725 |
|
Inventories |
|
| 135,676 |
|
|
| 150,810 |
|
Income taxes receivable |
|
| 2,421 |
|
|
| 238 |
|
Other current assets |
|
| 12,290 |
|
|
| 12,327 |
|
Accounts payable |
|
| (34,709 | ) |
|
| (44,455 | ) |
Other current liabilities |
|
| (17,409 | ) |
|
| (12,932 | ) |
Income taxes payable |
|
| (2,263 | ) |
|
| (789 | ) |
Current operating lease liabilities |
|
| (1,733 | ) |
|
| (1,813 | ) |
Current portion of long-term debt |
|
| (12,357 | ) |
|
| (12,006 | ) |
Working capital |
| $ | 187,478 |
|
| $ | 222,065 |
|
|
|
|
|
|
|
| ||
Less: Cash and cash equivalents |
|
| (35,979 | ) |
|
| (46,960 | ) |
Less: Income taxes receivable |
|
| (2,421 | ) |
|
| (238 | ) |
Less: Income taxes payable |
|
| 2,263 |
|
|
| 789 |
|
Less: Current operating lease liabilities |
|
| 1,733 |
|
|
| 1,813 |
|
Less: Current portion of long-term debt |
|
| 12,357 |
|
|
| 12,006 |
|
Adjusted Working Capital |
| $ | 165,431 |
|
| $ | 189,475 |
|
Adjusted Working Capital decreased $24,044 from July 2, 2023 to December 31, 2023.
The decrease in receivables, net was primarily due to a decrease in sales and the timing of cash receipts. The decrease in inventories was primarily attributable to lower weighted average costs in the current six-month period and lower units on hand. The decrease in accounts payable followed the decrease in inventories and production activity in the current six-month period. The increase in other current liabilities primarily reflects the liabilities recorded in the current period for severance and the dissolution of UNF. The change in income taxes receivable reflects the foreign operations may require cash sourced from our domestic subsidiaries.tax payments made in the current six-month period. The change in income taxes payable reflects the impact of the interim tax provision. The changes in other current assets, current operating lease liabilities, and current portion of long-term debt were insignificant.
Operating Cash Provided by Operating ActivitiesFlows
The significant components of net cash provided by operating activities are summarized below. UNIFI analyzes net cash provided by
|
| For the Six Months Ended |
| |||||
|
| December 31, 2023 |
|
| January 1, 2023 |
| ||
Net loss |
| $ | (33,116 | ) |
| $ | (25,871 | ) |
Equity in earnings of unconsolidated affiliates |
|
| (293 | ) |
|
| (381 | ) |
Depreciation and amortization expense |
|
| 13,988 |
|
|
| 13,478 |
|
Recovery of income taxes |
|
| — |
|
|
| (3,799 | ) |
Non-cash compensation expense |
|
| 1,387 |
|
|
| 1,976 |
|
Deferred income taxes |
|
| (1,714 | ) |
|
| (304 | ) |
Subtotal |
|
| (19,748 | ) |
|
| (14,901 | ) |
|
|
|
|
|
|
| ||
Receivables, net |
|
| 14,367 |
|
|
| 40,552 |
|
Inventories |
|
| 15,081 |
|
|
| 25,422 |
|
Accounts payable and other current liabilities |
|
| (4,763 | ) |
|
| (47,599 | ) |
Other changes |
|
| (2,420 | ) |
|
| 3,798 |
|
Net cash provided by operating activities |
| $ | 2,517 |
|
| $ | 7,272 |
|
The decrease in operating activities utilizing the major components of the statements of cash flows prepared under the indirect method.
|
| For the Six Months Ended |
| |||||
|
| December 24, 2017 |
|
| December 25, 2016 |
| ||
Net income including non-controlling interest |
| $ | 20,762 |
|
| $ | 13,496 |
|
Loss on sale of business |
|
| — |
|
|
| 1,662 |
|
Equity in earnings of unconsolidated affiliates |
|
| (3,298 | ) |
|
| (473 | ) |
Depreciation and amortization expense |
|
| 11,135 |
|
|
| 9,731 |
|
Non-cash compensation expense |
|
| 3,569 |
|
|
| 1,862 |
|
Deferred income taxes |
|
| (6,282 | ) |
|
| 5,335 |
|
Subtotal |
|
| 25,886 |
|
|
| 31,613 |
|
|
|
|
|
|
|
|
|
|
Distributions received from unconsolidated affiliates |
|
| 8,678 |
|
|
| 1,500 |
|
Other changes |
|
| (14,175 | ) |
|
| (15,817 | ) |
Net cash provided by operating activities |
| $ | 20,389 |
|
| $ | 17,296 |
|
The increasewas primarily due to weaker earnings in net cash provided by operating activities from the prior six-month period to the current six-month period wascompared to the prior six-month period.
Investing Cash Flows
Investing activities primarily due to distributions received from PAL of $7,178 and a comparably lower build of working capital. The increase was partially offset by lower consolidated earnings, consistent with the comparable decrease in Adjusted EBITDA discussed above.
Cash Used in Investing Activities and Cash Provided by Financing Activities
UNIFI utilized $11,345 (net) for investing activities and was provided $3,963 (net) from financing activities during the current six-month period.
Significant investing activities include $11,360includes $5,982 for capital expenditures,expenditures. UNIFI expects recent and future capital projects to provide benefits to future profitability. The additional assets from these capital projects consist primarily relating to ongoing maintenance capital expendituresof machinery and equipment.
Financing Cash Flows
Financing activities primarily include net payments on the completionABL Revolver and start-up ofpayments on the fourth production lineABL Term Loan.
Share Repurchase Program
As described in the REPREVE® Recycling Center, which is intended to increase UNIFI’s capacity to produce recycled polyester Chip for internal consumption and external sales.Note 7, “Shareholders’ Equity,” no share repurchases have been completed in fiscal 2024.
25
Significant financing activities include $7,600 for net borrowings against long-term debt. The borrowings helped fund the investing activities described above.
Contractual Obligations
UNIFI has incurredincurs various financial obligations and commitments in its normalthe ordinary course of business. Financial obligations are considered to represent known future cash payments that UNIFI is required to make under existing contractual arrangements, such as debt and lease agreements.
There have been no material changes in the scheduled maturities of UNIFI’s contractual obligations as disclosed in the table under the heading “Contractual Obligations” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 20172023 Form 10-K.10-K, except for the capital purchase obligations are approximately $6,000, $0 and $19,000 for fiscal years 2024, 2025 and 2026, respectively.
Off-Balance Sheet Arrangements
UNIFI is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on UNIFI’s financial condition, results of operations, liquidity, or capital expenditures.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The SEC has defined a company’s most critical accounting policies as those involving accounting estimates that require management to make assumptions about matters that are highly uncertain at the time and where different reasonable estimates or changes in the accounting estimates from quarter to quarter could materially impact the presentation of the financial statements. UNIFI’s critical accounting policies are discussed in the 20172023 Form 10-K. There werehave been no material changes to theseUNIFI’s critical accounting policies during the current period.in fiscal 2024.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
UNIFI is exposed to market risks associated with changes in interest rates, fluctuations in foreign currency exchange rates, and raw material and commodity costs, which may adversely affect its financial position, results of operations, or cash flows. UNIFI does not enter into derivative financial instruments for trading purposes, nor is it a party to any leveraged financial instruments.
Interest Rate Risk
UNIFI is exposed to interest rate risk through its borrowing activities. As of December 24, 2017,31, 2023, UNIFI had borrowings under its ABL Revolver and ABL Term LoanFacility that totaled $111,900 and contain variable rates of interest; however, UNIFI hedges a significant portion of such interest rate variability using interest rate swaps. As of December 24, 2017, after considering the variable rate debt obligations that have been hedged and UNIFI’s outstanding debt obligations with fixed rates of interest,$121,800. UNIFI’s sensitivity analysis indicates that a 50-basis point interest rate increase in LIBOR as of December 24, 201731, 2023 would result in an increase in annual interest expense of less than $200.approximately $600.
Foreign Currency Exchange Rate Risk
UNIFI conducts its business in various foreign countries and in various foreign currencies. EachA complete discussion of UNIFI’s subsidiaries may enter into transactions (sales, purchases, fixed purchase commitments, etc.) that are denominated in currencies other than the subsidiary’s functional currency and thereby expose UNIFI to foreign currency exchange rate risk. UNIFI may enter into foreign currency forward contracts to hedge this exposure. UNIFI may also enter into foreign currency forward contracts to hedge its exposure for certain equipment or inventory purchase commitments. risk is included in the 2023 Form 10-K and is supplemented by the following disclosures.
As of December 24, 2017,31, 2023, UNIFI had no outstanding foreign currency forward contracts.
A significant portion of raw materials purchased by UNIFI’s Brazilian subsidiary are denominated in USD, requiring UNIFI to regularly exchange BRL. During recent fiscal years, UNIFI was negatively impacted by a devaluation of the BRL. Predicting fluctuations in the BRL is impracticable. Discussion and analysis surrounding the impact of fluctuations of the BRL as well as the RMB on UNIFI’s results of operations are included above in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
As of December 24, 2017, UNIFI’s subsidiaries outside the United States, whose functional currency is other than the USD, held approximately 16.7% of UNIFI’s consolidated total assets. UNIFI does not enter into31, 2023, foreign currency derivatives to hedge its net investment in its foreign operations.exchange rate risk positions included the following:
As of December 24, 2017, $44,996, or 92.6%, of UNIFI’s cash and cash equivalents was held outside the United States, of which $31,061 was held in USD and $12,439 was held in BRL.
|
| Approximate |
| |
Percentage of total consolidated assets held by UNIFI's subsidiaries outside the U.S. whose functional currency |
|
| 29.9 | % |
|
|
|
| |
Cash and cash equivalents held outside the U.S.: |
|
|
| |
Denominated in USD |
| $ | 13,259 |
|
Denominated in RMB |
|
| 6,707 |
|
Denominated in BRL |
|
| 14,789 |
|
Denominated in other foreign currencies |
|
| 256 |
|
Total cash and cash equivalents held outside the U.S. |
| $ | 35,011 |
|
Percentage of total cash and cash equivalents held outside the U.S. |
|
| 97.3 | % |
|
|
|
| |
Cash and cash equivalents held inside the U.S. in USD by foreign subsidiaries |
| $ | 943 |
|
Raw Material and Commodity Cost Risks
A significant portioncomplete discussion of UNIFI’s raw materialsmaterial and energy costs are derived from petroleum-based chemicals. The prices for petroleum and petroleum-related products and energy costs are volatile and dependent on global supply and demand dynamics, including certain geo-political risks. A sudden risecommodity cost risks is included in the price of petroleum and petroleum-based products could have a material impact on UNIFI’s profitability. UNIFI does not use financial instruments to hedge its exposure to changes in these costs. The costs of the primary raw materials that UNIFI uses throughout all of its operations are generally based on USD pricing, and such materials are purchased at market or at fixed prices that are established with individual vendors as part of the purchasing process for quantities expected to be consumed in the ordinary course of business.2023 Form 10-K.
Other Risks
UNIFI is also exposed to politicalgeopolitical risk, including changing laws and regulations governing international trade, such as quotas, tariffs, and tax laws. The degree of impact and the frequency of these events cannot be predicted.
26
Item 4. Controls and Procedures
As of December 24, 2017,31, 2023, an evaluation of the effectiveness of UNIFI’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was performed under the supervision and with the participation of UNIFI’s management, including the principal executive officer and principal financial officer. Based on that evaluation, UNIFI’s principal executive officer and principal financial officer concluded that UNIFI’s disclosure controls and procedures are effective to ensure that information required to be disclosed by UNIFI in theits reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that information required to be disclosed by UNIFI in the reports itUNIFI files or submits under the Exchange Act is accumulated and communicated to UNIFI’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in UNIFI’s internal control over financial reporting during the three months ended December 24, 201731, 2023 that have materially affected, or are reasonably likely to materially affect, UNIFI’s internal control over financial reporting.
27
PART II—OTHEROTHER INFORMATION
Item 1. Legal Proceedings
We are from time to time a party to various lawsuits, claims, and other legal proceedings that arise in the ordinary course of business. With respect to all such lawsuits, claims, and proceedings, we record reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. We do not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on our results of operations, financial position, or cash flows. We maintain liability insurance for certain risks that is subject to certain self-insurance limits.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 6. Exhibits
|
There have been no material changes in UNIFI’s risk factors from those disclosed in “Item 1A. Risk Factors” in the 2017 Form 10-K.
| Description | |
3.1 | ||
3.2 | ||
| ||
10.1 | ||
| ||
10.2 | ||
31.1+ | ||
31.2+ | ||
| ||
| ||
|
| |
101.SCH | Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document | |
104 | Cover Page Interactive Data File (embedded within the | |
+ Filed herewith.
++ Furnished herewith.
28
|
|
|
|
|
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
UNIFI, INC. | |||
(Registrant) | |||
Date: | By: | /s/ | |
| |||
Executive Vice President & Chief Financial Officer Treasurer | |||
(Principal Financial Officer and Principal Accounting Officer) |
29
41