UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~(Mark One)~~


(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, 2017~~September 26, 2021



☐	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~~		(Zip Code)

(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	☐ ~~(Do not check if a smaller reporting company)~~	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,~~October 29, 2021, there were ~~18,297,602~~18,528,972 shares of the registrant’s common stock, par value $0.10 per share, outstanding.

FORWARD-LOOKING STATEMENTS

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” 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,~~fact; and 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;~~

•

the competitive nature of the textile industry and the impact of global competition;

~~changes in the trade regulatory environment and governmental policies and legislation;~~

•

changes in the trade regulatory environment and governmental policies and legislation;

~~the availability, sourcing and pricing of raw materials;~~

•

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;~~

•

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 products;~~

•

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 financial condition of the Company’s customers;

~~the loss of a significant customer;~~

•

the loss of a significant customer or brand partner;

~~the success of the Company’s strategic business initiatives;~~

•

natural disasters, industrial accidents, power or water shortages, extreme weather conditions and other disruptions at one of the Company’s facilities;

~~volatility of financial and credit markets;~~

•

the disruption of operations, global demand, or financial performance as a result of catastrophic or extraordinary events, including epidemics or pandemics such as the recent strain of coronavirus (“COVID-19”);

~~the ability to service indebtedness and fund capital expenditures and strategic business initiatives;~~

•

the success of the Company’s strategic business initiatives;

~~availability of and access to credit on reasonable terms;~~

•

the volatility of financial and credit markets;

~~changes in foreign currency exchange, interest and inflation rates;~~

•

the ability to service indebtedness and fund capital expenditures and strategic business initiatives;

~~fluctuations in production costs;~~

•

the availability of and access to credit on reasonable terms;

~~the ability to protect intellectual property;~~

•

changes in foreign currency exchange, interest and inflation rates;

~~employee relations;~~

•

fluctuations in production costs;

~~the impact of environmental, health and safety regulations;~~

•

the ability to protect intellectual property;

~~the operating performance of joint ventures and other equity investments;~~

•

the strength and reputation of the Company’s brands;

~~the accurate financial reporting of information from equity method investees; and~~

•

employee relations;

•

the ability to attract, retain and motivate key employees;

~~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, 2017 or elsewhere in this report.~~
•
the impact of climate change or environmental, health and safety regulations;

•

the impact of tax laws, the judicial or administrative interpretations of tax laws and/or changes in such laws or interpretations; 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 27, 2021 or in the Company’s other periodic reports and information filed with the Securities and Exchange Commission (“SEC”).

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.

UNIFI, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS ~~AND SIX MONTHS~~ ENDED ~~DECEMBER 24, 2017~~SEPTEMBER 26, 2021

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION
		Page

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets as of ~~December 24, 2017~~September 26, 2021 and June ~~25, 2017~~27, 2021	1

	Condensed Consolidated Statements of Income for the Three Months Ended September 26, 2021 and ~~Six Months Ended December 24, 2017 and December 25, 2016~~September 27, 2020	2

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended September 26, 2021 and ~~Six Months Ended December 24, 2017 and December 25, 2016~~September 27, 2020	3

	Condensed Consolidated Statements of ~~Cash Flows~~Shareholders’ Equity for the ~~Six~~Three Months Ended ~~December 24, 2017~~September 26, 2021 and ~~December 25, 2016~~September 27, 2020	4

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 26, 2021 and September 27, 2020	5

	Notes to Condensed Consolidated Financial Statements	56

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2017

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3727

Item 4.	Controls and Procedures	3829

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	3930

Item ~~1A.~~2.	~~Risk Factors~~Unregistered Sales of Equity Securities and Use of Proceeds	3930

Item 6.	Exhibits	4030

	Signatures	4131

PART I—~~FINANCIAL~~FINANCIAL INFORMATION

Item 1.

Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)

	December 24, 2017			June 25, 2017			September 26, 2021			June 27, 2021
ASSETS
Cash and cash equivalents	$	48,615		$	35,425		$	49,556		$	78,253
Receivables, net		80,847			81,121			103,031			94,837
Inventories		116,239			111,405			150,511			141,221
Income taxes receivable		10,612			9,218			3,368			2,392
Other current assets		6,854			6,468			12,816			12,364
Total current assets		263,167			243,637			319,282			329,067
Property, plant and equipment, net		203,699			203,388			203,339			201,696
Operating lease assets								9,561			8,772
Deferred income taxes		4,161			2,194			2,462			1,208
Investments in unconsolidated affiliates		113,623			119,513
Other non-current assets		2,815			2,771			14,061			14,625
Total assets	$	587,465		$	571,503		$	548,705		$	555,368

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	35,420		$	41,499		$	57,528		$	54,259
Accrued expenses		12,990			16,144
Income taxes payable		1,833			1,351			5,177			1,625
Current operating lease liabilities								2,150			1,856
Current portion of long-term debt		17,112			17,060			15,428			16,045
Other current liabilities								19,319			31,638
Total current liabilities		67,355			76,054			99,602			105,423
Long-term debt		115,588			111,382			68,465			70,336
Non-current operating lease liabilities								7,524			7,032
Deferred income taxes								4,473			6,686
Other long-term liabilities		11,093			11,804			7,644			7,472
Deferred income taxes		7,140			11,457
Total liabilities		201,176			210,697			187,708			196,949

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; 18,523,978 and 18,490,338 shares issued and outstanding as of September 26, 2021 and June 27, 2021, respectively)								1,852			1,849
Capital in excess of par value		55,215			51,923			65,770			65,205
Retained earnings		360,702			339,940			353,477			344,797
Accumulated other comprehensive loss		(31,457	)		(32,880	)		(60,102	)		(53,432	)
Total Unifi, Inc. shareholders’ equity		386,289			360,806
Non-controlling interest		—			—
Total shareholders’ equity		386,289			360,806			360,997			358,419
Total liabilities and shareholders’ equity	$	587,465		$	571,503		$	548,705		$	555,368

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED ~~STATEMENTS~~STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

	For the Three Months Ended						For the Six Months Ended							For the Three Months Ended
	December 24, 2017			December 25, 2016			December 24, 2017			December 25, 2016				September 26, 2021			September 27, 2020
Net sales	$	167,478		$	155,155		$	331,720		$	315,124			$	195,992		$	141,505
Cost of sales		144,802			133,025			285,752			269,447				169,895			126,944
Gross profit		22,676			22,130			45,968			45,677				26,097			14,561
Selling, general and administrative expenses		14,626			12,868			27,489			24,278				12,670			11,364
Benefit for bad debts		(72	)		(95	)		(131	)		(462	)			(80	)		(887	)
Other operating expense, net		348			319			663			249				256			1,178
Operating income		7,774			9,038			17,947			21,612				13,251			2,906
Interest income		(181	)		(183	)		(262	)		(329	)			(258	)		(125	)
Interest expense		1,190			914			2,375			1,606				696			871
Loss on sale of business		—			1,662			—			1,662
Equity in (earnings) loss of unconsolidated affiliates		(211	)		367			(3,298	)		(473	)
Equity in earnings of unconsolidated affiliates															(280	)		(93	)
Income before income taxes		6,976			6,278			19,132			19,146				13,093			2,253
(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
Provision (benefit) for income taxes															4,413			(1,179	)
Net income														$	8,680		$	3,432

Net income attributable to Unifi, Inc. per common share:
Net income per common share:													Net income per common share:
Basic	$	0.65		$	0.25		$	1.14		$	0.78			$	0.47		$	0.19
Diluted	$	0.63		$	0.25		$	1.12		$	0.76			$	0.46		$	0.18

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CO~~MPREHENSIVE~~COMPREHENSIVE INCOME

(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

	For the Three Months Ended
	September 26, 2021			September 27, 2020
Net income	$	8,680		$	3,432
Other comprehensive (loss) income:
Foreign currency translation adjustments		(6,926	)		(182	)
Changes in interest rate swaps, net of tax of $77 and $78, respectively		256			254
Other comprehensive (loss) income, net		(6,670	)		72
Comprehensive income	$	2,010		$	3,504

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED ~~STATEMENTS~~STATEMENTS OF ~~CASH FLOWS~~SHAREHOLDERS’ EQUITY

(Unaudited)

(In thousands)

For the Six Months Ended

December 24, 2017

December 25, 2016

Cash and cash equivalents at beginning of year

$
35,425

$
16,646

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:

Equity in earnings of unconsolidated affiliates

(3,298
)

(473
)
Distributions received from unconsolidated affiliates

8,678

1,500

Depreciation and amortization expense

11,135

9,731

Non-cash compensation expense

3,569

1,862

Loss on sale of business

—

1,662

Excess tax benefit on stock-based compensation plans

—

(1,111
)
Deferred income taxes

(6,282
)

5,335

Other, net

(206
)

34

Changes in assets and liabilities:

Receivables, net

267

6,043

Inventories

(4,556
)

(6,751
)
Other current assets

(210
)

837

Income taxes

(945
)

(6,841
)
Accounts payable and accrued expenses

(8,796
)

(8,160
)
Other, net

271

132

Net cash provided by operating activities

20,389

17,296

Investing activities:

Capital expenditures

(11,360
)

(19,343
)
Other, net

15

(180
)
Net cash used in investing activities

(11,345
)

(19,523
)

Financing activities:

Proceeds from ABL Revolver

59,200

65,200

Payments on ABL Revolver

(46,600
)

(61,600
)
Proceeds from ABL Term Loan

—

14,500

Payments on ABL Term Loan

(5,000
)

(4,750
)
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

Effect of exchange rate changes on cash and cash equivalents

183

(349
)
Net increase in cash and cash equivalents

13,190

11,844

Cash and cash equivalents at end of period

$
48,615

$
28,490

	Shares			Common Stock			Capital in Excess of Par Value			Retained Earnings		Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
Balance at June 27, 2021		18,490		$	1,849		$	65,205		$	344,797	$	(53,432	)	$	358,419
Options exercised		9			1			(1	)		—		—			—
Conversion of restricted stock units		38			4			(4	)		—		—			—
Stock-based compensation		—			—			582			—		—			582
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions		(13	)		(2	)		(12	)		—		—			(14	)
Other comprehensive loss, net of tax		—			—			—			—		(6,670	)		(6,670	)
Net income		—			—			—			8,680		—			8,680
Balance at September 26, 2021		18,524		$	1,852		$	65,770		$	353,477	$	(60,102	)	$	360,997

	Shares			Common Stock		Capital in Excess of Par Value			Retained Earnings		Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
Balance at June 28, 2020		18,446		$	1,845	$	62,392		$	315,724	$	(63,806	)	$	316,155
Options exercised		—			—		—			—		—			—
Conversion of restricted stock units		2			—		—			—		—			—
Stock-based compensation		—			—		425			—		—			425
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions		(1	)		—		(7	)		—		—			(7	)
Other comprehensive income, net of tax		—			—		—			—		72			72
Net income		—			—		—			3,432		—			3,432
Balance at September 27, 2020		18,447		$	1,845	$	62,810		$	319,156	$	(63,734	)	$	320,077

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	For the Three Months Ended
	September 26, 2021			September 27, 2020
Cash and cash equivalents at beginning of period	$	78,253		$	75,267
Operating activities:
Net income		8,680			3,432
Adjustments to reconcile net income to net cash (used) provided by operating activities:
Equity in earnings of unconsolidated affiliates		(280	)		(93	)
Depreciation and amortization expense		6,365			6,112
Non-cash compensation expense		660			509
Deferred income taxes		(3,463	)		(2,072	)
Other, net		(100	)		(132	)
Changes in assets and liabilities:
Receivables, net		(9,462	)		(23,499	)
Inventories		(12,190	)		4,853
Other current assets		(1,056	)		2,083
Income taxes		2,606			191
Accounts payable and other current liabilities		(7,393	)		15,314
Other, net		(175	)		1,224
Net cash (used) provided by operating activities		(15,808	)		7,922

Investing activities:
Capital expenditures		(9,300	)		(1,864	)
Other, net		31			—
Net cash used by investing activities		(9,269	)		(1,864	)

Financing activities:
Proceeds from ABL Revolver		—			—
Payments on ABL Revolver		—			—
Payments on ABL Term Loan		(2,500	)		(2,500	)
Proceeds from construction financing		882			—
Payments on finance lease obligations		(927	)		(945	)
Other, net		(222	)		(7	)
Net cash used by financing activities		(2,767	)		(3,452	)

Effect of exchange rate changes on cash and cash equivalents		(853	)		222
Net (decrease) increase in cash and cash equivalents		(28,697	)		2,828
Cash and cash equivalents at end of period	$	49,556		$	78,095

See accompanying notes to condensed consolidated financial statements.

Unifi, Inc.

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” or “our”), is a ~~multi-national~~multinational company that manufactures and sells innovative ~~synthetic~~recycled and ~~recycled~~synthetic 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 and other end-use ~~markets.~~markets (UNIFI’s indirect customers). We refer to these indirect customers as “brand partners.” Polyester ~~yarns~~products include partially oriented yarn (“POY”), 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~~which include a range of specialized, ~~yarns, premium~~ value-added ~~(“PVA”) yarns~~ and commodity ~~yarns,~~solutions, with principal geographic markets in the Americas, Asia and ~~Asia.~~

Europe. UNIFI has direct manufacturing operations in ~~four~~4 countries and participates in joint ventures with operations in Israel and the United States ~~the most significant of which is a 34% non-controlling partnership interest in Parkdale America, LLC~~ (“~~PAL”~~U.S.”)~~, a producer of cotton and synthetic yarns for sale to the global textile industry and apparel market.~~

2. Basis of Presentation; Condensed Notes

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles in the ~~United States~~U.S. (“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, 2017~~27, 2021 (the ~~“2017~~“2021 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~~September 26, 2021. Unifi, Inc.’s remaining material operating subsidiaries’ fiscal quarter ~~for Unifi, Inc.’s Brazilian, Chinese, Colombian and Sri Lankan subsidiaries~~ ended on ~~December 31, 2017.~~September 30, 2021. 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. The three-month ~~and six-month~~ periods ended ~~December 24, 2017~~September 26, 2021 and ~~December 25, 2016 each~~September 27, 2020 both consisted of 13 ~~and 26 fiscal weeks, respectively.~~

~~Reclassifications~~

~~Certain reclassifications of prior years’ data have been made to conform to the current year presentation.~~weeks.

3. Recent Accounting Pronouncements

~~Issued and Pending Adoption~~

~~In May 2014, the Financial Accounting Standards Board (the “FASB”) issued~~ ~~Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~. Subsequent ASUs have been issued to provide clarity and defer the effective date of the new guidance. 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

~~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 guidance is effective for UNIFI’s fiscal 2019.

~~In February 2016, 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. While UNIFI has not yet determined the full effect of the new guidance on its ongoing financial reporting, as of June 25, 2017, 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 did 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 as 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’s consolidated financial statements.

Based on UNIFI’s review of ~~ASUs~~Accounting Standards Updates issued since the filing of the ~~2017~~2021 Form 10-K, there have been no ~~other~~ newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a ~~significant~~material impact on UNIFI’s consolidated financial statements.

4. Revenue Recognition

~~4. Receivables, Net~~

~~Receivables,~~The following tables present net ~~consists~~sales grouped by (i) classification of ~~the following:~~sales type and (ii) REPREVE^® Fiber sales:

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

	For the Three Months Ended
	September 26, 2021		September 27, 2020
Third-party manufacturer	$	193,297	$	138,841
Service		2,695		2,664
Net sales	$	195,992	$	141,505

	For the Three Months Ended
	September 26, 2021		September 27, 2020
REPREVE^® Fiber	$	71,906	$	51,612
All other products and services		124,086		89,893
Net sales	$	195,992	$	141,505

Third-Party Manufacturer

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

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

~~There have~~by the associated revenue contracts. The Polyester Segment derives service revenue for toll manufacturing and the All Other category derives service revenue for transportation services.

REPREVE^® Fiber

REPREVE^® Fiber represents our collection of fiber products on our recycled platform, with or without added technologies.

Beginning in the fourth quarter of fiscal 2021, as a result of its annual review of products meeting the REPREVE^® Fiber definition, UNIFI began including certain product sales in the Asia Segment that were previously excluded from the REPREVE^® Fiber sales metric. The prior period has been ~~no material changes in~~adjusted to reflect such sales and the amount reclassed was not material.

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 ~~allowance~~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 ~~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
)

all periods presented.

5. Receivables, Net

Receivables, net consists of the following:

	September 26, 2021			June 27, 2021
Customer receivables	$	86,997		$	81,921
Allowance for uncollectible accounts		(2,396	)		(2,525	)
Reserves for quality claims		(598	)		(703	)
Net customer receivables		84,003			78,693
Other receivables		19,028			16,144
Total receivables, net	$	103,031		$	94,837

Other receivables includes $15,416 and $13,391 of banker’s acceptance notes (“BANs”) as of September 26, 2021 and June 27, 2021, respectively, in connection with the settlement of certain customer receivables generated from trade activity in the Asia Segment. The BANs are redeemable upon maturity from the drawing financial institutions, or earlier at a discount.

6. Inventories

Inventories consists of the following:

	December 24, 2017			June 25, 2017			September 26, 2021			June 27, 2021
Raw materials	$	38,342		$	36,748		$	61,826		$	54,895
Supplies		6,537			6,104			10,449			10,692
Work in process		6,819			7,399			8,701			7,516
Finished goods		66,872			63,121			72,090			70,525
Gross inventories		118,570			113,372			153,066			143,628
Inventory reserves		(2,331	)		(1,967	)
Net realizable value adjustment								(2,555	)		(2,407	)
Total inventories	$	116,239		$	111,405		$	150,511		$	141,221

7. Other Current Assets

~~6. Property, Plant and Equipment, Net~~

~~Property, plant and equipment, net (“PP&E”) consists~~Other current assets consist 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

	September 26, 2021		June 27, 2021
Vendor deposits	$	3,604	$	3,341
Recovery of non-income taxes		3,274		3,456
Prepaid expenses and other		3,265		2,753
Value-added taxes receivable		2,204		2,484
Contract assets		469		330
Total other current assets	$	12,816	$	12,364

~~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

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

~~7. Accrued Expenses~~

~~Accrued expenses~~

Recovery of Non-Income Taxes

Brazilian companies are subject to various taxes on business operations, including turnover taxes used to fund social security and unemployment programs, commonly referred to as PIS/COFINS taxes. UNIFI, along with numerous other companies in Brazil, challenged the constitutionality of certain state taxes historically included in the PIS/COFINS tax base, alleging that such state taxes resulted in over-taxation.

On May 13, 2021, Brazil’s supreme court ruled in favor of taxpayers, and on July 7, 2021, the Brazilian Internal Revenue Service withdrew its appeal. Following the supreme court decision, the federal government will not issue refunds for these taxes but instead will allow for the overpayments and associated interest to be applied as credits against future PIS/COFINS tax obligations.

There are no limitations or restrictions on UNIFI’s ability to recover the associated overpayment claims as future income is generated. We expect to recover the entirety of our claims over the 40-month period following June 2021. Thus, UNIFI has reflected current and non-current assets accordingly.

8. Property, Plant and Equipment, Net

Property, plant and equipment (“PP&E”), net 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

	September 26, 2021			June 27, 2021
Land	$	3,154		$	3,184
Land improvements		16,372			16,372
Buildings and improvements		159,143			160,122
Assets under finance leases		22,000			22,000
Machinery and equipment		610,768			609,414
Computers, software and office equipment		24,792			24,848
Transportation equipment		10,558			10,461
Construction in progress		20,686			17,834
Gross PP&E		867,473			864,235
Less: accumulated depreciation		(657,668	)		(656,576	)
Less: accumulated amortization – finance leases		(6,466	)		(5,963	)
Total PP&E, net	$	203,339		$	201,696

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

~~(1)~~

~~Includes the effects of interest rate swaps.~~

~~(2)~~

~~Scheduled maturity dates for capital lease obligations range from July 2018 to November 2027.~~

~~ABL Facility~~

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

~~Unifi, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

9. Other ~~Long-Term Liabilities~~Non-Current Assets

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. Income Taxes~~

~~The provision for income taxes was as follows:~~

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
%

H.R. 1, formerly known as the Tax Cuts and Jobs Act, was enacted on December 22, 2017. H.R. 1 includes significant changes to existing tax law, including a permanent reduction to the U.S. federal corporate income tax rate 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 reduction to the U.S. federal corporate income tax rate from 35% to 21% 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.

The effective tax rates for the periods presented above are lower than the U.S. statutory tax rate primarily due to the one-time 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 taxnon-current assets ~~and liabilities is provisional because the number cannot be calculated until the underlying timing differences are known rather than estimated.~~

Specific to the toll charge, UNIFI has recorded a $1,700 provisional charge, net 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 of 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.

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.

~~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’s 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 considers 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 result of the lower U.S. statutory tax rate under H.R. 1.

~~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
)

~~(1)~~

~~Certain U.S. NOLs and capital losses outside the U.S. consolidated tax filing group.~~

~~(2)~~

~~Presented net of certain NOL carryforward deferred tax assets.~~

~~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 during the six months ended December 24, 2017 or in the two most recently completed fiscal years.~~

~~Unifi, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~12. Stock-Based Compensation~~

The following table provides information as of December 24, 2017 with respect to the number of securities remaining available for future issuance under the Unifi, Inc. 2013 Incentive Compensation Plan (the “2013 Plan”):

~~Authorized under the 2013 Plan~~	~~1,000~~
~~Plus: Certain awards expired, forfeited or otherwise terminated unexercised~~	~~343~~
~~Less: Awards granted to employees~~	~~(678~~	)
~~Less: Awards granted to non-employee directors~~	~~(133~~	)
~~Available for issuance under the 2013 Plan~~	~~532~~

~~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. 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:

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, 2017 and December 25, 2016, 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 include cash and cash equivalents, receivables, accounts payable and accrued expenses. The financial statement carrying amounts of these items approximate the fair value due to their short-term nature.

~~14. Accumulated Other Comprehensive Loss~~

~~The components of and the changes in accumulated other comprehensive loss, net of tax, as applicable,~~ consist 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
)

	September 26, 2021		June 27, 2021
Recovery of non-income taxes	$	7,638	$	8,063
Intangible assets, net		3,604		3,978
Investments in unconsolidated affiliates		2,377		2,159
Vendor deposits and other		442		425
Total other non-current assets	$	14,061	$	14,625

Recovery of Non-Income Taxes

~~Unifi, Inc.~~As previously described in Note 7, “Other Current Assets,” UNIFI recorded a recovery of non-income taxes and reflected current and non-current assets accordingly.

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

A summary of the after-tax effects of the components of other comprehensive (loss) income, net for the three-month and six-month periods ended December 24, 2017 and December 25, 2016 is included in the accompanying condensed consolidated statements of comprehensive income.

~~15. 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

Net income attributable to Unifi, Inc.

$
11,802

$
4,591

$
20,762

$
13,994

Basic weighted average shares

18,273

18,128

18,260

18,045

Net potential common share equivalents – stock options and RSUs

378

314

338

346

Diluted weighted average shares

18,651

18,442

18,598

18,391

Excluded from diluted weighted average shares:

Anti-dilutive common share equivalents

60

185

290

271

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.

~~16.~~ Investments in Unconsolidated Affiliates ~~and Variable Interest Entities~~

As of September 26, 2021, UNIFI ~~currently maintains~~maintained investments in ~~three~~2 entities classified as unconsolidated affiliates: ~~PAL;~~ U.N.F. Industries, Ltd. (“UNF”); and UNF America LLC (“UNFA”) (collectively “UNFs”). 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 risk 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.

~~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 treated as a partnership for income tax reporting purposes located in Ridgeway, Virginia.

~~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,~~September 26, 2021, UNIFI’s open purchase orders related to this supply agreement were ~~$3,158.~~$1,914.

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

UNIFI’s raw material purchases under this supply agreement ~~consist~~consisted of the following:

	For the Six Months Ended				For the Three Months Ended
	December 24, 2017		December 25, 2016		September 26, 2021		September 27, 2020
UNFA					$	5,830	$	3,527
UNF	$	1,141	$	1,250		71		—
UNFA		10,406		9,579
Total	$	11,547	$	10,829	$	5,901	$	3,527

As of ~~December 24, 2017~~September 26, 2021 and June ~~25, 2017,~~27, 2021, UNIFI had combined accounts payable due to UNF and UNFA of ~~$1,483~~$3,077 and ~~$2,301,~~$2,955, respectively.

UNIFI has determined that UNF and UNFA are variable interest entities ~~(“VIEs”)~~ and that UNIFI is the primary beneficiary of these entities, based on the terms of the supply agreement discussed above. As a result, these entities should be consolidated with UNIFI’s financial results. As (i) UNIFI purchases substantially all of the output from the two ~~entities,~~entities; (ii) the two entities’ balance sheets constitute 3% or less of UNIFI’s current assets, total assets and total ~~liabilities~~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. 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.

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		September 26, 2021		June 27, 2021
Current assets	$	265,491	$	8,797	$	274,288	$	8,406	$	7,931
Noncurrent assets		171,256		971		172,227
Non-current assets								625		659
Current liabilities		56,134		3,262		59,396		4,281		3,967
Noncurrent liabilities		2,933		—		2,933
Non-current liabilities								—		—
Shareholders’ equity and capital accounts		377,680		6,506		384,186		4,750		4,623

UNIFI’s portion of undistributed earnings		41,432		1,411		42,843		2,318		2,100

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

	For the Three Months Ended
	September 26, 2021		September 27, 2020
Net sales	$	6,150	$	3,213
Gross profit		544		441
Income from operations		127		46
Net income		127		49
Depreciation and amortization		33		36

Distributions received		—		—

10. Other Current Liabilities

Other current liabilities consists of the following:

	September 26, 2021		June 27, 2021
Payroll and fringe benefits	$	8,706	$	10,204
Deferred revenue		2,654		2,691
Incentive compensation		2,377		12,356
Current portion of supplemental post-employment plan		1,097		1,087
Interest rate swaps		901		1,234
Other		3,584		4,066
Total other current liabilities	$	19,319	$	31,638

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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

1411. Long-Term Debt

Debt Obligations

		Weighted Average
	Scheduled	Interest Rate as of				Principal Amounts as of
	Maturity Date	September 26, 2021				September 26, 2021			June 27, 2021
ABL Revolver	December 2023		0.0	%		$	—		$	—
ABL Term Loan	December 2023		3.2	%	(1)		75,000			77,500
Finance lease obligations	(2)		3.6	%			7,548			8,475
Construction financing	(3)		2.3	%			1,764			882
Total debt							84,312			86,857
Current ABL Term Loan							(12,500	)		(12,500	)
Current portion of finance lease obligations							(2,928	)		(3,545	)
Unamortized debt issuance costs							(419	)		(476	)
Total long-term debt						$	68,465		$	70,336

(1)	Includes the effects of interest rate swaps.

(2)	Scheduled maturity dates for finance lease obligations range from May 2022 to November 2027.

(3)	Refer to the discussion below under the subheading “─Construction Financing” for further information.

ABL Facility

On December 18, 2018, Unifi, Inc. and certain of its subsidiaries entered into a Third Amendment to Amended and Restated Credit Agreement and Second Amendment to Amended and Restated Guaranty and Security Agreement (the “2018 Amendment”). The 2018 Amendment amended the Amended and Restated Credit Agreement, dated as of March 26, 2015, by and among Unifi, Inc. and a syndicate of lenders, as previously amended (together with all previous and subsequent amendments, the “Credit Agreement”). The Credit Agreement provides for a $200,000 senior secured credit facility (the “ABL Facility”), including 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 December 18, 2023.

ABL Facility borrowings bear interest at LIBOR plus an applicable margin of 1.25% to 1.75%, or the Base Rate (as defined in the Credit Agreement) plus an applicable margin of 0.25% to 0.75%, with interest currently being paid on a monthly basis. As of September 26, 2021 and June 27, 2021, ABL Facility borrowings carried interest at LIBOR plus 1.25%.

UNIFI currently maintains 3 interest rate swaps that fix LIBOR at approximately 1.9% on $75,000 of variable-rate debt. Such swaps are scheduled to terminate in May 2022.

Construction Financing

In May 2021, UNIFI entered into an agreement with a third party lender that provides for construction-period financing for certain texturing machinery anticipated in our capital allocation plans. UNIFI will record project costs to construction in progress and the corresponding liability to construction financing (within long-term debt). The agreement provides for monthly, interest-only payments during the construction period, at a rate of LIBOR plus 2.2%, and contains terms customary for a financing of this type.

The agreement provides for 60 monthly payments, which will commence upon the completion of the construction period with an interest rate of approximately 2.8%. In connection with this construction financing arrangement, UNIFI recorded long-term debt of $1,764 as of September 26, 2021.

Scheduled Debt Maturities

The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the remainder of fiscal 2022, the following four fiscal years and thereafter:

	Fiscal 2022		Fiscal 2023		Fiscal 2024		Fiscal 2025		Fiscal 2026		Thereafter
ABL Revolver	$	—	$	—	$	—	$	—	$	—	$	—
ABL Term Loan		10,000		10,000		55,000		—		—		—
Finance lease obligations		2,618		1,257		1,301		1,195		733		444
Total ⁽¹⁾	$	12,618	$	11,257	$	56,301	$	1,195	$	733	$	444

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

(1)

Total reported excludes $1,764 for construction financing, described above.

12. Other Long-Term Liabilities

Other long-term liabilities consists of the following:

	September 26, 2021		June 27, 2021
Uncertain tax positions	$	3,168	$	3,045
Supplemental post-employment plan		2,168		2,090
Other		2,308		2,337
Total other long-term liabilities	$	7,644	$	7,472

13. Income Taxes

The provision (benefit) for income taxes and effective tax rate were as follows:

	For the Three Months Ended
	September 26, 2021			September 27, 2020
Provision (benefit) for income taxes	$	4,413		$	(1,179	)
Effective tax rate		33.7	%		(52.3	)%

U.S. Tax Law Change

On July 20, 2020, the U.S. Treasury issued and enacted final regulations related to global intangible low-tax income (“GILTI”) that allow certain U.S. taxpayers to elect to exclude foreign income that is subject to a high effective tax rate from their GILTI inclusions. The GILTI high-tax exclusion is an annual election and is retroactively available for tax years beginning after December 31, 2017. The three-month period ended September 27, 2020 includes a discrete tax benefit of $4,789 related to the retroactive election.

Valuation Allowance

UNIFI regularly assesses whether it is more-likely-than-not that some portion or all of its deferred tax assets will not be realized. UNIFI considers 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 consideration the effects of local tax law. The three-month period ended September 27, 2020 includes discrete tax expense of $2,127 for a change in valuation allowance related to the GILTI regulations enacted during that period.

Income Tax Expense

UNIFI’s provision (benefit) for income taxes for the three months ended September 26, 2021 and September 27, 2020 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.

The effective tax rate for the three months ended September 26, 2021 was higher than the U.S. federal statutory rate primarily due to earnings taxed at higher rates in foreign jurisdictions, deferred tax on unremitted earnings, and foreign withholding taxes.

The effective tax rate for the three months ended September 27, 2020 was lower than the U.S. federal statutory rate primarily due to the retroactive GILTI high-tax exclusion for prior periods. This benefit was partially offset by the change in valuation allowance for deferred tax assets and current U.S. tax on GILTI.

Unrecognized Tax Benefits

UNIFI regularly assesses the outcomes of both completed and ongoing examinations to ensure that its provision for income taxes is sufficient. Certain returns that remain open to examination have utilized carryforward tax attributes generated in prior tax years, including net operating losses, which could potentially be revised upon examination.

14. Shareholders’ Equity

On October 31, 2018, UNIFI announced that its 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. Under the 2018 SRP, purchases may be made from time to time in the open market at prevailing market prices, through private transactions or block trades. The timing and amount of repurchases will depend on market conditions, share price, applicable legal requirements and other factors. The share repurchase authorization is discretionary and has no expiration date. 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. UNIFI may discontinue repurchases at any time that management determines additional purchases are not beneficial or advisable.

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The following table summarizes UNIFI’s repurchases and retirements of its common stock under the 2018 SRP for the fiscal periods noted:

	Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs		Average Price Paid per Share		Approximate Dollar Value that May Yet Be Repurchased Under Publicly Announced Plans or Programs
Fiscal 2019		—	$	—	$	50,000
Fiscal 2020		84	$	23.72	$	48,008
Fiscal 2021		—	$	—	$	48,008
Fiscal 2022 (through September 26, 2021)		—	$	—	$	48,008
Total		84	$	23.72	$	48,008

Repurchased shares are retired and have the status of authorized and unissued shares. The cost of the repurchased shares is recorded as a reduction to common stock to the extent of the par value of the shares acquired and the remainder is allocated between capital in excess of par value and retained earnings, on a pro rata basis.

15. Stock-Based Compensation

On October 29, 2020, UNIFI’s shareholders approved the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (the “2020 Plan”). The 2020 Plan set the number of shares available for future issuance pursuant to awards granted under the 2020 Plan to 850. 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 the number of awards remaining available for future issuance under the 2020 Plan as of September 26, 2021:

Authorized under the 2020 Plan	850
Plus: Awards expired, forfeited or otherwise terminated unexercised	—
Less: Awards granted to employees	(75	)
Less: Awards granted to non-employee directors	(4	)
Available for issuance under the 2020 Plan	771

There were 0 awards granted or issued from an equity compensation plan for the three month periods ending September 26, 2021 or September 27, 2020.

On October 27, 2021, UNIFI’s shareholders approved the Unifi, Inc. Employee Stock Purchase Plan (the “ESPP”) as described in the Company’s definitive proxy statement on Schedule 14A filed with the SEC on September 2, 2021. The ESPP reserved 100 Company shares, is intended to be a qualified plan under applicable tax law, and allows eligible employees to purchase Company shares at a 15% discount from market value.

16. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities

UNIFI uses 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 currently maintains 3 interest rate swaps that fix LIBOR at approximately 1.9% on $75,000 of variable-rate debt. UNIFI does not enter into derivative contracts for speculative purposes.

The following table presents details regarding UNIFI’s hedging activities:

	For the Three Months Ended
	September 26, 2021			September 27, 2020
Interest expense	$	696		$	871
Increase in fair value of interest rate swaps		(333	)		(332	)
Impact of interest rate swaps to increase interest expense		347			329

For the three months ended September 26, 2021 and September 27, 2020, there were no significant changes to UNIFI’s assets and liabilities measured at fair value, and there were 0 transfers into or out of the levels of the fair value hierarchy.

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

17. Accumulated Other Comprehensive Loss

The components of and the changes in accumulated other comprehensive loss, net of tax, as applicable, consist of the following:

	Foreign Currency Translation Adjustments				Changes in Interest Rate Swaps			Accumulated Other Comprehensive Loss
Balance at June 27, 2021	$	(52,480	)		$	(952	)	$	(53,432	)
Other comprehensive (loss) income		(6,926	)	��		256			(6,670	)
Balance at September 26, 2021	$	(59,406	)		$	(696	)	$	(60,102	)

A summary of the after-tax effects of the components of other comprehensive (loss) income, net for the three-month periods ended September 26, 2021 and September 27, 2020 is included in the accompanying condensed consolidated statements of comprehensive income.

18. Earnings Per Share

The components of the calculation of earnings per share (“EPS”) are as follows:

	For the Three Months Ended
	September 26, 2021		September 27, 2020
Net income	$	8,680	$	3,432
Basic weighted average shares		18,515		18,447
Net potential common share equivalents		482		251
Diluted weighted average shares		18,997		18,698
Excluded from the calculation of common share equivalents:
Anti-dilutive common share equivalents		287		546
Excluded from the calculation of diluted shares:
Unvested stock options that vest upon achievement of certain market conditions		333		333

19. 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~~Unifi Kinston, LLC (“UK”), a subsidiary of Unifi, Inc., completed its acquisition of polyester filament manufacturing assets located in Kinston, North Carolina (“Kinston”) 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~~UK 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~~UK of any future responsibility for environmental remediation, other than participation with DuPont, if so called upon, with regard to ~~UNIFI’s~~UK’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~~ UK continues to own property (the “Kentec site”) acquired in the 2004 transaction with INVISTA that has contamination from DuPont’s prior operations and is monitored by DEQ. ~~This~~The Kentec 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,~~UK, DuPont ~~has~~and UK had a duty to monitor and report the environmental status of the Kentec site to DEQ. ~~UNIFI expects~~Effective April 10, 2019, UK assumed sole remediator responsibility of the Kentec site pursuant to ~~assume that responsibility in fiscal 2018~~its contractual obligations with INVISTA and ~~will be entitled to receive from DuPont seven years~~received $180 of net monitoring and reporting costs ~~less certain adjustments. At that time, UNIFI will assume responsibility for any future remediation of the site.~~due from DuPont. In connection with monitoring, UK expects to sample and report to DEQ annually. At this time, UNIFI ~~has no basis to determine~~does not expect any active site remediation will be required but expects that any costs associated with active site remediation, if ~~or when it will have any obligation to perform further remediation or the potential cost thereof.~~ever required, would likely be immaterial.

~~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

1513

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

~~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.~~20. Related Party Transactions

There were 0 related party receivables as of September 26, 2021 or June 27, 2021.

Related party payables for Salem Leasing Corporation consisted of the following:

	September 26, 2021		June 27, 2021
Accounts payable	$	457	$	469
Operating lease obligations		1,049		1,133
Finance lease obligations		5,850		6,149
Total related party payables	$	7,356	$	7,751

The following are the Company’s significant related party transactions:

		For the Three Months Ended
Affiliated Entity	Transaction Type	September 26, 2021		September 27, 2020
Salem Leasing Corporation	Payments for transportation equipment costs and finance lease debt service	$	1,028	$	939

21. 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,~~principal executive officer, who is the chief operating decision maker (the “CODM”), in order to assess performance and allocate resources. Characteristics of ~~the organization~~UNIFI which were relied upon in making the determination of reportable segments include the nature of the products sold, the ~~organization’s~~ 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 operating segments are aggregated into three~~ has four reportable ~~segments based on similarities between the operating segments’ economic characteristics, nature of products sold, type of customer, methods of distribution and regulatory environment.~~segments.

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 Polyester Segment exhibit similar long-term economic characteristics and primarily sell into an economic trading zone covered by the USMCA, NAFTA and CAFTA (collectively, the regions comprising these economic trading zones are referred to as “NACA”) to similar customers utilizing similar methods of distribution. These operations derive revenues primarily from manufacturing 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 U.S. 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 Asia Segment exhibit similar long-term economic characteristics and sell to similar customers utilizing similar methods of distribution primarily in Asia and Europe, which are outside of the NACA region. The Asia Segment primarily sources polyester-based products from third-party suppliers and sells to knitters and weavers that produce fabric for the apparel, automotive, home furnishings, industrial and other end-use markets principally in Asia. The Asia Segment includes sales offices in China.

•

The Brazil Segment primarily manufactures and sells polyester-based products to knitters and weavers that produce fabric for the apparel, automotive, home furnishings, industrial and other end-use markets principally in South America. The Brazil Segment includes a manufacturing location and sales offices in Brazil.

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.

•

The operations within the Nylon Segment exhibit similar long-term economic characteristics and primarily sell into the NACA region to similar customers utilizing similar methods of distribution. These operations derive revenues primarily from manufacturing nylon-based products with sales to knitters and weavers that produce fabric primarily for the apparel, hosiery and medical markets. 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. The Nylon Segment consists of sales and manufacturing operations in the U.S. and Colombia.

In addition to UNIFI’s reportable segments, ~~the selected financial information presented below includes~~ an All Other ~~category.~~category is included in the tables below. 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).~~services. 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.

~~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,~~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.

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Selected financial information is presented below:

	For the Three Months Ended December 24, 2017										For the Three Months Ended September 26, 2021
	Polyester		Nylon		International		All Other		Total		Polyester		Asia		Brazil		Nylon		All Other		Total
Net sales	$	90,316	$	25,103	$	51,046	$	1,013	$	167,478	$	89,467	$	51,428	$	33,738	$	20,159	$	1,200	$	195,992
Cost of sales		81,740		22,027		40,072		963		144,802		81,173		44,457		23,798		19,433		1,034		169,895
Gross profit		8,576		3,076		10,974		50		22,676		8,294		6,971		9,940		726		166		26,097
Segment depreciation expense		3,973		552		397		64		4,986		4,482		—		383		435		158		5,458
Segment Profit	$	12,549	$	3,628	$	11,371	$	114	$	27,662	$	12,776	$	6,971	$	10,323	$	1,161	$	324	$	31,555

	For the Three Months Ended December 25, 2016											For the Three Months Ended September 27, 2020
	Polyester		Nylon		International		All Other			Total		Polyester		Asia		Brazil		Nylon		All Other		Total
Net sales	$	86,671	$	28,302	$	38,868	$	1,314		$	155,155	$	69,076	$	37,723	$	22,606	$	11,029	$	1,071	$	141,505
Cost of sales		76,200		25,679		29,419		1,727			133,025		64,444		33,145		17,993		10,364		998		126,944
Gross profit (loss)		10,471		2,623		9,449		(413	)		22,130
Gross profit													4,632		4,578		4,613		665		73		14,561
Segment depreciation expense		3,384		530		228		244			4,386		4,403		—		430		442		164		5,439
Segment Profit (Loss)	$	13,855	$	3,153	$	9,677	$	(169	)	$	26,516
Segment Profit												$	9,035	$	4,578	$	5,043	$	1,107	$	237	$	20,000

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

~~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						For the Three Months Ended
	December 24, 2017			December 25, 2016			September 26, 2021			September 27, 2020
Polyester	$	17,489		$	18,921		$	8,294		$	4,632
Asia								6,971			4,578
Brazil								9,940			4,613
Nylon		6,390			5,760			726			665
International		21,972			21,719
All Other		117			(723	)		166			73
Segment gross profit		45,968			45,677			26,097			14,561
Selling, general and administrative expenses		27,489			24,278			12,670			11,364
Benefit for bad debts		(131	)		(462	)
Provision (benefit) for bad debts								(80	)		(887	)
Other operating expense, net		663			249			256			1,178
Operating income		17,947			21,612			13,251			2,906
Interest income		(262	)		(329	)		(258	)		(125	)
Interest expense		2,375			1,606			696			871
Loss on sale of business		—			1,662
Equity in earnings of unconsolidated affiliates		(3,298	)		(473	)		(280	)		(93	)
Income before income taxes	$	19,132		$	19,146		$	13,093		$	2,253

The reconciliations of segment total assets to consolidated total assets are as follows:

	December 24, 2017		June 25, 2017		September 26, 2021		June 27, 2021
Polyester	$	266,522	$	270,819	$	299,708	$	285,939
Asia						72,417		41,121
Brazil						84,881		85,950
Nylon		60,210		57,789		43,355		68,034
International		95,198		80,824
Segment total assets		421,930		409,432		500,361		481,044
Other current assets		33,033		27,375		23,692		48,972
Other PP&E		15,988		14,904		20,253		21,175
Other operating lease assets						1,023		1,116
Other non-current assets		2,891		279		3,376		3,061
Investments in unconsolidated affiliates		113,623		119,513
Total assets	$	587,465	$	571,503	$	548,705	$	555,368

~~Unifi, Inc.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~20.~~22. Supplemental Cash Flow Information

Cash payments for interest and taxes consist of the following:

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

	For the Three Months Ended
	September 26, 2021		September 27, 2020
Interest, net of capitalized interest of $106 and $45, respectively	$	644	$	836
Income tax payments, net		5,091		602

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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. The three months ended September 26, 2021 includes an income tax payment of $2,125 related to the recovery of non-income taxes described in Note 7, “Other Current Assets.”

Non-Cash Investing and Financing Activities

As of ~~December 24, 2017~~September 26, 2021 and June ~~25, 2017, $2,610~~27, 2021, $1,524 and ~~$3,234,~~$2,080, respectively, were included in accounts payable for unpaid capital expenditures. As of ~~December 25, 2016~~September 27, 2020 and June ~~26, 2016, $3,700~~28, 2020, $800 and ~~$4,197,~~$630, respectively, were included in accounts payable for unpaid capital expenditures.

During the ~~six~~three months ended ~~December 25, 2016,~~September 26, 2021 and September 27, 2020, UNIFI recorded ~~$5,139~~non-cash activity relating to ~~construction in progress~~finance leases of $0 and ~~long-term debt, in connection with a historical construction financing arrangement.~~

$878, respectively.

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,~~September 26, 2021, while a reference to the “prior period” refers to the three-month period ended December 25, 2016. A reference to the “current six-month period” refers to the six-month period ended December 24, 2017, while a reference to the “prior six-month period” refers to the six-month period ended December 25, 2016.September 27, 2020. Such references may be accompanied by certain phrases for added clarity. The current period and the prior period each consisted of 13 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 ended September 26, 2021 and ~~six months ended December 24, 2017 and December 25, 2016,~~September 27, 2020, and, to the extent applicable, any material changes from the information discussed in the ~~2017~~2021 Form 10-K or other important intervening developments or information. These discussions should be read in conjunction with the ~~2017~~2021 Form 10-K for more detailed and background ~~information.~~information about our business, operations and financial condition. Discussion of foreign currency translation is primarily associated with the weakening of the Brazilian Real (“BRL”) and changes in the Chinese Renminbi (“RMB”) versus the U.S. Dollar (“USD”). In discussion of operating results in this report, we refer to our operations in the “NACA” region, which is the region comprised of the trade zones covered by USMCA, NAFTA and CAFTA-DR.

All ~~currency and share~~ amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted.

Overview and Significant General Matters

UNIFI ~~remains focused~~focuses 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~~three supporting ~~pillars, such as investing~~pillars: (1) engaging in ~~commercial expansion;~~strategic relationships with like-minded entities, (2) growing our existing portfolio of technologies and ~~capabilities; engaging in strategic partnerships;~~capabilities, and ~~investing in UNIFI’s people~~(3) expanding our supply chain to best serve our direct and ~~teams.~~indirect customers. UNIFI remains committed to ~~these strategic initiatives,~~this strategy, which ~~it believes~~we believe will increase profitability and generate improved cash flows from operations.

UNIFI has ~~three~~four reportable segments for its operations – the Polyester Segment, the ~~Nylon~~Asia Segment, the Brazil Segment and the ~~International~~Nylon Segment – as well as certain ancillary operations that include for-hire transportation services, which comprise an All Other category. The ancillary operations classified within All Other are insignificant for all periods presented; therefore, UNIFI’s discussion and analysis of those activities is generally limited to their impact on consolidated results, where appropriate.

~~Significant highlights~~COVID-19 Pandemic

The COVID-19 pandemic adversely impacted our operating results for the prior period as a result of global demand declines that pressured our sales and profitability performance. Despite the lingering effects and uncertainty of the COVID-19 pandemic, our operating results have improved significantly from the prior period to the current period, primarily due to the restoration of global demand levels and consumer spending.

Recent Trade Initiatives

UNIFI remains committed to pursuing relief from the elevated levels of low-cost and subsidized polyester textured yarn (“Subject Imports”) entering the U.S. market from foreign countries. Trade petition efforts to slow Subject Imports from China and India were successful during calendar 2019.

Due to the continued pressure from Subject Imports on our Polyester Segment revenues and gross margins in the U.S. market, UNIFI is again a petitioner to the United States Department of Commerce (“Commerce Department”) and the United States International Trade Commission (“ITC”) relating to Subject Imports from Indonesia, Malaysia, Thailand, and Vietnam (the “Subject Countries”). For such countries, preliminary antidumping duty rates are currently in effect. On October 19, 2021, the Commerce Department announced final antidumping duty deposit rates on imports of polyester textured yarn from the Subject Countries. The ITC is expected to announce its final determination on November 30, 2021.

We believe both trade petitions on Subject Imports are necessary to normalize the U.S. polyester market for fair pricing and competition, and a positive outcome in the ongoing petition will aid in generating incremental revenue for the Polyester Segment.

Adverse Impacts of Elevated Input Costs and Global Production Volatility

The prior period benefited from stable, low raw material costs, although suppressed global demand levels prevented UNIFI from generating meaningful operating results. As fiscal 2021 concluded, global economic recovery, domestic weather events, supply constraints and general inflationary pressures have led to higher input costs in fiscal 2022. For the majority of our portfolio, we have been able to implement selling price adjustments to protect gross margins in the current period, and we have navigated the higher cost environment better than in recent prior years. However, the acceleration of input costs and the current ~~six-month period include the following, each of which is outlined in more detail below:~~

~~Net sales for the current period increased $12,323, or 7.9%,~~elevated levels remain headwinds to ~~$167,478, compared to $155,155 for the prior period, and increased $11,433, or 7.4%, when excluding the impact of foreign currency translation;~~ our underlying performance.

Net sales for the current six-month period increased $16,596, 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% compared~~In addition to the ~~prior period,~~recent pressures from input costs, UNIFI is experiencing inefficiencies in the global supply chain in connection with (i) freight and ~~represented more than 45%~~logistics slowdowns in foreign markets; (ii) a tighter labor pool in the U.S.; and (iii) suppressed productivity resulting from (a) pandemic-related lockdowns in certain regions of ~~consolidated net sales;~~

~~Gross margin was 13.5%~~Asia and (b) energy management measures taken in China during September and October 2021. While our businesses are not currently materially impacted by these adverse events and circumstances, the existing challenges could worsen and/or occur for ~~the current period, compared~~prolonged periods and eventually become material impacts to ~~14.3% for the prior period,~~our Asia and ~~was 13.9% for the current six-month period, compared to 14.5% for the prior six-month period;~~Polyester segments.

~~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 profit and gross margin for UNIFI and for each reportable segment;~~

~~Net income attributable to Unifi, Inc. (“Net Income”) and diluted EPS;~~

•

sales volume and revenue for UNIFI and for each reportable segment;

•

gross profit and gross margin for UNIFI and for each reportable segment;

•

net income and diluted EPS;

•

Segment Profit, ~~(Loss),~~ which ~~represents~~equals segment gross profit ~~(loss)~~ plus segment depreciation expense;

~~unit conversion margin, which represents unit net sales price less unit raw material costs, for UNIFI and for each reportable segment;~~

•

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;~~

•

working capital, which represents current assets less current liabilities;

~~Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), which represents Net Income before net interest expense, income tax expense and depreciation and amortization expense;~~

•

Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), which represents Net income 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 EBITDA, which represents EBITDA adjusted to exclude, from time to time, certain other adjustments necessary to understand and compare the underlying results of UNIFI;

Adjusted Net Income, which represents Net Income 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;

•

Adjusted Net Income, which represents net income calculated under GAAP, adjusted to exclude 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 Income divided by UNIFI’s diluted weighted average common shares outstanding; and~~

•

Adjusted EPS, which represents Adjusted Net Income divided by UNIFI’s diluted weighted average common shares outstanding;

•

Adjusted Working Capital, which equals receivables plus inventories and other current assets, less accounts payable and other current liabilities; and

~~Adjusted Working Capital, which represents receivables plus inventory, less accounts payable and accrued expenses.~~

•

Net Debt, which represents debt principal less cash and cash equivalents.

EBITDA, Adjusted EBITDA, Adjusted ~~Net Income, 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 (a) items directly related to our asset base (primarily depreciation and amortization) and (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 Income 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 ~~inventory~~inventories and receivables. Adjusted Working Capital is a metric used in the determination of variable compensation.

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.

Review of Results of Operations

Three Months Ended September 26, 2021 Compared to Three Months Ended September 27, 2020

Consolidated Overview

The below tables provide:

•

the components of net income and the percentage increase or decrease over the prior fiscal year amounts, and

•

a reconciliation from net income to EBITDA and Adjusted EBITDA.

Following the tables is a discussion and analysis of the significant components of net income.

~~Non-GAAP Reconciliations~~Net income

	For the Three Months Ended
	September 26, 2021						September 27, 2020
				% of Net Sales						% of Net Sales			% Change
Net sales	$	195,992			100.0		$	141,505			100.0			38.5
Cost of sales		169,895			86.7			126,944			89.7			33.8
Gross profit		26,097			13.3			14,561			10.3			79.2
SG&A		12,670			6.4			11,364			8.0			11.5
Benefit for bad debts		(80	)		—			(887	)		(0.6	)		(91.0	)
Other operating expense, net		256			0.1			1,178			0.8			(78.3	)
Operating income		13,251			6.8			2,906			2.1		nm
Interest expense, net		438			0.2			746			0.5			(41.3	)
Equity in earnings of unconsolidated affiliates		(280	)		(0.1	)		(93	)		—			201.1
Income before income taxes		13,093			6.7			2,253			1.6		nm
Provision (benefit) for income taxes		4,413			2.3			(1,179	)		(0.8	)	nm
Net income	$	8,680			4.4		$	3,432			2.4			152.9

nm – Not meaningful

EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)

The reconciliations of the amounts reported under GAAP for Net ~~Income~~income to EBITDA and Adjusted EBITDA ~~are~~were as follows:

	For the Three Months Ended
	September 26, 2021		September 27, 2020
Net income	$	8,680	$	3,432
Interest expense, net		438		746
Provision (benefit) for income taxes		4,413		(1,179	)
Depreciation and amortization expense ⁽¹⁾		6,308		6,052
EBITDA		19,839		9,051
		��
Other adjustments ⁽²⁾		—		—
Adjusted EBITDA	$	19,839	$	9,051

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

(1)

Within this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are reflected in interest expense, net. Within the accompanying condensed consolidated statements of cash flows, amortization of debt issuance costs is reflected in depreciation and amortization expense.

~~(1)~~(2)

For the ~~three and six months ended December 25, 2016, UNIFI incurred a loss on the sale of its historical investment in Renewables of $1,662.~~periods presented, there were no other adjustments necessary to reconcile Net income to Adjusted EBITDA.

Amounts presented in the reconciliations above may not be consistent with amounts included in the accompanying condensed consolidated financial statements. Any such inconsistencies are insignificant and are integral to the reconciliations.

Adjusted Net Income and Adjusted EPS (Non-GAAP Measures)

~~The tables below set forth reconciliations of (i) Income before~~For the current and the prior period, there were no adjustments necessary to reconcile Net income ~~taxes (“Pre-tax Income”), Provision for income taxes (“Tax Impact”) and Net Income~~ to Adjusted Net Income ~~and (ii) Diluted EPS to~~or Adjusted ~~EPS:~~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

~~(1)~~

In the three months ended December 24, 2017, UNIFI reversed a $3,807 valuation allowance on certain historical NOLs in connection with a tax status change unrelated to the federal tax reform legislation signed into law in December 2017.

~~(2)~~

For the three and six months ended December 25, 2016, UNIFI incurred a loss on the sale of its historical investment in Renewables of $1,662. There was no tax impact for this transaction as the loss was non-deductible.

~~Working Capital and Adjusted Working Capital~~

~~See the discussion under the heading “Working Capital” within “Liquidity and Capital Resources” below.~~

~~Results of Operations~~

~~Three Months Ended December 24, 2017 Compared to Three Months Ended December 25, 2016~~

~~Consolidated Overview~~

~~The components of Net Income, each component as a percentage of net sales and the percentage increase or decrease over the prior period amounts are as follows:~~

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

Consolidated net sales for the current period increased by ~~$12,323,~~$54,487, or ~~7.9%~~38.5%, asand consolidated sales volumes increased 12.8%, compared to the prior period.

~~Consolidated sales volumes increased 14.5%, attributable~~ The increases occurred primarily due to ~~continued growth~~(i) a rebound in ~~sales~~product demand following the adverse impact 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 increase inCOVID-19 pandemic on sales volumes in ~~our Polyester and International Segments was partially offset by soft yarn~~the prior period, (ii) incremental sales ~~in the Nylon Segment. We believe the softness in the domestic environment continues to be a challenge~~growth for the ~~textile supply chain, while our nylon business results also reflect the current global trend of declines~~Asia Segment led by REPREVE^® branded products, and (iii) opportunistically improved market share and pricing levels in ~~demand for nylon socks, ladies’ hosiery and intimate apparel.~~Brazil.

Consolidated average sales prices ~~decreased 6.3%~~increased 25.7%, primarily 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~~higher raw material costs.

REPREVE^® Fiber products ~~comprised more than 45% of net sales~~ for the current period ~~while representing approximately 40%~~comprised 37% of consolidated net sales, up from 36% for ~~fiscal 2017.~~the prior period.

~~Consolidated~~ Gross Profit

Gross profit for the current period increased by ~~$546,~~$11,536, or ~~2.5%~~79.2%, as compared to the prior period. Despite input cost and supply chain pressures for each of our segments, gross profit performance was better than anticipated.

•

For the Polyester Segment, gross profit benefited from the restoration of U.S. demand following the worst months of the COVID-19 pandemic and a better sales mix.

•

For the Asia Segment, gross profit increased from the prior period primarily due to higher sales volumes and a stronger sales mix.

•

For the Brazil Segment, gross profit increased significantly from the prior period primarily due to opportunistically improved market share and pricing levels.

•

For the Nylon Segment, gross profit exhibited no relevant change.

SG&A

SG&A increased from the ~~International Segment,~~prior period, primarily due to higher amortization from customer list assets acquired in fiscal 2021 and higher discretionary expenses in the current period, ~~gross margin rate was impacted by disproportionate growth~~following COVID-19 pandemic related restrictions and cost control in ~~lower-margin sales mix~~the prior period.

Benefit for Bad Debts

The current period benefit for bad debts reflects no material activity. The prior period reflects a benefit for general improvement in customer payment frequency following the adverse effects of the COVID-19 pandemic on customer health.

Other Operating Expense, Net

The current period and ~~pressure brought by higher~~prior period primarily reflect foreign currency transaction losses of $233 and $281, respectively, in addition to $881 of severance costs ~~compared~~recorded in the prior period.

Interest Expense, Net

Interest expense, net decreased from the prior period to the current period, primarily attributable to a lower average debt principal and interest rate.

Equity in Earnings of Unconsolidated Affiliates

There was no material activity for the current period or the prior period. ~~For~~

Income Taxes

Provision (benefit) for income taxes and the ~~Polyester Segment, the decline in gross margin~~effective tax rate ~~was primarily~~were as follows:

	For the Three Months Ended
	September 26, 2021			September 27, 2020
Provision (benefit) for income taxes	$	4,413		$	(1,179	)
Effective tax rate		33.7	%		(52.3	)%

The effective tax rate is subject to variation due to a ~~rise~~number of factors, including variability in ~~raw material costs, a greater~~pre-tax book income, the mix of ~~lower margin product sales~~income by jurisdiction, changes in deferred tax valuation allowances and ~~incremental depreciation,~~changes in statutes, regulations and case law. Additionally, the impacts of discrete and other rate impacting items are greater when income before income taxes is lower.

The increase in the effective tax rate from the prior period to the current period is primarily ~~due~~attributable to ~~expanded recycling operations,~~a discrete benefit in the prior period for the retroactive GILTI high-tax exclusion. This increase is partially offset by an expense recorded in the ~~conversion services performed~~prior period to increase the valuation allowance for ~~Eastman Chemical Company (“Eastman”) on bi-component machinery, a revenue stream that did not exist in~~deferred tax assets.

Net Income

Net income for the current period was $8,680, or $0.46 per diluted share, compared to net income of $3,432 or $0.18 per diluted share, for the prior period. The ~~Nylon Segment achieved an increase~~improvement in ~~gross margin rate due in part~~net income was primarily attributable to ~~a more favorable sales mix and cost management. Consolidated~~higher gross profit in the current period.

Adjusted EBITDA (Non-GAAP Financial Measure)

Adjusted EBITDA increased from the prior period to the current period, primarily due to higher gross profit.

Segment Overview

Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for the current ~~period also included approximately $200 of favorable foreign currency translation reflected in the International Segment.~~

~~Further details regarding the changes in net sales and gross profit, by reportable segment, follow.~~period.

Polyester 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 Polyester Segment, ~~are~~were as follows:

	For the Three Months Ended											For the Three Months Ended
	December 24, 2017				December 25, 2016							September 26, 2021					September 27, 2020
			% of Net Sales				% of Net Sales		% Change						% of Net Sales					% of Net Sales		% Change
Net sales	$	90,316		100.0	$	86,671		100.0		4.2		$	89,467			100.0	$	69,076			100.0		29.5
Cost of sales		81,740		90.5		76,200		87.9		7.3			81,173			90.7		64,444			93.3		26.0
Gross profit		8,576		9.5		10,471		12.1		(18.1	)		8,294			9.3		4,632			6.7		79.1
Depreciation expense		3,973		4.4		3,384		3.9		17.4			4,482			5.0		4,403			6.4		1.8
Segment Profit	$	12,549		13.9	$	13,855		16.0		(9.4	)	$	12,776			14.3	$	9,035			13.1		41.4

Segment net sales as a percentage of consolidated amounts													45.6	%				48.8	%
Segment Profit as a percentage of consolidated amounts													40.5	%				45.2	%

The change in net sales for the Polyester Segment iswas as follows:

Net sales for the prior period	$	86,671		$	69,076
Net change in average selling price and sales mix					15,914
Increase in sales volumes		6,192			4,477
Net change in average selling price and sales mix		(2,547	)
Net sales for the current period	$	90,316		$	89,467

The increase in net sales for the Polyester Segment from the prior period to the current period was primarily attributable to (i) higher average selling prices associated with higher polyester raw material costs, (ii) a better sales ~~of plastic bottle flake, recycled polyester Chip~~mix, and POY and (ii) the conversion services performed for Eastman on bi-component machinery. The unfavorable change in sales price and mix was due to (a) lower sales volumes of higher-priced textured and dyed yarns and (b)(iii) higher sales volumes in connection with demand restoration following the adverse impacts of ~~lower-priced plastic bottle flake, recycled polyester Chip and POY.~~the COVID-19 pandemic on the prior period.

The change in Segment Profit for the Polyester Segment iswas as follows:

Segment Profit for the prior period	$	13,855		$	9,035
Net decrease in underlying margins		(2,296	)
Change in underlying margins and sales mix					3,155
Increase in sales volumes		990			586
Segment Profit for the current period	$	12,549		$	12,776

The ~~decrease~~increase in Segment Profit for the Polyester Segment from the prior period to the current period was primarily attributable to (i) the adverse impact of the COVID-19 pandemic on cost absorption and facility utilization following lower sales volumes during the prior period and (ii) a better sales and production mix in the current period.

Asia 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 Asia Segment, were as follows:

	For the Three Months Ended
	September 26, 2021					September 27, 2020
				% of Net Sales					% of Net Sales		% Change
Net sales	$	51,428			100.0	$	37,723			100.0		36.3
Cost of sales		44,457			86.4		33,145			87.9		34.1
Gross profit		6,971			13.6		4,578			12.1		52.3
Depreciation expense		—			—		—			—		—
Segment Profit	$	6,971			13.6	$	4,578			12.1		52.3

Segment net sales as a percentage of consolidated amounts		26.2	%				26.7	%
Segment Profit as a percentage of consolidated amounts		22.1	%				22.9	%

The change in net sales for the Asia Segment was as follows:

Net sales for the prior period	$	37,723
Net increase in sales volumes		11,191
Favorable foreign currency translation effects		2,420
Change in average selling price and sales mix		94
Net sales for the current period	$	51,428

The increase in net sales for the Asia Segment from the prior period to the current period was primarily attributable to the ~~unfavorable~~continued momentum of REPREVE^®-branded products contributing to underlying sales growth, in addition to the adverse impacts of the COVID-19 pandemic on global demand in the prior period.

The RMB weighted average exchange rate was 6.47 RMB/USD and 6.91 RMB/USD for the current period and the prior period, respectively.

The change in Segment Profit for the Asia Segment was as follows:

Segment Profit for the prior period	$	4,578
Increase in sales volumes		1,358
Change in underlying margins and sales mix		742
Favorable foreign currency translation effects		293
Segment Profit for the current period	$	6,971

The increase in Segment Profit for the Asia Segment from the prior period to the current period was primarily attributable to higher sales volumes and a stronger sales mix ~~shift towards lower-margin products discussed above~~ in the ~~net sales analysis, along with raw material cost pressures, partially offset by the benefit~~current period.

Brazil Segment

The components of ~~the conversion services performed for Eastman on bi-component machinery and an increase in sales volumes.~~

~~Polyester Segment net sales and~~ Segment Profit, each component as a percentage of ~~total consolidated~~net sales and the percentage increase or decrease over the prior period amounts for the Brazil Segment, were ~~53.9%~~as follows:

	For the Three Months Ended
	September 26, 2021					September 27, 2020
				% of Net Sales					% of Net Sales		% Change
Net sales	$	33,738			100.0	$	22,606			100.0		49.2
Cost of sales		23,798			70.5		17,993			79.6		32.3
Gross profit		9,940			29.5		4,613			20.4		115.5
Depreciation expense		383			1.1		430			1.9		(10.9	)
Segment Profit	$	10,323			30.6	$	5,043			22.3		104.7

Segment net sales as a percentage of consolidated amounts		17.2	%				16.0	%
Segment Profit as a percentage of consolidated amounts		32.7	%				25.2	%

The change in net sales for the Brazil Segment was as follows:

Net sales for the prior period	$	22,606
Increase in average selling price and change in sales mix		11,397
Favorable foreign currency translation effects		620
Decrease in sales volumes		(885	)
Net sales for the current period	$	33,738

The increase in net sales for the Brazil Segment from the prior period to the current period was primarily attributable to higher selling prices in connection with (i) higher input costs and ~~45.4%, respectively,~~(ii) a better competitive position.

The BRL weighted average exchange rate was 5.24 BRL/USD and 5.39 BRL/USD for the current period ~~compared to 55.9%~~ and ~~52.3%, respectively,~~the prior period, respectively.

The change in Segment Profit for the Brazil Segment was as follows:

Segment Profit for the prior period	$	5,043
Increase in underlying margins		5,343
Favorable foreign currency translation effects		135
Decrease in sales volumes		(198	)
Segment Profit for the current period	$	10,323

The increase in Segment Profit for the Brazil Segment from the prior ~~period.~~period to the current period was primarily attributable to an improved sales mix and conversion margin stemming from an improved competitive position in Brazil.

Nylon 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 Nylon Segment, ~~are~~were as follows:

	For the Three Months Ended											For the Three Months Ended
	December 24, 2017				December 25, 2016							September 26, 2021					September 27, 2020
			% of Net Sales				% of Net Sales		% Change						% of Net Sales					% of Net Sales		% Change
Net sales	$	25,103		100.0	$	28,302		100.0		(11.3	)	$	20,159			100.0	$	11,029			100.0		82.8
Cost of sales		22,027		87.7		25,679		90.7		(14.2	)		19,433			96.4		10,364			94.0		87.5
Gross profit		3,076		12.3		2,623		9.3		17.3			726			3.6		665			6.0		9.2
Depreciation expense		552		2.2		530		1.8		4.2			435			2.2		442			4.0		(1.6	)
Segment Profit	$	3,628		14.5	$	3,153		11.1		15.1		$	1,161			5.8	$	1,107			10.0		4.9

Segment net sales as a percentage of consolidated amounts													10.3	%				7.8	%
Segment Profit as a percentage of consolidated amounts													3.7	%				5.5	%

The change in net sales for the Nylon Segment iswas as follows:

Net sales for the prior period	$	28,302		$	11,029
Decrease in sales volumes		(1,993	)
Increase in sales volumes					8,100
Net change in average selling price and sales mix		(1,206	)		1,030
Net sales for the current period	$	25,103		$	20,159

The ~~decrease~~increase in net sales for the Nylon Segment from the prior period to the current period was primarily attributable to ~~(i) lower~~an increase in sales volumes ~~as a result~~in the current period following the adverse impacts of ~~soft domestic market conditions~~the COVID-19 pandemic on sales volumes in ~~which nylon socks, ladies’ hosiery and intimates have experienced demand declines and (ii) a lower-priced sales mix.~~the prior period, in addition to higher selling prices in connection with higher raw material costs.

The change in Segment Profit for the Nylon Segment iswas as follows:

Segment Profit for the prior period	$	3,153		$	1,107
Net improvement in underlying margins		697
Decrease in sales volumes		(222	)
Increase in sales volumes					814
Net decrease in underlying margins					(760	)
Segment Profit for the current period	$	3,628		$	1,161

~~The increase in Segment Profit for the Nylon 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 15.0% and 13.1%, respectively, for the current period, compared to 18.2% and 11.9%, respectively, for the prior 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 period amounts for the International Segment are as follows:~~

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

~~The change in net sales for the International Segment is as follows:~~

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 increase in net sales for the International Segment~~ was ~~attributable to (i) higher sales volumes from our Asian subsidiaries, primarily relating to our recycled polyester Chip 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 translationessentially unchanged due to the ~~strengthening~~offsetting impacts of ~~the RMB and the BRL. 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 RMB weighted average exchange rate was 6.61 RMB/U.S. Dollar (“USD”) and 6.84 RMB/USD for the current period and the prior period, respectively. The BRL weighted average exchange rate was 3.24 BRL/USD and 3.29 BRL/USD for the current 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%, 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, primarily as a result of (i) an increase in compensation expenses due to recent talent acquisition and higher incentive compensation expenses and (ii) an increase in supplemental retirement plan expenses due to comparatively higher performance of the stock market index benchmark, partially offset by other net decreases that include fees paid to external service providers and other administrative expenses.

~~Consolidated Benefit for Bad Debts~~

~~There is no significant activity reflected in the current or prior periods.~~

~~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, net increased from the prior 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 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 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) 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 decreased in the current period versus the prior period, which was primarily attributable to lower depreciation expense. The earnings from the nylon joint ventures experienced an increase 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, partially offset by higher operating expenses.

~~Consolidated Adjusted EBITDA~~

Adjusted EBITDA for the current period was $13,893, compared to $14,468 for the prior period. The decrease was primarily attributable to higher operating expenses, as described in the discussions above.

~~Results of Operations~~

~~Six Months Ended December 24, 2017 Compared to Six Months Ended December 25, 2016~~

~~Consolidated Overview~~

~~The components of Net Income, each component as a percentage of net sales and the percentage increase or decrease over the prior six-month period amounts are as follows:~~

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~~

~~Consolidated net sales for the current six-month period increased by $16,596, or 5.3%, as compared to the prior six-month period.~~

Consolidated sales volumes increased 11.0%, attributable 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 compared to the prior six-month period. The Nylon Segment achieved an increase in gross margin rate due in part to a more favorable sales mix and cost management. For the International Segment, gross profit increased due to 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 $400 of favorable foreign currency translation.

~~Further details regarding the changes in net sales and gross profit, by reportable segment, follow.~~

~~Polyester 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 Polyester Segment are as follows:~~

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 Polyester Segment is as follows:~~

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 increase in net sales for the Polyester Segment was primarily attributable to (i) higher sales of plastic bottle flake, recycled polyester Chip and POY and (ii) the conversion services performed for Eastman on bi-component machinery. The unfavorable change 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.

~~The change in Segment Profit for the Polyester Segment is as follows:~~

~~Segment Profit for the prior six-month period~~	$	~~25,413~~
~~Net decrease in underlying margins~~		~~(1,893~~	)
~~Increase in sales volumes~~		~~1,809~~
~~Segment Profit for the current six-month period~~	$	~~25,329~~

The decrease in Segment Profit for the Polyester Segment was primarily attributable to the unfavorable sales mix shift towards lower-margin products discussed above in the net sales analysis, along with raw material cost pressures, partially offset by the benefit of the conversion services performed for Eastman on bi-component machinery and an increase in sales volumes.

Polyester 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.production mix.

~~Nylon 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 Nylon Segment are as follows:~~

For the Six Months Ended

December 24, 2017

December 25, 2016

% of
Net Sales

% of
Net Sales

%
Change

Net sales

$
51,930

100.0

$
56,797

100.0

(8.6
)
Cost of sales

45,540

87.7

51,037

89.9

(10.8
)
Gross profit

6,390

12.3

5,760

10.1

10.9

Depreciation expense

1,089

2.1

1,040

1.9

4.7

Segment Profit

$
7,479

14.4

$
6,800

12.0

10.0

~~The change in net sales for the Nylon Segment is as follows:~~

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 decrease in net sales for the Nylon Segment was primarily attributable to (i) lower sales volumes as a result of soft domestic market conditions in which nylon socks, ladies’ hosiery and intimates have experienced demand declines and (ii) a lower-priced sales mix.

~~The change in Segment Profit for the Nylon Segment is as follows:~~

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 Nylon 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~~

~~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 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 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

UNIFI’s primary capital requirements are for working capital, capital expenditures, debt service and ~~stock~~share repurchases. UNIFI’s primary sources of capital are cash generated from operations and borrowings available under the ABL ~~Revolver.~~Revolver of its credit facility. For the current ~~six-month~~ period, cash ~~generated from~~used by operations was ~~$20,389,~~$15,808, and, at ~~December 24, 2017,~~September 26, 2021, excess availability under the ABL Revolver was ~~$54,379.~~$73,693.

As of ~~December 24, 2017,~~September 26, 2021, all of UNIFI’s ~~$133,540~~$84,312 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, while ~~nearly all~~76% 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, 2017~~September 26, 2021 for domestic ~~and~~operations compared to foreign operations:

	Domestic		Foreign		Total		Domestic		Foreign		Total
Cash and cash equivalents	$	14	$	48,601	$	48,615	$	12,051	$	37,505	$	49,556
Borrowings available under financing arrangements		54,379		—		54,379		73,693		—		73,693
Liquidity	$	54,393	$	48,601	$	102,994	$	85,744	$	37,505	$	123,249

Working capital	$	90,441	$	105,371	$	195,812	$	85,254	$	134,426	$	219,680
Total debt obligations	$	133,540	$	—	$	133,540	$	84,312	$	—	$	84,312

~~Debt Obligations~~

~~ABL Facility~~

~~On March 26, 2015, Unifi, Inc.~~UNIFI’s primary cash requirements, in addition to normal course operating activities (e.g. working capital and ~~its subsidiary, Unifi Manufacturing, Inc.~~payroll), ~~entered into an Amended and Restated Credit Agreement (as subsequently amended, the “Amended Credit Agreement”) for a $200,000 senior secured credit facility (the ABL Facility) with a syndicate~~primarily include (i) capital expenditures that generally have commitments 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~~12 months, (ii) contractual obligations that support normal course ongoing operations and production, (iii) operating leases and finance leases, and (iv) debt service.

COVID-19 Pandemic Liquidity Considerations

Throughout the COVID-19 pandemic, UNIFI has not experienced any (i) substantial, prolonged headwinds relating to liquidity, (ii) significant outbreaks of ~~$100,000, once per fiscal year, if certain conditions~~COVID-19 among employees, nor (iii) other extensive disruptions to ongoing operations. The following reflect on UNIFI’s strong liquidity position and access to capital resources during the COVID-19 pandemic:

•

We have not accessed public or private capital markets for recent liquidity needs.

•

We do not currently expect our cost of or access to existing capital and funding sources to materially change as a result of the COVID-19 pandemic; however, new capital and funding sources (if any) may carry higher costs than our current structure.

•

We have not taken advantage of rent, lease or debt deferrals, forbearance periods or other concessions, nor have we modified any material agreements to provide concessions.

•

We have not relied on supply chain financing, structured trade payables or vendor financing.

•

We are not at material risk of not meeting our financial covenants.

•

We continue to maintain significant borrowing availability on our existing credit facility.

Now that global demand pressures 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 property~~less severe and ~~assets (together with all proceeds~~the textile supply chain appears to be recovering, we expect our significant cash balances 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% in~~available borrowings to continue to provide adequate liquidity during the ~~case of certain first-tier controlled foreign corporations, as required by the lenders)~~lingering pressures of the ~~stock of (or other ownership interests in) each~~COVID-19 pandemic. Accordingly, and because of the ~~Loan Parties (other than Unifi, Inc.)~~global demand recovery that has occurred thus far, we do not currently anticipate any adverse events or circumstances will place critical pressure on our liquidity position and/or ability to fund our operations, capital expenditures, and ~~certain subsidiaries~~expected business growth during fiscal 2022. Should global demand and economic activity decline beyond the short-term, UNIFI maintains the ability to (i) seek additional credit or financing arrangements or extensions of existing arrangements and/or (ii) re-implement cost reduction initiatives to preserve cash and secure the longevity of the ~~Loan Parties, together with all proceeds~~business and ~~products thereof.~~operations.

~~If excess availability under~~As we anticipate further business recovery to occur throughout fiscal 2022, we expect the ~~ABL Revolver falls below~~majority of our capital will be deployed to upgrade the defined Trigger Level, a financial covenant requiring the Loan Parties to maintain a fixed charge coverage ratio on a monthly basis of at least 1.05 to 1.00 becomes effective. The Trigger Level as of December 24, 2017 was $23,750. In addition, the ABL Facility contains restrictions on particular payments and investments, including

~~certain restrictions on the payment of dividends and share repurchases. Subject to specific provisions, the ABL Term Loan may be prepaid at par,~~machinery in ~~whole or in part, at any time before the maturity date, at UNIFI’s discretion.~~our Americas manufacturing facilities via capital expenditures.

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 was in compliance with all financial covenants in the Amended Credit Agreement, and the excess availability under the ABL Revolver was $54,379. At December 24, 2017, the fixed charge coverage ratio was 1.11 to 1.00 and UNIFI had $400 of standby letters of credit, none of which had been drawn upon.

~~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

		Weighted Average								Weighted Average
	Scheduled	Interest Rate as of	Principal Amounts as of						Scheduled	Interest Rate as of				Principal Amounts as of
	Maturity Date	December 24, 2017	December 24, 2017			June 25, 2017			Maturity Date	September 26, 2021				September 26, 2021			June 27, 2021
ABL Revolver	March 2020	3.3%	$	21,900		$	9,300		December 2023		0.0	%		$	—		$	—
ABL Term Loan ⁽¹⁾	March 2020	3.3%		90,000			95,000		December 2023		3.2	%	(1)		75,000			77,500
Capital lease obligations	(2)	3.7%		21,640			25,168
Finance lease obligations									(2)		3.6	%			7,548			8,475
Construction financing									(3)		2.3	%			1,764			882
Total debt				133,540			129,468								84,312			86,857
Current portion of capital lease obligations				(7,112	)		(7,060	)
Current portion of other long-term debt				(10,000	)		(10,000	)
Current ABL Term Loan															(12,500	)		(12,500	)
Current portion of finance lease obligations															(2,928	)		(3,545	)
Unamortized debt issuance costs				(840	)		(1,026	)							(419	)		(476	)
Total long-term debt			$	115,588		$	111,382							$	68,465		$	70,336

~~(1)~~

(1)	Includes the effects of interest rate swaps.

(2)	Scheduled maturity dates for finance lease obligations range from May 2022 to November 2027.

(3)	Refer to the discussion below under the subheading “─Construction Financing” for further information.

As of September 26, 2021:

•

UNIFI was in compliance with all financial covenants in the Credit Agreement,

•

excess availability under the ABL Revolver was $73,693,

•

the Trigger Level (as defined in the Credit Agreement) was $21,875, and

•

$0 of standby letters of credit were outstanding.

UNIFI currently maintains three interest rate ~~swaps.~~

~~(2) Scheduled maturity dates for capital lease obligations range from July 2018~~swaps that fix LIBOR at approximately 1.9% on $75,000 of variable-rate debt. Such swaps are scheduled to ~~November 2027.~~terminate in May 2022. Management will continue to monitor the expected termination of LIBOR and the impact on UNIFI’s operations. However, management does not expect (i) significant efforts are necessary to accommodate a termination of LIBOR or (ii) a significant impact to UNIFI’s operations upon a termination of LIBOR.

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.

Construction Financing

Scheduled Debt Maturities

The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the remainder of fiscal ~~2018 and~~2022, the following four fiscal years and thereafter:

	Fiscal 2022		Fiscal 2023		Fiscal 2024		Fiscal 2025		Fiscal 2026		Thereafter
ABL Revolver	$	—	$	—	$	—	$	—	$	—	$	—
ABL Term Loan		10,000		10,000		55,000		—		—		—
Finance lease obligations		2,618		1,257		1,301		1,195		733		444
Total ⁽¹⁾	$	12,618	$	11,257	$	56,301	$	1,195	$	733	$	444

(1)

Total reported excludes $1,764 for construction financing, described above.

Net Debt (Non-GAAP Financial Measure)

The reconciliations for Net Debt are as follows:

	September 26, 2021		June 27, 2021
Long-term debt	$	68,465	$	70,336
Current portion of long-term debt		15,428		16,045
Unamortized debt issuance costs		419		476
Debt principal		84,312		86,857
Less: cash and cash equivalents		49,556		78,253
Net Debt	$	34,756	$	8,604

Working Capital and Adjusted Working Capital (Non-GAAP Financial Measures)

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			September 26, 2021			June 27, 2021
Cash and cash equivalents	$	48,615		$	35,425		$	49,556		$	78,253
Receivables, net		80,847			81,121			103,031			94,837
Inventories		116,239			111,405			150,511			141,221
Income taxes receivable								3,368			2,392
Other current assets		17,466			15,686			12,816			12,364
Accounts payable		(35,420	)		(41,499	)		(57,528	)		(54,259	)
Accrued expenses		(12,990	)		(16,144	)
Other current liabilities		(18,945	)		(18,411	)		(19,319	)		(31,638	)
Income taxes payable								(5,177	)		(1,625	)
Current operating lease liabilities								(2,150	)		(1,856	)
Current portion of long-term debt								(15,428	)		(16,045	)
Working capital	$	195,812		$	167,583		$	219,680		$	223,644

Less: Cash and cash equivalents		(48,615	)		(35,425	)		(49,556	)		(78,253	)
Less: Other current assets		(17,466	)		(15,686	)
Less: Other current liabilities		18,945			18,411
Less: Income taxes receivable								(3,368	)		(2,392	)
Less: Income taxes payable								5,177			1,625
Less: Current operating lease liabilities								2,150			1,856
Less: Current portion of long-term debt								15,428			16,045
Adjusted Working Capital	$	148,676		$	134,883		$	189,511		$	162,525

Working capital ~~increased~~decreased from ~~$167,583~~$223,644 as of June ~~25, 2017~~27, 2021 to ~~$195,812~~$219,680 as of ~~December 24, 2017,~~September 26, 2021, while Adjusted Working Capital increased from ~~$134,883~~$162,525 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.~~$189,511.

The ~~increase~~decrease in cash and cash equivalents ~~reflects~~was primarily driven by the ~~strong performance~~increase in receivables and inventories, the routine payment of ~~our international subsidiaries~~incentive compensation earned in fiscal 2021, capital expenditures and ~~the intent to leave cash available in foreign jurisdictions for future expansion.~~scheduled debt service. The ~~decrease~~increase in receivables, net ~~is attributable to lower sales associated with the routine December shutdown period. The increase in~~and inventories iswas primarily attributable to increased ~~international~~ sales ~~activity~~in the current period along with the impact of increased sales pricing and higher raw material costs. The changes in income taxes receivable and other current assets were insignificant. The increase in accounts payable was consistent with the increase in sales and production activity. The decrease in other current liabilities was primarily attributable to the payment of incentive compensation earned in fiscal 2021. The increase in income taxes payable primarily reflects the impact of the ~~routine December shutdown period.~~interim tax provision. The ~~increase~~changes 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 timingoperating lease liabilities and current portion of ~~accrual and payment of (i) variable compensation earned in fiscal 2017 and (ii) routine payrolls. The change in other current liabilities is~~long-term debt were insignificant.

Capital Projects

During the current ~~six-month~~ period, UNIFI invested ~~approximately $11,400~~$9,300 in capital projects, primarily relating to ~~routine maintenance expenditures as well as the completion~~(i) eAFK Evo texturing machinery, (ii) further improvements in production capabilities and ~~start-up of the fourth production line~~technology enhancements in the ~~REPREVE~~^® ~~Recycling Center, which is intended~~Americas, and (iii) routine annual maintenance capital expenditures. Maintenance capital expenditures are necessary to ~~increase~~support UNIFI’s ~~capacity~~current operations, capacities and capabilities and exclude expenses relating to ~~produce recycled polyester Chip for internal consumption~~repairs and ~~external sales.~~costs that do not extend an asset’s useful life.

~~Through~~For the remainder of fiscal ~~2018, UNIFI expects~~2022, we expect to invest ~~an additional $18,600~~up to $34,700 in capital projects ~~(for~~for an aggregate ~~fiscal 2018~~annual estimate of ~~$30,000), which~~$40,000 to $44,000, to include (i) continuing the purchase and installation of new eAFK Evo texturing machines, (ii) making further improvements in production capabilities and technology enhancements in the Americas, and ~~(ii) routine~~(iii) annual maintenance capital ~~expenditures to allow continued efficient production.~~expenditures.

The total amount ultimately invested infor fiscal ~~2018~~2022 could be more or less than the ~~anticipated~~currently estimated amount depending on the timing and scale of contemplated initiatives and ~~other factors, and~~ is expected to be funded primarily by ~~a combination of~~existing cash ~~from operations~~ and ~~borrowings under the ABL Revolver.~~cash equivalents. UNIFI expects ~~the~~ recent and future 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~~Share Repurchase Program

On October 31, 2018, 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, inBoard approved the 2018 SRP under which ~~case we may be required to increase the amount of our working capital and long-term borrowings. If our strategy~~UNIFI 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.~~

~~Stock Repurchase Program~~

~~On April 23, 2014, UNIFI announced a stock repurchase program (the “2014 SRP”) to authorize UNIFI~~authorized to acquire up to $50,000 of its common stock. Under the ~~2014~~2018 SRP, ~~UNIFI is authorized~~purchases will be made from time to ~~repurchase shares~~time in the open market at prevailing market prices or through ~~open market purchases~~private transactions or ~~privately negotiated transactions at such times~~block trades. The timing and ~~prices and in such manner as determined by management, subject to~~amount of repurchases will depend on market conditions, share price, applicable legal requirements ~~contractual obligations~~ and other factors. ~~Repurchases, if any, are expected to be financed through cash generated from operations~~The share repurchase authorization is discretionary 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.date.

~~UNIFI made no repurchases of its shares of common stock during the current six-month period.~~

As of ~~December 24, 2017,~~September 26, 2021, UNIFI ~~had~~ repurchased a total of ~~806~~84 shares during fiscal 2020, at an average price of ~~$27.79~~$23.72 (for a total of ~~$22,409,~~$1,994 inclusive of commission costs) pursuant to the ~~2014 SRP. As of December 24, 2017, $27,603 remained~~2018 SRP, leaving $48,008 available for ~~share repurchases~~repurchase under the ~~2014~~2018 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 Revolver 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 will provide the needed liquidity to fund its foreign operating activities and any foreign

investing activities, such as future capital expenditures. However, expansion of our foreign operations may require cash sourced from our domestic subsidiaries.

Operating Cash ~~Provided by Operating Activities~~Flows

The significant components of net cash (used) provided by operating activities are summarized below. ~~UNIFI analyzes net cash provided by operating activities utilizing the major components of the statements of cash flows prepared under the indirect method.~~

	For the Six Months Ended						For the Three Months Ended
	December 24, 2017			December 25, 2016			September 26, 2021			September 27, 2020
Net income including non-controlling interest	$	20,762		$	13,496
Loss on sale of business		—			1,662
Net income							$	8,680		$	3,432
Equity in earnings of unconsolidated affiliates		(3,298	)		(473	)		(280	)		(93	)
Depreciation and amortization expense		11,135			9,731			6,365			6,112
Non-cash compensation expense		3,569			1,862			660			509
Deferred income taxes		(6,282	)		5,335			(3,463	)		(2,072	)
Subtotal		25,886			31,613			11,962			7,888

Distributions received from unconsolidated affiliates		8,678			1,500
Receivables, net								(9,462	)		(23,499	)
Inventories								(12,190	)		4,853
Accounts payable and other current liabilities								(7,393	)		15,314
Other changes		(14,175	)		(15,817	)		1,275			3,366
Net cash provided by operating activities	$	20,389		$	17,296
Net cash (used) provided by operating activities							$	(15,808	)	$	7,922

The ~~increase~~decrease in net cash (used) provided by operating activities from the prior ~~six-month~~ period to the current ~~six-month~~ period was primarily due to ~~distributions received~~an increase in working capital associated with (i) higher raw material costs and consolidated sales activity driving higher inventory and accounts receivable balances and (ii) lower other current liabilities resulting from ~~PAL~~the payment of ~~$7,178 and a comparably lower build of working capital. The increase was~~incentive compensation earned in fiscal 2021, partially offset by ~~lower consolidated earnings, consistent with~~an increase in net income.

Investing Cash Flows

Investing activities include $9,300 for capital expenditures, as previously described in Capital Projects above.

Financing Cash Flows

Financing activities include scheduled payments against the ~~comparable decrease in Adjusted EBITDA discussed above.~~

~~Cash Used in Investing Activities~~ABL Term Loan and ~~Cash Provided by Financing Activities~~

~~UNIFI utilized $11,345 (net) for investing activities and was provided $3,963 (net) from financing activities~~finance leases during the current ~~six-month~~ period.

Significant investing activities include $11,360 for capital expenditures, primarily relating to ongoing maintenance capital expenditures and 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.~~

~~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 incurred various financial obligations and commitments in its normal 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 ~~2017~~2021 Form 10-K.

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~~estimate from quarter to quarter could materially impact the presentation of the financial statements. UNIFI’s critical accounting policies are discussed in the ~~2017~~2021 Form 10-K. There were no material changes to these policies during the current period.

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,~~September 26, 2021, UNIFI had borrowings under its ABL ~~Revolver and ABL~~ Term Loan that totaled ~~$111,900 and contain variable rates~~$75,000, for which all of ~~interest; however, UNIFI hedges a significant portion of such~~the interest ~~rate variability using~~is currently hedged via interest rate swaps. ~~As of December 24, 2017, after~~After considering the variable rate debt obligations that have been hedged and UNIFI’s outstanding debt obligations with fixed rates of interest, UNIFI’s sensitivity analysis indicates that a 50-basis point increase in LIBOR as of ~~December 24, 2017~~September 26, 2021 would result in an increase in annual interest expense of less than ~~$200.~~$100.

Foreign Currency Exchange Rate Risk

UNIFI conducts its business in various foreign countries and in various foreign currencies. Each 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. As of ~~December 24, 2017,~~September 26, 2021, UNIFI had no outstanding foreign currency forward contracts.

A significant portion of raw materials purchased by ~~UNIFI’s Brazilian subsidiary~~the Brazil Segment are denominated in ~~USD,~~USDs, requiring UNIFI to regularly exchange BRL. A significant portion of sales and asset balances for the Asia Segment are denominated in USDs. During recent fiscal years, UNIFI ~~was~~has been negatively impacted by ~~a devaluation~~fluctuations of the ~~BRL. Predicting fluctuations in~~BRL and the ~~BRL is impracticable.~~RMB. Discussion and analysis surrounding the impact of fluctuations of the BRL ~~as well as~~and 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 into foreign currency derivatives to hedge its net investment in its foreign operations.

As of ~~December 24, 2017, $44,996, or 92.6%, of UNIFI’s cash and cash equivalents was held outside~~September 26, 2021, foreign currency exchange rate risk concepts included the ~~United States, of which $31,061 was held in USD and $12,439 was held in BRL.~~following:

	Approximate Amount or Percentage
Percentage of total consolidated assets held by UNIFI's subsidiaries outside the U.S. whose functional currency is not the USD		28.4	%

Cash and cash equivalents held outside the U.S.:
Denominated in USD	$	10,772
Denominated in RMB		17,391
Denominated in BRL		3,758
Denominated in other foreign currencies		226
Total cash and cash equivalents held outside the U.S.	$	32,147
Percentage of total cash and cash equivalents held outside the U.S.		64.9	%

Cash and cash equivalents held inside the U.S. in USD by foreign subsidiaries	$	5,358

Raw Material and Commodity Risks

A significant portion of UNIFI’s raw ~~materials~~material and energy costs are derived from petroleum-based chemicals. The prices for petroleum and petroleum-related products and related energy costs are volatile and dependent on global supply and demand dynamics, including certain geo-political risks. A sudden rise 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.~~costs as management has concluded that the overall cost of hedging petroleum exceeds the potential risk mitigation. 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. UNIFI manages fluctuations in the cost of raw materials primarily by making corresponding adjustments to the prices charged to its customers. Certain customers are subject to an index-based pricing model in which UNIFI’s prices are adjusted based on the change in the cost of raw materials in the prior quarter. Pricing adjustments for other customers must be negotiated independently. UNIFI attempts to quickly pass on to its customers increases in raw material costs, but due to market pressures, this is not always possible. When price increases can be implemented, there is typically a time lag that adversely affects UNIFI’s margins during one or more quarters. In ordinary market conditions in which raw material price increases have stabilized and sales volumes are consistent with traditional levels, UNIFI has historically been successful in implementing price adjustments within one to two fiscal quarters of the raw material price increase for its index-priced customers and within two fiscal quarters of the raw material price increase for its non-index-priced customers.

As fiscal 2021 concluded, UNIFI experienced cost increases for raw materials, primarily related to (i) increases in petroleum prices and (ii) supply chain disruptions that occurred in Texas during February 2021 due to abnormally cold weather. Our raw material costs remain elevated in fiscal 2022. However, we have been able to implement responsive selling price adjustments for the majority of our portfolio, and our underlying gross margin has not been significantly pressured by the elevated raw material costs. Nonetheless, such costs remain subject to the volatility described above and, should raw material costs increase unexpectedly, UNIFI’s results of operations and cash flows are likely to be adversely impacted.

Other Risks

UNIFI is also exposed to political 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.

The risks associated with climate change, localized energy management initiatives, and other environmental impacts could negatively affect UNIFI’s business and operations.

UNIFI’s business is susceptible to risks associated with climate change, including, but not limited to, disruptions to our supply chain, which could potentially impact the production and distribution of our products and availability and pricing of raw materials. Increased frequency and intensity of weather events due to climate change could lead to supply chain disruption, energy and resource rationing, or an adverse event at one of our manufacturing facilities. For example, the February 2021 winter storm in Texas impacted our U.S. supply chain and led to non-routine fees and surcharges applied to routine business activities and products. Further, the recent energy management initiatives in China are currently pressuring global supply chains and reducing supplier and customer activity. UNIFI remains focused on diversifying our product portfolio and manufacturing footprint while utilizing fewer resources to help address the risks associated with climate change. Nonetheless, the associated risks could adversely impact our results of operations and cash flows.

Item 4.

Controls and Procedures

As of ~~December 24, 2017,~~September 26, 2021, 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 ~~the~~its 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, 2017~~September 26, 2021 that have materially affected, or are reasonably likely to materially affect, UNIFI’s internal control over financial reporting.

PART II—~~OTHE~~ROTHER 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 ~~1A.~~2.

~~Risk Factors~~Unregistered Sales of Equity Securities and Use of Proceeds

~~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.~~

Not applicable.

Item 6.

Exhibits

Exhibit No.		Description

3.1		Restated Certificate of Incorporation of Unifi, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed October 31, 2016 (File No. 001-10542)).

3.2		Amended and Restated By-laws of Unifi, Inc., as of October 26, 2016 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed October 31, 2016 (File No. 001-10542)).

~~10.1~~⁺*3.3		~~Employment~~Declaration of Amendment to the Amended and Restated By-laws of Unifi, Inc. effective April 30, 2019 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed May 1, 2019 (File No. 001-10542)).

10.1*		Letter Agreement by and between Unifi, Inc. and ~~Mark McNeill,~~Albert P. Carey, effective as of ~~November 3, 2017.~~October 27, 2021 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed October 28, 2021 (File No. 001-10542)).

10.2*⁺		Form of Performance Share Unit Agreement.

31.1⁺		Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2⁺		Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1⁺⁺		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2⁺⁺		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~101~~⁺101.INS		~~The following financial information (unaudited) from Unifi, Inc.’s Quarterly Report on Form 10-Q for~~Inline XBRL Instance Document – the ~~quarter ended December 24, 2017, filed January 31, 2018, formatted~~instance document does not appear in ~~eXtensible Business Reporting Language: (i)~~ the ~~Condensed Consolidated Balance Sheets, (ii)~~Interactive Data File because XBRL tags are embedded within the ~~Condensed Consolidated Statements of Income, (iii)~~Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the ~~Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements.~~Inline XBRL document)

+	Filed herewith.

++	Furnished herewith.

^*	Indicates a management contract or compensatory plan or arrangement.

~~SIGNATURES~~

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: ~~January 31, 2018~~November 3, 2021	By:	/s/ ~~JEFFREY C. ACKERMAN~~CRAIG A. CREATURO
		~~Jeffrey C. Ackerman~~Craig A. Creaturo
		Executive Vice President & Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

4131

	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	)

	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

	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	)

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

	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

	December 24, 2017		June 25, 2017
Salem Global Logistics, Inc.	$	7	$	6
Total related party receivables (included within receivables, net)	$	7	$	6

	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

	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

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

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

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

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

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

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