UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) |
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberMarch 29, 20192020
OR
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☐ | 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.) |
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7201 West Friendly Avenue |
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Greensboro, North Carolina |
| 27410 |
(Address of principal executive offices) |
| (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 every Interactive Data File required to be submitted 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 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 | ☒ |
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Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
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| 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 October 31, 2019,May 4, 2020, there were 18,495,90718,446,436 shares of the registrant’s common stock, par value $0.10 per share, outstanding.
This Quarterly Report on Form 10-Q contains “forward-looking statements” 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 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, 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;
changes in the trade regulatory environment and governmental policies and legislation;
the availability, sourcing and pricing of raw materials;
general domestic and international economic and industry conditions in markets where the Company competes, including economic and political factors over which the Company has no control;
changes in consumer spending, customer preferences, fashion trends and end uses for products;
the financial condition of the Company’s customers;
the loss of a significant customer or brand partner;
natural disasters, industrial accidents, power or water shortages, extreme weather conditions and other disruptions at one of our facilities;
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;
the success of the Company’s strategic business initiatives;
the volatility of financial and credit markets;
the ability to service indebtedness and fund capital expenditures and strategic business initiatives;
the availability of and access to credit on reasonable terms;
changes in foreign currency exchange, interest and inflation rates;
fluctuations in production costs;
the ability to protect intellectual property;
the strength and reputation of our brands;
employee relations;
the ability to attract, retain and motivate key employees;
the impact of 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;
the operating performance of joint ventures and other equity method investments;
the accurate financial reporting of information from equity method investees; and
other factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019 or in the Company’s other periodic reports and information filed with the Securities and Exchange Commission.
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 laws.
In light of all the above considerations, we reiterate that forward-looking statements are not guarantees of future performance, and we caution you not to rely on them as such.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBERMARCH 29, 20192020
TABLE OF CONTENTS
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Item 1. |
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| Condensed Consolidated Balance Sheets as of |
| 1 |
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Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. | 39 | |||
Item 2. | 39 | |||
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Item 6. |
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CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
See accompanying notes to condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(Unaudited)
(In thousands, except per share amounts)
|
| For the Three Months Ended |
|
| For the Three Months Ended |
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| For the Nine Months Ended |
| |||||||||||||||
|
| September 29, 2019 |
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| September 30, 2018 |
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| March 29, 2020 |
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| March 31, 2019 |
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| March 29, 2020 |
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| March 31, 2019 |
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Net sales |
| $ | 179,949 |
|
| $ | 181,611 |
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| $ | 170,994 |
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| $ | 179,989 |
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| $ | 520,454 |
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| $ | 529,311 |
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Cost of sales |
|
| 162,506 |
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|
| 161,592 |
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| 155,611 |
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|
| 166,198 |
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| 471,963 |
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|
| 481,345 |
|
Gross profit |
|
| 17,443 |
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|
| 20,019 |
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|
| 15,383 |
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|
| 13,791 |
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|
| 48,491 |
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|
| 47,966 |
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Selling, general and administrative expenses |
| �� | 10,980 |
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|
| 14,411 |
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|
| 11,720 |
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|
| 11,439 |
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| 35,208 |
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|
| 40,672 |
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Provision for bad debts |
|
| 9 |
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|
| 131 |
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|
| 580 |
|
|
| 218 |
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|
| 331 |
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|
| 381 |
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Other operating expense (income), net |
|
| 108 |
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| (240 | ) | ||||||||||||||||
Other operating (income) expense, net |
|
| (62 | ) |
|
| 1,359 |
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|
| 900 |
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|
| 1,218 |
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Operating income |
|
| 6,346 |
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|
| 5,717 |
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|
| 3,145 |
|
|
| 775 |
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|
| 12,052 |
|
|
| 5,695 |
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Interest income |
|
| (210 | ) |
|
| (147 | ) |
|
| (173 | ) |
|
| (149 | ) |
|
| (595 | ) |
|
| (448 | ) |
Interest expense |
|
| 1,257 |
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|
| 1,467 |
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|
| 1,231 |
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|
| 1,256 |
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| 3,589 |
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|
| 4,078 |
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Equity in loss (earnings) of unconsolidated affiliates |
|
| 866 |
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| (239 | ) | ||||||||||||||||
Income before income taxes |
|
| 4,433 |
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| 4,636 |
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Equity in earnings of unconsolidated affiliates |
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| (3,526 | ) |
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| (1,873 | ) |
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| (1,904 | ) |
|
| (3,126 | ) | ||||||||
Impairment of investment in unconsolidated affiliate |
|
| 45,194 |
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| — |
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| 45,194 |
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| — |
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Loss on extinguishment of debt |
|
| — |
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| — |
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| — |
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| 131 |
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(Loss) income before income taxes |
|
| (39,581 | ) |
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| 1,541 |
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| (34,232 | ) |
|
| 5,060 |
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Provision for income taxes |
|
| 721 |
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| 2,824 |
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| 1,530 |
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| 3,070 |
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| 2,758 |
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| 3,606 |
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Net income |
| $ | 3,712 |
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| $ | 1,812 |
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Net (loss) income |
| $ | (41,111 | ) |
| $ | (1,529 | ) |
| $ | (36,990 | ) |
| $ | 1,454 |
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Net income per common share: |
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Net (loss) income per common share: | Net (loss) income per common share: |
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Basic |
| $ | 0.20 |
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| $ | 0.10 |
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| $ | (2.23 | ) |
| $ | (0.08 | ) |
| $ | (2.00 | ) |
| $ | 0.08 |
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Diluted |
| $ | 0.20 |
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| $ | 0.10 |
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| $ | (2.23 | ) |
| $ | (0.08 | ) |
| $ | (2.00 | ) |
| $ | 0.08 |
|
See accompanying notes to condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVECOMPREHENSIVE LOSS
(Unaudited)
(In thousands)
|
| For the Three Months Ended |
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| For the Three Months Ended |
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| For the Nine Months Ended |
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|
| September 29, 2019 |
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| September 30, 2018 |
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| March 29, 2020 |
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| March 31, 2019 |
|
| March 29, 2020 |
|
| March 31, 2019 |
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Net income |
| $ | 3,712 |
|
| $ | 1,812 |
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Net (loss) income |
| $ | (41,111 | ) |
| $ | (1,529 | ) |
| $ | (36,990 | ) |
| $ | 1,454 |
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Other comprehensive loss: |
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Foreign currency translation adjustments |
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| (6,158 | ) |
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| (3,495 | ) |
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| (15,684 | ) |
|
| 55 |
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| (18,900 | ) |
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| (1,454 | ) |
Foreign currency translation adjustments for an unconsolidated affiliate |
|
| (170 | ) |
|
| 345 |
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| (1,586 | ) |
|
| 102 |
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| (1,450 | ) |
|
| 144 |
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Changes in interest rate swaps |
|
| (328 | ) |
|
| 228 |
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Changes in interest rate swaps, net of tax of $434, $173, $434 and $392, respectively |
|
| (1,449 | ) |
|
| (572 | ) |
|
| (1,488 | ) |
|
| (1,297 | ) | ||||||||
Other comprehensive loss, net |
|
| (6,656 | ) |
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| (2,922 | ) |
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| (18,719 | ) |
|
| (415 | ) |
|
| (21,838 | ) |
|
| (2,607 | ) |
Comprehensive loss |
| $ | (2,944 | ) |
| $ | (1,110 | ) |
| $ | (59,830 | ) |
| $ | (1,944 | ) |
| $ | (58,828 | ) |
| $ | (1,153 | ) |
See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
3(Unaudited)
(In thousands)
|
| Shares |
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| Common Stock |
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| Capital in Excess of Par Value |
|
| Retained Earnings |
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| Accumulated Other Comprehensive Loss |
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| Total Shareholders’ Equity |
| ||||||
Balance at December 29, 2019 |
|
| 18,505 |
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| $ | 1,851 |
|
| $ | 61,187 |
|
| $ | 378,789 |
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| $ | (46,348 | ) |
| $ | 395,479 |
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Options exercised |
|
| — |
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| — |
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|
| — |
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|
| — |
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|
| — |
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|
| — |
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Conversion of restricted stock units |
|
| 42 |
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|
| 4 |
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|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
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Stock-based compensation |
|
| — |
|
|
| — |
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|
| 596 |
|
|
| — |
|
|
| — |
|
|
| 596 |
|
Common stock repurchased and retired under publicly announced program |
|
| (84 | ) |
|
| (8 | ) |
|
| (279 | ) |
|
| (1,707 | ) |
|
| — |
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|
| (1,994 | ) |
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions |
|
| (17 | ) |
|
| (2 | ) |
|
| (420 | ) |
|
| — |
|
|
| — |
|
|
| (422 | ) |
Other comprehensive loss, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (18,719 | ) |
|
| (18,719 | ) |
Net loss |
|
| — |
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|
| — |
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|
| — |
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|
| (41,111 | ) |
|
| — |
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|
| (41,111 | ) |
Balance at March 29, 2020 |
|
| 18,446 |
|
| $ | 1,845 |
|
| $ | 61,080 |
|
| $ | 335,971 |
|
| $ | (65,067 | ) |
| $ | 333,829 |
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| Shares |
|
| Common Stock |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total Shareholders’ Equity |
| ||||||
Balance at June 30, 2019 |
|
| 18,462 |
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| $ | 1,846 |
|
| $ | 59,560 |
|
| $ | 374,668 |
|
| $ | (43,229 | ) |
| $ | 392,845 |
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Options exercised |
|
| 10 |
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|
| 1 |
|
|
| 28 |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
Conversion of restricted stock units |
|
| 76 |
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|
| 8 |
|
|
| (8 | ) |
|
| — |
|
|
| — |
|
|
| — |
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Stock-based compensation |
|
| 4 |
|
|
| 1 |
|
|
| 2,298 |
|
|
| — |
|
|
| — |
|
|
| 2,299 |
|
Common stock repurchased and retired under publicly announced program |
|
| (84 | ) |
|
| (8 | ) |
|
| (279 | ) |
|
| (1,707 | ) |
|
| — |
|
|
| (1,994 | ) |
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions |
|
| (22 | ) |
|
| (3 | ) |
|
| (519 | ) |
|
| — |
|
|
| — |
|
|
| (522 | ) |
Other comprehensive loss, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21,838 | ) |
|
| (21,838 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (36,990 | ) |
|
| — |
|
|
| (36,990 | ) |
Balance at March 29, 2020 |
|
| 18,446 |
|
| $ | 1,845 |
|
| $ | 61,080 |
|
| $ | 335,971 |
|
| $ | (65,067 | ) |
| $ | 333,829 |
|
|
| Shares |
|
| Common Stock |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total Shareholders’ Equity |
| ||||||
Balance at December 30, 2018 |
|
| 18,383 |
|
| $ | 1,838 |
|
| $ | 59,619 |
|
| $ | 375,195 |
|
| $ | (42,725 | ) |
| $ | 393,927 |
|
Options exercised |
|
| 6 |
|
|
| — |
|
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
Conversion of restricted stock units |
|
| 24 |
|
|
| 3 |
|
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| 9 |
|
|
| 1 |
|
|
| (314 | ) |
|
| — |
|
|
| — |
|
|
| (313 | ) |
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions |
|
| (11 | ) |
|
| (1 | ) |
|
| (243 | ) |
|
| — |
|
|
| — |
|
|
| (244 | ) |
Other comprehensive loss, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (415 | ) |
|
| (415 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,529 | ) |
|
| — |
|
|
| (1,529 | ) |
Balance at March 31, 2019 |
|
| 18,411 |
|
| $ | 1,841 |
|
| $ | 59,088 |
|
| $ | 373,666 |
|
| $ | (43,140 | ) |
| $ | 391,455 |
|
|
| Shares |
|
| Common Stock |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total Shareholders’ Equity |
| ||||||
Balance at June 24, 2018 |
|
| 18,353 |
|
| $ | 1,835 |
|
| $ | 56,726 |
|
| $ | 371,753 |
|
| $ | (40,533 | ) |
| $ | 389,781 |
|
Options exercised |
|
| 22 |
|
|
| 2 |
|
|
| 271 |
|
|
| — |
|
|
| — |
|
|
| 273 |
|
Conversion of restricted stock units |
|
| 41 |
|
|
| 4 |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| 10 |
|
|
| 1 |
|
|
| 2,471 |
|
|
| — |
|
|
| — |
|
|
| 2,472 |
|
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions |
|
| (15 | ) |
|
| (1 | ) |
|
| (376 | ) |
|
| — |
|
|
| — |
|
|
| (377 | ) |
Other comprehensive loss, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,607 | ) |
|
| (2,607 | ) |
Adoption of the new revenue recognition guidance |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 459 |
|
|
| — |
|
|
| 459 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,454 |
|
|
| — |
|
|
| 1,454 |
|
Balance at March 31, 2019 |
|
| 18,411 |
|
| $ | 1,841 |
|
| $ | 59,088 |
|
| $ | 373,666 |
|
| $ | (43,140 | ) |
| $ | 391,455 |
|
See accompanying notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 29, 2019 |
|
| September 30, 2018 |
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||||
Cash and cash equivalents at beginning of period |
| $ | 22,228 |
|
| $ | 44,890 |
|
| $ | 22,228 |
|
| $ | 44,890 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net income |
|
| 3,712 |
|
|
| 1,812 |
| ||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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|
| ||||||||
Equity in loss (earnings) of unconsolidated affiliates |
|
| 866 |
|
|
| (239 | ) | ||||||||
Net (loss) income |
|
| (36,990 | ) |
|
| 1,454 |
| ||||||||
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
| ||||||||
Equity in earnings of unconsolidated affiliates |
|
| (1,904 | ) |
|
| (3,126 | ) | ||||||||
Distributions received from unconsolidated affiliates |
|
| 10,437 |
|
|
| 504 |
|
|
| 10,437 |
|
|
| 1,380 |
|
Depreciation and amortization expense |
|
| 5,685 |
|
|
| 6,036 |
|
|
| 17,685 |
|
|
| 17,242 |
|
Impairment of investment in unconsolidated affiliate |
|
| 45,194 |
|
|
| — |
| ||||||||
Non-cash compensation expense |
|
| 187 |
|
|
| 998 |
|
|
| 2,510 |
|
|
| 2,758 |
|
Deferred income taxes |
|
| (760 | ) |
|
| 909 |
|
|
| (10,029 | ) |
|
| (190 | ) |
Other, net |
|
| (127 | ) |
|
| (201 | ) |
|
| (171 | ) |
|
| (459 | ) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
|
| 1,543 |
|
|
| (1,636 | ) |
|
| (2,295 | ) |
|
| (5,877 | ) |
Inventories |
|
| 1,981 |
|
|
| (15,079 | ) |
|
| 2,126 |
|
|
| (13,409 | ) |
Other current assets |
|
| (486 | ) |
|
| (857 | ) |
|
| (3,020 | ) |
|
| (1,338 | ) |
Income taxes |
|
| 814 |
|
|
| 6,591 |
|
|
| 8,849 |
|
|
| 3,388 |
|
Accounts payable and accrued expenses |
|
| (119 | ) |
|
| (3,835 | ) |
|
| (488 | ) |
|
| (4,523 | ) |
Other, net |
|
| 89 |
|
|
| 39 |
|
|
| 201 |
|
|
| 1,183 |
|
Net cash provided by (used in) operating activities |
|
| 23,822 |
|
|
| (4,958 | ) |
|
| 32,105 |
|
|
| (1,517 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (4,585 | ) |
|
| (6,384 | ) |
|
| (14,971 | ) |
|
| (19,199 | ) |
Other, net |
|
| (21 | ) |
|
| 15 |
|
|
| 35 |
|
|
| 9 |
|
Net cash used in investing activities |
|
| (4,606 | ) |
|
| (6,369 | ) |
|
| (14,936 | ) |
|
| (19,190 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from ABL Revolver |
|
| 23,000 |
|
|
| 34,000 |
|
|
| 79,000 |
|
|
| 93,300 |
|
Payments on ABL Revolver |
|
| (25,400 | ) |
|
| (19,900 | ) |
|
| (67,500 | ) |
|
| (97,400 | ) |
Proceeds from ABL Term Loan |
|
| — |
|
|
| 20,000 |
| ||||||||
Payments on ABL Term Loan |
|
| (2,500 | ) |
|
| (2,500 | ) |
|
| (7,500 | ) |
|
| (5,000 | ) |
Payments on finance lease obligations |
|
| (1,608 | ) |
|
| (1,790 | ) |
|
| (4,606 | ) |
|
| (5,308 | ) |
Common stock repurchased and retired under publicly announced program |
|
| (1,994 | ) |
|
| — |
| ||||||||
Proceeds from stock option exercises |
|
| 29 |
|
|
| 244 |
|
|
| 29 |
|
|
| 273 |
|
Payments of debt financing fees |
|
| — |
|
|
| (720 | ) | ||||||||
Other |
|
| (44 | ) |
|
| (646 | ) |
|
| (521 | ) |
|
| (1,017 | ) |
Net cash (used in) provided by financing activities |
|
| (6,523 | ) |
|
| 9,408 |
|
|
| (3,092 | ) |
|
| 4,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
| (803 | ) |
|
| (776 | ) |
|
| (2,912 | ) |
|
| (413 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| 11,890 |
|
|
| (2,695 | ) |
|
| 11,165 |
|
|
| (16,992 | ) |
Cash and cash equivalents at end of period |
| $ | 34,118 |
|
| $ | 42,195 |
|
| $ | 33,393 |
|
| $ | 27,898 |
|
See accompanying notes to condensed consolidated financial statements.
45
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 company that manufactures and sells innovative recycled and 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 (UNIFI’s indirect customers). We refer to these indirect customers as “brand partners.” Polyester filament yarns 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 (“Flake”), polyester polymer beads (“Chip”) and staple fiber. Nylon yarns include virgin or recycled textured, solution dyed and spandex covered yarns.
UNIFI maintains one of the textile industry’s most comprehensive product offerings that include a range of specialized, premium value-added (“PVA”) and commodity solutions, with principal geographic markets in the Americas, Asia and Europe.
UNIFI has direct manufacturing operations in four countries and participates in joint ventures with operations in Israel Mexico and the United States (“U.S.”), the most significant. As of which isMarch 29, 2020, UNIFI owned a 34% non-controlling partnership interest in Parkdale America, LLC (“PAL”), a significant unconsolidated affiliate that produces cotton and synthetic yarns for sale to the global textile industry and apparel market. As further described in Note 19, “Investments in Unconsolidated Affiliates and Variable Interest Entities,” UNIFI sold the 34% interest on April 29, 2020.
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 U.S. (“GAAP”) for interim financial information. As contemplated by the instructions of the Securities and Exchange Commission (the “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 30, 2019 (the “2019 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 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 SeptemberMarch 29, 2019,2020, the Sunday nearest to September 30,March 31, 2019. Unifi, Inc.’s remaining material operating subsidiaries’ fiscal quarter ended on September 30, 2019.March 31, 2020. 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 periodperiods ended SeptemberMarch 29, 2020 and March 31, 2019 consisted of 13 weeks forweeks. For the primary subsidiaries in the U.S. and Central America. The three-monthAmerica, the nine-month period ended September 30, 2018March 29, 2020 consisted of 1439 weeks forand the primary subsidiaries in the U.S. and Central America.
nine-month period ended March 31, 2019 consisted of 40 weeks.
3. Recent Accounting Pronouncements
Issued and Pending Adoption
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses. The new guidance requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will nowbegin to use forward-looking information to better inform their credit loss estimates. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and for interim periods therein, thus beginning with UNIFI’s fiscal 2021 and associated first fiscal quarter. UNIFI has not and does not expect to early adopt this standard. UNIFI does not expect this standard will have a material impact on its consolidated financial position, results of operations or cash flows.
Recently Adopted
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. The new lease guidance was adopted in the first quarter of fiscal 2020, and adoption is described in more detail in Note 4, “Leases.”
Relating to the transition to ASU No. 2016-02, PAL expects to adopt the new lease guidance in its fiscal year 2021 ending on January 1, 2022. PAL is currently evaluating the impact of the new lease guidance.
In fiscal 2019, UNIFI adopted the new revenue recognition guidance prescribed by ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 5, “Revenue Recognition,” for further detail regarding adoption and additional disclosures.
Under the guidance in the SEC Staff Announcement on July 20, 2017 relating to the transition to ASU No. 2014-09, due to its status as a significant subsidiary of Unifi, Inc., PAL expects to adoptadopted the new revenue recognition guidance in its fiscal year 2019 ending on December 28, 2019. PAL is currently evaluating30, 2018, with no material impact on its consolidated financial position, results of operations or cash flows in connection with the impact of the new revenue recognition guidance.adoption.
56
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Based on UNIFI’s review of ASUs issued since the filing of the 2019 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 impact on UNIFI’s consolidated financial statements.
4. Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). UNIFI adopted the new lease guidance utilizing the modified retrospective transition method, applied at the date of adoption, recording existing leases as of the effective date, July 1, 2019. Under this method, no adjustment to comparative prior periods is required and, accordingly, financial statement information and disclosures required under Topic 842 will not be provided for dates and periods prior to July 1, 2019. UNIFI made no adjustment to the July 1, 2019 opening retained earnings balance for fiscal 2020.
UNIFI adopted the following practical expedients and elected the following accounting policies related to this standard update:
carry forward of historical lease classifications and accounting treatment for existing land easements;
not to reassess whether any expired or existing contracts are or contain leases;
not to reassess initial direct costs for any existing leases;
the use of hindsight;
short-term lease accounting policy election allowing lessees to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less and to recognize lease payments on a straight-line basis over the lease term and variable payments in the period the obligation is incurred; and
the option not to not separate lease and non-lease components for the transportation equipment asset class.
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. The lease terms range from 1 to 15 years with various options for renewal. There are no residual value guarantees, restrictions, covenants or sub-leases related to these leases. Variable lease payments are determined as the amounts included in the lease payment that are based on the change in index or usage. The adoption of this standard resulted in the recognition of operating lease right-of-use assets of $9,802 and corresponding lease liabilities of $10,105 with the difference adjusting prepayments and accruals on the consolidated balance sheet as of July 1, 2019. UNIFI’s accounting for finance leases remained substantially unchanged. The standard did not materially impact operating results or liquidity. Disclosures related to the amount, timing and uncertainty of cash flows arising from leases are included below.
The following table sets forth the balance sheet location and values of the Company’s lease assets and lease liabilities at SeptemberMarch 29, 2019:2020:
Classification |
| Balance Sheet Location |
| September 29, 2019 |
|
| Balance Sheet Location |
| March 29, 2020 |
| ||
Lease Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease assets |
| Operating lease assets |
| $ | 8,718 |
|
| Operating lease assets |
| $ | 6,084 |
|
Finance lease assets |
| Property, plant & equipment, net |
|
| 27,601 |
|
| Property, plant & equipment, net |
|
| 23,257 |
|
Total lease assets |
|
|
| $ | 36,319 |
|
|
|
| $ | 29,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Current operating lease liabilities |
| Current operating lease liabilities |
| $ | 2,791 |
|
| Current operating lease liabilities |
| $ | 1,709 |
|
Current finance lease liabilities |
| Current portion of long-term debt |
|
| 4,738 |
|
| Current portion of long-term debt |
|
| 4,112 |
|
Total current lease liabilities |
|
|
| $ | 7,529 |
|
|
|
| $ | 5,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent operating lease liabilities |
| Noncurrent operating lease liabilities |
| $ | 6,224 |
| ||||||
Noncurrent finance lease liabilities |
| Long-term debt |
|
| 5,649 |
| ||||||
Total noncurrent lease liabilities |
|
|
| $ | 11,873 |
| ||||||
Non-current operating lease liabilities |
| Non-current operating lease liabilities |
| $ | 4,481 |
| ||||||
Non-current finance lease liabilities |
| Long-term debt |
|
| 8,699 |
| ||||||
Total non-current lease liabilities |
|
|
| $ | 13,180 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease liabilities |
|
|
| $ | 19,402 |
|
|
|
| $ | 19,001 |
|
The following table sets forth the components of UNIFI’s total lease cost for the three months and nine months ended SeptemberMarch 29, 2019:2020:
|
| For the Three |
|
| For the Nine |
| ||||||
|
| For the Three Months Ended |
|
| Months Ended |
|
| Months Ended |
| |||
Lease Cost |
| September 29, 2019 |
|
| March 29, 2020 |
|
| March 29, 2020 |
| |||
Operating lease cost |
| $ | 853 |
|
| $ | 507 |
|
| $ | 2,104 |
|
Variable lease cost |
|
| 90 |
|
|
| 158 |
|
|
| 355 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of lease assets |
|
| 527 |
|
|
| 669 |
|
|
| 1,874 |
|
Interest on lease liabilities |
|
| 100 |
|
|
| 126 |
|
|
| 327 |
|
Short-term lease cost |
|
| 341 |
|
|
| 316 |
|
|
| 863 |
|
Total lease cost |
| $ | 1,911 |
|
| $ | 1,776 |
|
| $ | 5,523 |
|
As of September 29, 2019, UNIFI was committed to commence leasing certain transportation equipment during the second quarter of fiscal 2020. UNIFI anticipates this equipment will qualify as an estimated $5,400 in additional finance leases and will replace approximately $1,600 of existing operating lease assets under a penalty-free early termination agreement.
67
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The following table presents supplemental information related to leases at SeptemberMarch 29, 2019:2020:
|
| For the Nine |
| |||||
|
| For the Three Months Ended |
|
| Months Ended |
| ||
Other Information |
| September 29, 2019 |
|
| March 29, 2020 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows used by operating leases |
| $ | 853 |
|
| $ | 2,104 |
|
Financing cash flows used by finance leases |
| $ | 1,608 |
|
| $ | 4,606 |
|
Non-cash activities: |
|
|
|
|
|
|
|
|
Leased assets obtained in exchange for new operating lease liabilities |
| $ | 85 |
|
| $ | 175 |
|
Leased assets obtained in exchange for new finance lease liabilities |
| $ | 878 |
|
| $ | 6,301 |
|
UNIFI calculates its operating lease liabilities and finance lease liabilities entered into after the adoption of the new lease standard based upon UNIFI’s incremental borrowing rate (the “IBR”). When determining the IBR, we consider our centralized treasury function and our current credit profile. We then make adjustments to this rate for securitization, the length of the lease term, and leases denominated in foreign currencies. Generally, the IBR for each jurisdiction is the specific risk-free rate for the respective jurisdiction incremented for UNIFI’s corporate credit risk.
The following table sets forth UNIFI's weighted average remaining lease term in years and discount rate percentage used in the calculation of its outstanding lease liabilities as of SeptemberMarch 29, 2019:2020:
Weighted Average Remaining Lease Term and Discount Rate |
|
|
| |
Weighted average remaining lease term (years): |
|
|
|
|
Operating leases |
|
|
|
|
Finance leases |
|
|
|
|
Weighted average discount |
|
|
|
|
Operating leases |
|
|
| % |
Finance leases |
|
|
| % |
Lease Maturity Analysis
Future minimum finance lease payments and future minimum payments under non-cancelable operating leases (withwith initial lease terms in excess of one year)year under Topic 842 as of SeptemberMarch 29, 20192020 by fiscal year were:
Maturity of Lease Liabilities |
| Finance Leases |
|
| Operating Leases |
|
| Finance Leases |
|
| Operating Leases |
| ||||
Fiscal 2020 (excluding the three months ended September 29, 2019) |
| $ | 4,274 |
|
| $ | 2,330 |
| ||||||||
Fiscal 2020 |
| $ | 1,560 |
|
| $ | 495 |
| ||||||||
Fiscal 2021 |
|
| 3,011 |
|
|
| 2,709 |
|
|
| 3,989 |
|
|
| 1,870 |
|
Fiscal 2022 |
|
| 2,706 |
|
|
| 1,679 |
|
|
| 3,684 |
|
|
| 1,425 |
|
Fiscal 2023 |
|
| 331 |
|
|
| 1,247 |
|
|
| 1,260 |
|
|
| 1,231 |
|
Fiscal 2024 |
|
| 331 |
|
|
| 1,110 |
|
|
| 1,307 |
|
|
| 1,086 |
|
Fiscal years thereafter |
|
| 1,015 |
|
|
| 680 |
|
|
| 2,625 |
|
|
| 628 |
|
Total minimum lease payments |
| $ | 11,668 |
|
| $ | 9,755 |
|
| $ | 14,425 |
|
| $ | 6,735 |
|
Less estimated executory costs |
|
| (626 | ) |
|
| — |
|
|
| (588 | ) |
|
| — |
|
Less interest |
|
| (655 | ) |
|
| (740 | ) | ||||||||
Less imputed interest |
|
| (1,026 | ) |
|
| (545 | ) | ||||||||
Present value of net minimum lease payments |
|
| 10,387 |
|
|
| 9,015 |
|
|
| 12,811 |
|
|
| 6,190 |
|
Less current portion of lease obligations |
|
| (4,738 | ) |
|
| (2,791 | ) |
|
| (4,112 | ) |
|
| (1,709 | ) |
Long-term portion of lease obligations |
| $ | 5,649 |
|
| $ | 6,224 |
|
| $ | 8,699 |
|
| $ | 4,481 |
|
Prior year disclosureYear Disclosure
As reported in the 2019 Form 10-K (underunder the previous accounting guidance),guidance, future minimum capital lease payments and future minimum lease payments under non-cancelable operating leases (withwith initial lease terms in excess of one year)year as of June 30, 2019 by fiscal year were:
|
| Capital Leases |
|
| Operating Leases |
| ||
Fiscal 2020 |
| $ | 5,917 |
|
| $ | 3,164 |
|
Fiscal 2021 |
|
| 2,870 |
|
|
| 2,731 |
|
Fiscal 2022 |
|
| 2,565 |
|
|
| 1,492 |
|
Fiscal 2023 |
|
| 189 |
|
|
| 878 |
|
Fiscal 2024 |
|
| 189 |
|
|
| 755 |
|
Fiscal years thereafter |
|
| 675 |
|
|
| 309 |
|
Total minimum lease payments |
| $ | 12,405 |
|
| $ | 9,329 |
|
Less estimated executory costs |
|
| (644 | ) |
|
|
|
|
Less interest |
|
| (643 | ) |
|
|
|
|
Present value of net minimum capital lease payments |
|
| 11,118 |
|
|
|
|
|
Less current portion of capital lease obligations |
|
| (5,519 | ) |
|
|
|
|
Long-term portion of capital lease obligations |
| $ | 5,599 |
|
|
|
|
|
78
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Rental expenses incurred under the operating leases and included in operating income consist of the following:
|
| For the Fiscal Year Ended |
| |||||||||
|
| June 30, 2019 |
|
| June 24, 2018 |
|
| June 25, 2017 |
| |||
Rental expenses |
| $ | 4,915 |
|
| $ | 4,835 |
|
| $ | 4,357 |
|
5. Revenue Recognition
The following table presents disaggregated revenues for UNIFI:
|
| For the Three Months Ended |
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| |||||||||||||||
|
| September 29, 2019 |
|
| September 30, 2018 |
|
| March 29, 2020 |
|
| March 31, 2019 |
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||||||
Third-party manufacturer |
| $ | 178,020 |
|
| $ | 179,321 |
|
| $ | 169,033 |
|
| $ | 177,977 |
|
| $ | 514,590 |
|
| $ | 522,636 |
|
Service |
|
| 1,929 |
|
|
| 2,290 |
|
|
| 1,961 |
|
|
| 2,012 |
|
|
| 5,864 |
|
|
| 6,675 |
|
Net sales |
| $ | 179,949 |
|
| $ | 181,611 |
|
| $ | 170,994 |
|
| $ | 179,989 |
|
| $ | 520,454 |
|
| $ | 529,311 |
|
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 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.
Variable Consideration
Volume-based incentives
Volume-based incentives involve rebates or refunds of cash that are redeemable if the customer satisfies certain order volume thresholds during a defined time period. Under these incentive programs, UNIFI estimates the anticipated rebate to be paid and allocates a portion of the estimated cost of the rebate to each underlying sales transaction with the customer.
Product claims
UNIFI generally offers customers claims support or remuneration for defective products. UNIFI estimates the amount of its product sales that may be claimed as defective by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized.
For all variable consideration, where appropriate, UNIFI estimates the amount using the expected value method, which takes into consideration historical experience, current contractual requirements, specific known market events and forecasted customer buying and payment patterns. Overall, these reserves reflect UNIFI’s best estimates of the amount of consideration to which the customer is entitled based on the terms of the contracts.
6. Receivables, Net
Receivables, net consists of the following:
|
| September 29, 2019 |
|
| June 30, 2019 |
|
| March 29, 2020 |
|
| June 30, 2019 |
| ||||
Customer receivables |
| $ | 85,693 |
|
| $ | 89,495 |
|
| $ | 87,091 |
|
| $ | 89,495 |
|
Allowance for uncollectible accounts |
|
| (2,205 | ) |
|
| (2,338 | ) |
|
| (2,397 | ) |
|
| (2,338 | ) |
Reserves for quality claims |
|
| (1,011 | ) |
|
| (961 | ) |
|
| (1,231 | ) |
|
| (961 | ) |
Net customer receivables |
|
| 82,477 |
|
|
| 86,196 |
|
|
| 83,463 |
|
|
| 86,196 |
|
Other receivables |
|
| 3,121 |
|
|
| 2,688 |
|
|
| 2,913 |
|
|
| 2,688 |
|
Total receivables, net |
| $ | 85,598 |
|
| $ | 88,884 |
|
| $ | 86,376 |
|
| $ | 88,884 |
|
There have been no material changes in UNIFI’s allowance for uncollectible accounts or reserves for yarn quality claims since June 30, 2019.
89
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Inventories consists of the following:
|
| September 29, 2019 |
|
| June 30, 2019 |
|
| March 29, 2020 |
|
| June 30, 2019 |
| ||||
Raw materials |
| $ | 50,228 |
|
| $ | 55,531 |
|
| $ | 49,100 |
|
| $ | 55,531 |
|
Supplies |
|
| 9,107 |
|
|
| 9,020 |
|
|
| 9,252 |
|
|
| 9,020 |
|
Work in process |
|
| 8,412 |
|
|
| 8,510 |
|
|
| 7,558 |
|
|
| 8,510 |
|
Finished goods |
|
| 63,880 |
|
|
| 63,111 |
|
|
| 61,496 |
|
|
| 63,111 |
|
Gross inventories |
|
| 131,627 |
|
|
| 136,172 |
|
|
| 127,406 |
|
|
| 136,172 |
|
Inventory reserves |
|
| (2,180 | ) |
|
| (2,391 | ) |
|
| (3,260 | ) |
|
| (2,391 | ) |
Total inventories |
| $ | 129,447 |
|
| $ | 133,781 |
|
| $ | 124,146 |
|
| $ | 133,781 |
|
8. Other Current Assets
Other current assets consists of the following:
|
| September 29, 2019 |
|
| June 30, 2019 |
|
| March 29, 2020 |
|
| June 30, 2019 |
| ||||
Contract assets |
| $ | 6,975 |
|
| $ | 7,794 |
|
| $ | 9,909 |
|
| $ | 7,794 |
|
Value-added taxes receivable |
|
| 3,437 |
|
|
| 2,519 |
| ||||||||
Vendor deposits |
|
| 4,832 |
|
|
| 4,187 |
|
|
| 3,328 |
|
|
| 4,187 |
|
Value-added taxes receivable |
|
| 3,051 |
|
|
| 2,519 |
| ||||||||
Prepaid expenses |
|
| 1,582 |
|
|
| 1,856 |
|
|
| 1,803 |
|
|
| 1,856 |
|
Total other current assets |
| $ | 16,440 |
|
| $ | 16,356 |
|
| $ | 18,477 |
|
| $ | 16,356 |
|
Vendor deposits primarily relates to down payments made toward the purchase of inventory. Value-added taxes receivable relates to recoverable taxes associated with the sales and purchase activities of UNIFI’s foreign operations. Prepaid expenses consists of advance payments for routine operating expenses.
9. Property, Plant and Equipment, Net
Property, plant and equipment (“PP&E”), net consists of the following:
|
| September 29, 2019 |
|
| June 30, 2019 |
|
| March 29, 2020 |
|
| June 30, 2019 |
| ||||
Land |
| $ | 3,100 |
|
| $ | 3,138 |
|
| $ | 3,164 |
|
| $ | 3,138 |
|
Land improvements |
|
| 15,511 |
|
|
| 15,249 |
|
|
| 16,333 |
|
|
| 15,249 |
|
Buildings and improvements |
|
| 160,581 |
|
|
| 161,566 |
|
|
| 158,388 |
|
|
| 161,566 |
|
Assets under finance leases |
|
| 27,601 |
|
|
| 31,897 |
|
|
| 30,749 |
|
|
| 31,897 |
|
Machinery and equipment |
|
| 610,057 |
|
|
| 603,950 |
|
|
| 602,956 |
|
|
| 603,950 |
|
Computers, software and office equipment |
|
| 22,429 |
|
|
| 23,011 |
|
|
| 22,355 |
|
|
| 23,011 |
|
Transportation equipment |
|
| 5,838 |
|
|
| 5,809 |
|
|
| 6,929 |
|
|
| 5,809 |
|
Construction in progress |
|
| 6,550 |
|
|
| 6,483 |
|
|
| 6,219 |
|
|
| 6,483 |
|
Gross PP&E |
|
| 851,667 |
|
|
| 851,103 |
|
|
| 847,093 |
|
|
| 851,103 |
|
Less: accumulated depreciation |
|
| (639,679 | ) |
|
| (636,135 | ) |
|
| (632,608 | ) |
|
| (636,135 | ) |
Less: accumulated amortization – finance leases |
|
| (6,614 | ) |
|
| (8,181 | ) |
|
| (7,492 | ) |
|
| (8,181 | ) |
Total PP&E, net |
| $ | 205,374 |
|
| $ | 206,787 |
|
| $ | 206,993 |
|
| $ | 206,787 |
|
Depreciation and amortization expense and repair and maintenance expenses were as follows:
|
| For the Three Months Ended |
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| |||||||||||||||
|
| September 29, 2019 |
|
| September 30, 2018 |
|
| March 29, 2020 |
|
| March 31, 2019 |
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||||||
Depreciation expense |
| $ | 5,410 |
|
| $ | 5,663 |
| ||||||||||||||||
Depreciation and amortization expense |
| $ | 5,799 |
|
| $ | 5,257 |
|
| $ | 16,858 |
|
| $ | 16,181 |
| ||||||||
Repair and maintenance expenses |
|
| 4,474 |
|
|
| 5,860 |
|
|
| 5,602 |
|
|
| 5,301 |
|
|
| 14,924 |
|
|
| 16,148 |
|
10. Accrued Expenses
Accrued expenses consists of the following:
|
| September 29, 2019 |
|
| June 30, 2019 |
|
| March 29, 2020 |
|
| June 30, 2019 |
| ||||
Payroll and fringe benefits |
| $ | 7,185 |
|
| $ | 9,775 |
|
| $ | 8,861 |
|
| $ | 9,775 |
|
Deferred revenue |
|
| 2,624 |
|
|
| 516 |
| ||||||||
Severance |
|
| 1,702 |
|
|
| 2,058 |
|
|
| 225 |
|
|
| 2,058 |
|
Other |
|
| 7,275 |
|
|
| 5,016 |
|
|
| 3,637 |
|
|
| 4,500 |
|
Total accrued expenses |
| $ | 16,162 |
|
| $ | 16,849 |
|
| $ | 15,347 |
|
| $ | 16,849 |
|
910
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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 |
|
|
|
|
|
|
| Weighted Average |
|
|
|
| ||||||||||||
|
| Scheduled |
| Interest Rate as of |
|
| Principal Amounts as of |
|
| Scheduled |
| Interest Rate as of |
|
| Principal Amounts as of |
| ||||||||||||
|
| Maturity Date |
| September 29, 2019 |
|
| September 29, 2019 |
|
| June 30, 2019 |
|
| Maturity Date |
| March 29, 2020 |
|
| March 29, 2020 |
|
| June 30, 2019 |
| ||||||
ABL Revolver |
| December 2023 |
| 3.5% |
|
| $ | 17,000 |
|
| $ | 19,400 |
|
| December 2023 |
| 2.2% |
|
| $ | 30,900 |
|
| $ | 19,400 |
| ||
ABL Term Loan (1) |
| December 2023 |
| 3.5% |
|
|
| 95,000 |
|
|
| 97,500 |
|
| December 2023 |
| 3.1% |
|
|
| 90,000 |
|
|
| 97,500 |
| ||
Finance lease obligations |
| (2) |
| 3.6% |
|
|
| 10,387 |
|
|
| 11,118 |
|
| (2) |
| 3.6% |
|
|
| 12,811 |
|
|
| 11,118 |
| ||
Total debt |
|
|
|
|
|
|
|
| 122,387 |
|
|
| 128,018 |
|
|
|
|
|
|
|
|
| 133,711 |
|
|
| 128,018 |
|
Current ABL Term Loan |
|
|
|
|
|
|
|
| (10,000 | ) |
|
| (10,000 | ) |
|
|
|
|
|
|
|
| (10,000 | ) |
|
| (10,000 | ) |
Current portion of finance lease obligations |
|
|
|
|
|
|
|
| (4,738 | ) |
|
| (5,519 | ) |
|
|
|
|
|
|
|
| (4,112 | ) |
|
| (5,519 | ) |
Unamortized debt issuance costs |
|
|
|
|
|
|
|
| (895 | ) |
|
| (958 | ) |
|
|
|
|
|
|
|
| (772 | ) |
|
| (958 | ) |
Total long-term debt |
|
|
|
|
|
|
| $ | 106,754 |
|
| $ | 111,541 |
|
|
|
|
|
|
|
| $ | 118,827 |
|
| $ | 111,541 |
|
(1) | Includes the effects of interest rate swaps. |
(2) | Scheduled maturity dates for finance lease obligations range from |
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 (as further amended by the 2018 Amendment, 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.
The 2018 Amendment made the following changes to the Credit Agreement, among others: (i) extended the maturity date from March 26, 2020 to December 18, 2023 and (ii) decreased the Applicable Margin (as defined in the Credit Agreement) pricing structure for Base Rate Loans (as defined in the Credit Agreement) and LIBOR Rate Loans (as defined in the Credit Agreement) by 25 basis points. In addition, in connection with the 2018 Amendment, the principal amount of the ABL Term Loan was reset from $80,000 to $100,000. Net proceeds from this ABL Term Loan reset were used to pay down the amount outstanding on the ABL Revolver.
In connection and concurrent with the sale of UNIFI’s 34% interest in PAL on April 29, 2020, UNIFI entered into the Fourth Amendment to Amended and Restated Credit Agreement (“Fourth Amendment”). The Fourth Amendment among other things: (i) revised the definition of permitted dispositions within the Credit Agreement to include the sale by Unifi Manufacturing, Inc. of its equity interest in PAL so long as the aggregate net cash proceeds received equaled or exceeded $60,000 and such sale occurred on or before May 15, 2020; (ii) revised the terms of the Credit Agreement to allow (a) the net cash proceeds from the sale of PAL to be applied to the outstanding principal amount of the ABL Revolver until paid in full and (b) remaining net cash proceeds held by UNIFI, so long as certain conditions are met; and (iii) revised the terms of the Credit Agreement to allow the lenders to make changes to the benchmark interest rate without further amendment should LIBOR temporarily or permanently cease to exist and a transition to a new benchmark interest rate such as the Secured Overnight Financing Rate (“SOFR”) be required for future ABL facility borrowings.
UNIFI currently maintains three 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.
Scheduled Debt Maturities
The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the remainder of fiscal 2020, the following four fiscal years and thereafter:
|
| Fiscal 2020 |
|
| Fiscal 2021 |
|
| Fiscal 2022 |
|
| Fiscal 2023 |
|
| Fiscal 2024 |
|
| Thereafter |
|
| Fiscal 2020 |
|
| Fiscal 2021 |
|
| Fiscal 2022 |
|
| Fiscal 2023 |
|
| Fiscal 2024 |
|
| Thereafter |
| ||||||||||||
ABL Revolver |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 17,000 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 30,900 |
|
| $ | — |
|
ABL Term Loan |
|
| 7,500 |
|
|
| 10,000 |
|
|
| 10,000 |
|
|
| 10,000 |
|
|
| 57,500 |
|
|
| — |
|
|
| 2,500 |
|
|
| 10,000 |
|
|
| 10,000 |
|
|
| 10,000 |
|
|
| 57,500 |
|
|
| — |
|
Finance lease obligations |
|
| 3,978 |
|
|
| 2,738 |
|
|
| 2,536 |
|
|
| 214 |
|
|
| 222 |
|
|
| 699 |
|
|
| 1,429 |
|
|
| 3,563 |
|
|
| 3,388 |
|
|
| 1,094 |
|
|
| 1,132 |
|
|
| 2,205 |
|
Total |
| $ | 11,478 |
|
| $ | 12,738 |
|
| $ | 12,536 |
|
| $ | 10,214 |
|
| $ | 74,722 |
|
| $ | 699 |
|
| $ | 3,929 |
|
| $ | 13,563 |
|
| $ | 13,388 |
|
| $ | 11,094 |
|
| $ | 89,532 |
|
| $ | 2,205 |
|
11
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
12. Other Long-Term Liabilities
Other long-term liabilities consists of the following:
|
| September 29, 2019 |
|
| June 30, 2019 |
|
| March 29, 2020 |
|
| June 30, 2019 |
| ||||
Supplemental post-employment plan |
| $ | 2,711 |
|
| $ | 2,695 |
|
| $ | 2,843 |
|
| $ | 2,695 |
|
Interest rate swaps |
|
| 2,569 |
|
|
| 647 |
| ||||||||
Uncertain tax positions |
|
| 1,084 |
|
|
| 1,043 |
|
|
| 1,161 |
|
|
| 1,043 |
|
Interest rate swaps |
|
| 975 |
|
|
| 647 |
| ||||||||
Other |
|
| 1,695 |
|
|
| 1,800 |
|
|
| 1,456 |
|
|
| 1,800 |
|
Total other long-term liabilities |
| $ | 6,465 |
|
| $ | 6,185 |
|
| $ | 8,029 |
|
| $ | 6,185 |
|
10
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The provision for income taxes and effective tax rate were as follows:
|
| For the Three Months Ended |
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| |||||||||||||||
|
| September 29, 2019 |
|
| September 30, 2018 |
|
| March 29, 2020 |
|
| March 31, 2019 |
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||||||
Provision for income taxes |
| $ | 721 |
|
| $ | 2,824 |
|
| $ | 1,530 |
|
| $ | 3,070 |
|
| $ | 2,758 |
|
| $ | 3,606 |
|
Effective tax rate |
|
| 16.3 | % |
|
| 60.9 | % |
|
| (3.9 | )% |
|
| 199.2 | % |
|
| (8.1 | )% |
|
| 71.3 | % |
Income Tax Expense
UNIFI’s provision for income taxes for the threenine months ended SeptemberMarch 29, 20192020 and September 30, 2018March 31, 2019 was calculated by applying an estimate of the annual effective tax rate for the full fiscal year to year-to-date income.income from ordinary activity. Tax effects of significant and unusual, or infrequently occurring, items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.
The effective tax rate for the three months and nine months ended SeptemberMarch 29, 20192020 was lower than the U.S. federal statutory rate primarily due to an increase in the usevaluation allowance for UNIFI’s investment in PAL as a result of foreignthe impairment charge, for which UNIFI does not expect to realize a future tax credits generated in both current and prior tax years. These benefits were partially offset by earnings taxed at higher rates in foreign jurisdictions, U.S. tax on Global Intangible Low-Tax Income (“GILTI”), and foreign withholding taxes. benefit.
The effective tax rate for the three months ended September 30, 2018 March 31, 2019 was higher than the U.S. federal statutory rate primarily due to earnings taxed at higher rates in foreign jurisdictions,U.S. tax on Global Intangible Low-Tax Income (“GILTI”), adjustments to enactment date tax reform impacts, losses in tax jurisdictions for which no tax benefit could be recognized, and foreign withholding taxes. The effective tax rate for the effects ofnine months ended March 31, 2019 was higher than the U.S. federal statutory rate primarily due to U.S. tax on GILTI, provisions,losses in tax jurisdictions for which no tax benefit could be recognized, earnings taxed at higher rates in foreign jurisdictions, and non-deductible executive compensation.foreign withholding taxes. These rate detriments were partially offset by adjustments to enactment date tax reform impacts.
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
Shareholders’ equity for the three months ended September 29, 2019 was as follows:
|
| Shares |
|
| Common Stock |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total Shareholders’ Equity |
| ||||||
Balance at June 30, 2019 |
|
| 18,462 |
|
| $ | 1,846 |
|
| $ | 59,560 |
|
| $ | 374,668 |
|
| $ | (43,229 | ) |
| $ | 392,845 |
|
Options exercised |
|
| 10 |
|
|
| 1 |
|
|
| 28 |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
Conversion of restricted stock units |
|
| 18 |
|
|
| 2 |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 121 |
|
|
| — |
|
|
| — |
|
|
| 121 |
|
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions |
|
| — |
|
|
| — |
|
|
| (44 | ) |
|
| — |
|
|
| — |
|
|
| (44 | ) |
Other comprehensive loss, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,656 | ) |
|
| (6,656 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,712 |
|
|
| — |
|
|
| 3,712 |
|
Balance at September 29, 2019 |
|
| 18,490 |
|
| $ | 1,849 |
|
| $ | 59,663 |
|
| $ | 378,380 |
|
| $ | (49,885 | ) |
| $ | 390,007 |
|
Shareholders’ equity for the three months ended September 30, 2018 was as follows:
|
| Shares |
|
| Common Stock |
|
| Capital in Excess of Par Value |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total Shareholders’ Equity |
| ||||||
Balance at June 24, 2018 |
|
| 18,353 |
|
| $ | 1,835 |
|
| $ | 56,726 |
|
| $ | 371,753 |
|
| $ | (40,533 | ) |
| $ | 389,781 |
|
Options exercised |
|
| 16 |
|
|
| 2 |
|
|
| 242 |
|
|
| — |
|
|
| — |
|
|
| 244 |
|
Conversion of restricted stock units |
|
| 14 |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| 1 |
|
|
| — |
|
|
| 872 |
|
|
| — |
|
|
| — |
|
|
| 872 |
|
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions |
|
| (4 | ) |
|
| — |
|
|
| (133 | ) |
|
| — |
|
|
| — |
|
|
| (133 | ) |
Other comprehensive loss, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,922 | ) |
|
| (2,922 | ) |
Adoption of the new revenue recognition guidance |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 459 |
|
|
| — |
|
|
| 459 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,812 |
|
|
| — |
|
|
| 1,812 |
|
Balance at September 30, 2018 |
|
| 18,380 |
|
| $ | 1,838 |
|
| $ | 57,706 |
|
| $ | 374,024 |
|
| $ | (43,455 | ) |
| $ | 390,113 |
|
No dividends were paid during the three months ended September 29, 2019 or in the two most recently completed fiscal years.
11
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
On April 23, 2014, UNIFI announced that its Board of Directors (the “Board”) had approved a share repurchase program (the “2014 SRP”) under which UNIFI was authorized to acquire up to $50,000 of its common stock. Through October 31, 2018 (the date the 2014 SRP was terminated, as noted below), UNIFI had repurchased a total of 806 shares, at an average price of $27.79 (for a total of $22,409, inclusive of commission costs) pursuant to the 2014 SRP.
On October 31, 2018, UNIFI announced that the Board had terminated the 2014 SRP and approved a new 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 will be made from time to time in the open market at prevailing market prices or 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.
UNIFI made noThe following table summarizes UNIFI’s repurchases and retirements of its shares of common stock during the three months ended September 29, 2019. As of September 29, 2019, $50,000 remained available for repurchase under the 2018 SRP.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 |
|
| — |
|
| $ | — |
|
|
|
|
|
Fiscal 2020 (through March 29, 2020) |
|
| 84 |
|
| $ | 23.72 |
|
|
|
|
|
Total |
|
| 84 |
|
| $ | 23.72 |
|
| $ | 48,008 |
|
12
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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 23, 2013, UNIFI’s shareholders approved the Unifi, Inc. 2013 Incentive Compensation Plan (the “2013 Plan”). The 2013 Plan replaced the 2008 Unifi, Inc. Long-Term Incentive Plan (the “2008 LTIP”). No additional awards can be granted under the 2008 LTIP; however, prior awards outstanding under the 2008 LTIP remain subject to that plan’s provisions. The 2013 Plan authorized the issuance of 1,000 shares of common stock, subject to certain increases in the event outstanding awards under the 2008 LTIP expired, were forfeited or otherwise terminated unexercised.
The 2013 Plan expired in accordance with its terms on October 24, 2018, and the Unifi, Inc. Amended and Restated 2013 Incentive Compensation Plan (the “Amended 2013 Plan”) became effective on that same day, upon approval by shareholders at UNIFI’s annual meeting of shareholders held on October 31, 2018. The Amended 2013 Plan increased the number of shares available for future issuance pursuant to awards granted under the Amended 2013 Plan to 1,250 (subject to certain increases in the event outstanding awards issued under the Amended 2013 Plan terminate unexercised) and removed provisions no longer applicable due to the recent changes to Section 162(m) of the Internal Revenue Code of 1986, as amended. The material terms and provisions of the Amended 2013 Plan are otherwise similar to those of the 2013 Plan. No additional awards can be granted under the 2013 Plan;Plan or the 2008 LTIP; however, prior awards outstanding under the 2013 Plan remain subject to thateach plan’s respective provisions.
The following table provides information as of SeptemberMarch 29, 20192020 with respect to the number of securities remaining available for future issuance under the Amended 2013 Plan:
Authorized under the Amended 2013 Plan |
|
| 1,250 |
|
Plus: Awards expired, forfeited or otherwise terminated unexercised |
|
|
|
|
Less: Awards granted to employees |
|
| ( | ) |
Less: Awards granted to non-employee directors |
|
| ( | ) |
Available for issuance under the Amended 2013 Plan |
|
|
|
|
During the three months ended September 29, 2019 and September 30, 2018, UNIFIStock-based compensation units granted stock options to purchase 15 and 0 shares of common stock, respectively.or issued was as follows:
During the three months ended September 29, 2019 and September 30, 2018, UNIFI granted 28 and 0 restricted stock units, respectively.
|
| For the Nine Months Ended |
| |||||
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||
Stock options |
|
| 83 |
|
|
| 223 |
|
Restricted stock units |
|
| 77 |
|
|
| 74 |
|
Vested share units |
|
| 24 |
|
|
| 47 |
|
Common stock |
|
| 4 |
|
|
| 10 |
|
16. 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 currently maintains three 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 29, 2019 |
|
| September 30, 2018 |
| ||
Interest expense |
| $ | 1,257 |
|
| $ | 1,467 |
|
Decrease (increase) in fair value of interest rate swaps |
|
| 328 |
|
|
| (228 | ) |
Impact of interest rate swaps on interest expense |
|
| (63 | ) |
|
| (34 | ) |
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| March 29, 2020 |
|
| March 31, 2019 |
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||||
Interest expense |
| $ | 1,231 |
|
| $ | 1,256 |
|
| $ | 3,589 |
|
| $ | 4,078 |
|
Decrease in fair value of interest rate swaps |
|
| 1,883 |
|
|
| 745 |
|
|
| 1,922 |
|
|
| 1,689 |
|
Impact of interest rate swaps to increase (decrease) interest expense |
|
| 41 |
|
|
| (111 | ) |
|
| (7 | ) |
|
| (217 | ) |
For the threenine months ended SeptemberMarch 29, 20192020 and September 30, 2018,March 31, 2019, 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 values due to their short-term nature.
12
13
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 |
|
| Foreign Currency Translation Adjustments |
|
| Changes in Interest Rate Swaps |
|
| Accumulated Other Comprehensive Loss |
| ||||||
Balance at June 30, 2019 |
| $ | (42,729 | ) |
| $ | (500 | ) |
| $ | (43,229 | ) |
| $ | (42,729 | ) |
| $ | (500 | ) |
| $ | (43,229 | ) |
Other comprehensive loss |
|
| (6,328 | ) |
|
| (328 | ) |
|
| (6,656 | ) |
|
| (20,350 | ) |
|
| (1,488 | ) |
|
| (21,838 | ) |
Balance at September 29, 2019 |
| $ | (49,057 | ) |
| $ | (828 | ) |
| $ | (49,885 | ) | ||||||||||||
Balance at March 29, 2020 |
| $ | (63,079 | ) |
| $ | (1,988 | ) |
| $ | (65,067 | ) |
A summary of the after-tax effects of the components of other comprehensive loss, net for the three-month and nine-month periods ended SeptemberMarch 29, 20192020 and September 30, 2018March 31, 2019 is included in the accompanying condensed consolidated statements of comprehensive loss.
18. Earnings Per Share
The components of the calculation of earnings per share (“EPS”) are as follows:
|
| For the Three Months Ended |
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| |||||||||||||||
|
| September 29, 2019 |
|
| September 30, 2018 |
|
| March 29, 2020 |
|
| March 31, 2019 |
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||||||
Net income |
| $ | 3,712 |
|
| $ | 1,812 |
| ||||||||||||||||
Net (loss) income |
| $ | (41,111 | ) |
| $ | (1,529 | ) |
| $ | (36,990 | ) |
| $ | 1,454 |
| ||||||||
Basic weighted average shares |
|
| 18,481 |
|
|
| 18,368 |
|
|
| 18,475 |
|
|
| 18,394 |
|
|
| 18,485 |
|
|
| 18,381 |
|
Net potential common share equivalents |
|
| 245 |
|
|
| 335 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 361 |
|
Diluted weighted average shares |
|
| 18,726 |
|
|
| 18,703 |
|
|
| 18,475 |
|
|
| 18,394 |
|
|
| 18,485 |
|
|
| 18,742 |
|
Excluded from diluted weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive common share equivalents |
|
| 340 |
|
|
| 116 |
|
|
| 403 |
|
|
| 359 |
|
|
| 371 |
|
|
| 388 |
|
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.
19. Investments in Unconsolidated Affiliates and Variable Interest Entities
As of March 29, 2020, UNIFI currently maintainsmaintained investments in three entities classified as unconsolidated affiliates: PAL; U.N.F. Industries, Ltd. (“UNF”); and UNF America LLC (“UNFA”). As of September 29, 2019, UNIFI’s investment in PAL was $100,616$56,641 and UNIFI’s combined investments in UNF and UNFA were $1,985,$2,213, 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 accountshas accounted for itsthis 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 SeptemberMarch 29, 2019,2020, PAL had no futures contracts designated as cash flow hedges.
As of March 29, 2020, UNIFI owned a 34% interest in PAL (the “PAL Investment”) and Parkdale, Incorporated (“Parkdale”) owned the majority 66% interest. During March 2020, UNIFI commenced negotiations to sell the PAL Investment to Parkdale. Such negotiations indicated that the fair value of the PAL Investment was less than UNIFI’s carrying value and UNIFI no longer intended to hold the PAL Investment to allow recovery of the carrying value. UNIFI recorded an other-than-temporary impairment of $45,194 to adjust the PAL Investment to fair value.
In April 2020, UNIFI and Parkdale finalized negotiations to sell UNIFI’s PAL Investment to Parkdale for $60,000. The March 29, 2020 adjusted carrying value, after recording the other-than-temporary impairment of the PAL Investment, was comprised of (i) $56,641 reflected in investments in unconsolidated affiliates and (ii) $3,359 of cumulative translation adjustments reflected in other comprehensive loss, totaling the $60,000 fair value. The transaction closed on April 29, 2020 and UNIFI received $60,000 in cash.
The reconciliation between UNIFI’s share of the underlying equity of PAL and its investment is as follows:
Underlying equity as of September 29, 2019 |
| $ | 118,707 |
| ||||
Underlying equity as of March 29, 2020 |
| $ | 119,926 |
| ||||
Initial excess capital contributions |
|
| 53,363 |
|
|
| 53,363 |
|
Impairment charge recorded by UNIFI in fiscal 2007 |
|
| (74,106 | ) |
|
| (74,106 | ) |
Anti-trust lawsuit against PAL in which UNIFI did not participate |
|
| 2,652 |
|
|
| 2,652 |
|
Investment as of September 29, 2019 |
| $ | 100,616 |
| ||||
Impairment charge recorded by UNIFI in fiscal 2020 |
|
| (45,194 | ) | ||||
Investment as of March 29, 2020 |
| $ | 56,641 |
|
14
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
UNIFI evaluated the events relating to the PAL Investment under the guidance in ASC 205 – Presentation of Financial Statements. Disposition of the PAL Investment (i) did not represent a strategic shift for UNIFI and (ii) did not meet the criteria to be recorded as a discontinued operation. Accordingly, UNIFI continues to record the financial statement impacts of the PAL Investment in continuing operations.
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.
13
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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.
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 negotiated every six months, based on market rates. As of SeptemberMarch 29, 2019,2020, UNIFI’s open purchase orders related to this supply agreement were $3,143.$807.
UNIFI’s raw material purchases under this supply agreement consist of the following:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 29, 2019 |
|
| September 30, 2018 |
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||||
UNF |
| $ | 495 |
|
| $ | 486 |
|
| $ | 1,343 |
|
| $ | 1,478 |
|
UNFA |
|
| 4,448 |
|
|
| 5,530 |
|
|
| 13,219 |
|
|
| 17,199 |
|
Total |
| $ | 4,943 |
|
| $ | 6,016 |
|
| $ | 14,562 |
|
| $ | 18,677 |
|
As of SeptemberMarch 29, 20192020 and June 30, 2019, UNIFI had combined accounts payable due to UNF and UNFA of $1,708$2,724 and $1,728, respectively.
UNIFI has determined that UNF and UNFA are variable interest entities 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 UNIFI purchases substantially all of the output from the two entities, the two entities’ balance sheets constitute 3% or less of UNIFI’s current assets, total assets and total liabilities, and 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) is presented in the tables below. PAL iswas defined as significant and its information is separately disclosed. PAL doeshas not meetmet the criteria for segment reporting.
|
| As of September 29, 2019 |
|
| As of June 30, 2019 |
|
| As of March 29, 2020 |
|
| As of June 30, 2019 |
| ||||||||||||||||||||||||||||||||||||
|
| PAL |
|
| Other |
|
| Total |
|
| PAL |
|
| Other |
|
| Total |
|
| PAL |
|
| Other |
|
| Total |
|
| PAL |
|
| Other |
|
| Total |
| ||||||||||||
Current assets |
| $ | 268,804 |
|
| $ | 6,311 |
|
| $ | 275,115 |
|
| $ | 299,610 |
|
| $ | 7,218 |
|
| $ | 306,828 |
|
| $ | 258,113 |
|
| $ | 6,716 |
|
| $ | 264,829 |
|
| $ | 299,610 |
|
| $ | 7,218 |
|
| $ | 306,828 |
|
Noncurrent assets |
|
| 159,813 |
|
|
| 648 |
|
|
| 160,461 |
|
|
| 158,304 |
|
|
| 696 |
|
|
| 159,000 |
| ||||||||||||||||||||||||
Non-current assets |
|
| 151,720 |
|
|
| 583 |
|
|
| 152,303 |
|
|
| 158,304 |
|
|
| 696 |
|
|
| 159,000 |
| ||||||||||||||||||||||||
Current liabilities |
|
| 76,280 |
|
|
| 2,991 |
|
|
| 79,271 |
|
|
| 70,875 |
|
|
| 4,069 |
|
|
| 74,944 |
|
|
| 54,513 |
|
|
| 2,873 |
|
|
| 57,386 |
|
|
| 70,875 |
|
|
| 4,069 |
|
|
| 74,944 |
|
Noncurrent liabilities |
|
| 3,201 |
|
|
| — |
|
|
| 3,201 |
|
|
| 3,252 |
|
|
| — |
|
|
| 3,252 |
| ||||||||||||||||||||||||
Non-current liabilities |
|
| 2,602 |
|
|
| — |
|
|
| 2,602 |
|
|
| 3,252 |
|
|
| — |
|
|
| 3,252 |
| ||||||||||||||||||||||||
Shareholders’ equity and capital accounts |
|
| 349,136 |
|
|
| 3,968 |
|
|
| 353,104 |
|
|
| 383,787 |
|
|
| 3,845 |
|
|
| 387,632 |
|
|
| 352,718 |
|
|
| 4,426 |
|
|
| 357,144 |
|
|
| 383,787 |
|
|
| 3,845 |
|
|
| 387,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNIFI’s portion of undistributed earnings |
|
| 31,732 |
|
|
| 995 |
|
|
| 32,727 |
|
|
| 43,343 |
|
|
| 821 |
|
|
| 44,164 |
|
|
| 34,230 |
|
|
| 1,334 |
|
|
| 35,564 |
|
|
| 43,343 |
|
|
| 821 |
|
|
| 44,164 |
|
|
| For the Three Months Ended September 29, 2019 |
|
| For the Three Months Ended September 30, 2018 |
|
| For the Three Months Ended March 29, 2020 |
|
| For the Three Months Ended March 31, 2019 |
| ||||||||||||||||||||||||||||||||||||
|
| PAL |
|
| Other |
|
| Total |
|
| PAL |
|
| Other |
|
| Total |
|
| PAL |
|
| Other |
|
| Total |
|
| PAL |
|
| Other |
|
| Total |
| ||||||||||||
Net sales |
| $ | 199,167 |
|
| $ | 4,661 |
|
| $ | 203,828 |
|
| $ | 210,502 |
|
| $ | 5,765 |
|
| $ | 216,267 |
|
| $ | 170,854 |
|
| $ | 4,076 |
|
| $ | 174,930 |
|
| $ | 225,160 |
|
| $ | 6,217 |
|
| $ | 231,377 |
|
Gross profit |
|
| 1,071 |
|
|
| 541 |
|
|
| 1,612 |
|
|
| 4,508 |
|
|
| 954 |
|
|
| 5,462 |
|
|
| 12,182 |
|
|
| 392 |
|
|
| 12,574 |
|
|
| 8,638 |
|
|
| 1,149 |
|
|
| 9,787 |
|
(Loss) income from operations |
|
| (3,275 | ) |
|
| 112 |
|
|
| (3,163 | ) |
|
| 632 |
|
|
| 513 |
|
|
| 1,145 |
| ||||||||||||||||||||||||
Net (loss) income |
|
| (3,455 | ) |
|
| 124 |
|
|
| (3,331 | ) |
|
| (49 | ) |
|
| 526 |
|
|
| 477 |
| ||||||||||||||||||||||||
Income from operations |
|
| 7,747 |
|
|
| 8 |
|
|
| 7,755 |
|
|
| 3,868 |
|
|
| 733 |
|
|
| 4,601 |
| ||||||||||||||||||||||||
Net income |
|
| 9,811 |
|
|
| 74 |
|
|
| 9,885 |
|
|
| 4,142 |
|
|
| 740 |
|
|
| 4,882 |
| ||||||||||||||||||||||||
Depreciation and amortization |
|
| 10,631 |
|
|
| 47 |
|
|
| 10,678 |
|
|
| 10,474 |
|
|
| 48 |
|
|
| 10,522 |
|
|
| 8,647 |
|
|
| 23 |
|
|
| 8,670 |
|
|
| 9,285 |
|
|
| 48 |
|
|
| 9,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received by PAL under cotton rebate program |
|
| 3,693 |
|
|
| — |
|
|
| 3,693 |
|
|
| 2,318 |
|
|
| — |
|
|
| 2,318 |
|
|
| 3,210 |
|
|
| — |
|
|
| 3,210 |
|
|
| 3,053 |
|
|
| — |
|
|
| 3,053 |
|
Earnings recognized by PAL for cotton rebate program |
|
| 3,588 |
|
|
| — |
|
|
| 3,588 |
|
|
| 3,214 |
|
|
| — |
|
|
| 3,214 |
|
|
| 3,215 |
|
|
| — |
|
|
| 3,215 |
|
|
| 3,195 |
|
|
| — |
|
|
| 3,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received |
|
| 10,437 |
|
|
| — |
|
|
| 10,437 |
|
|
| 4 |
|
|
| 500 |
|
|
| 504 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 750 |
|
|
| 750 |
|
15
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
|
| For the Nine Months Ended March 29, 2020 |
|
| For the Nine Months Ended March 31, 2019 |
| ||||||||||||||||||
|
| PAL |
|
| Other |
|
| Total |
|
| PAL |
|
| Other |
|
| Total |
| ||||||
Net sales |
| $ | 531,669 |
|
| $ | 14,212 |
|
| $ | 545,881 |
|
| $ | 626,812 |
|
| $ | 19,256 |
|
| $ | 646,068 |
|
Gross profit |
|
| 13,067 |
|
|
| 1,745 |
|
|
| 14,812 |
|
|
| 18,841 |
|
|
| 3,587 |
|
|
| 22,428 |
|
(Loss) income from operations |
|
| (554 | ) |
|
| 497 |
|
|
| (57 | ) |
|
| 5,663 |
|
|
| 2,284 |
|
|
| 7,947 |
|
Net income |
|
| 3,893 |
|
|
| 581 |
|
|
| 4,474 |
|
|
| 6,334 |
|
|
| 2,381 |
|
|
| 8,715 |
|
Depreciation and amortization |
|
| 30,671 |
|
|
| 113 |
|
|
| 30,784 |
|
|
| 30,576 |
|
|
| 143 |
|
|
| 30,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received by PAL under cotton rebate program |
|
| 10,366 |
|
|
| — |
|
|
| 10,366 |
|
|
| 8,773 |
|
|
| — |
|
|
| 8,773 |
|
Earnings recognized by PAL for cotton rebate program |
|
| 9,569 |
|
|
| — |
|
|
| 9,569 |
|
|
| 9,444 |
|
|
| — |
|
|
| 9,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received |
|
| 10,437 |
|
|
| — |
|
|
| 10,437 |
|
|
| 130 |
|
|
| 1,250 |
|
|
| 1,380 |
|
20. 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.
14
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
On September 30, 2004, Unifi Kinston, LLC (“UK”), a subsidiary of Unifi, Inc., completed its acquisition of polyester filament manufacturing assets located in Kinston, North Carolina from Invista S.a.r.l. (“INVISTA”). The land for the Kinston site was leased pursuant to a 99-year ground lease (the “Ground Lease”) with E.I. DuPont de Nemours (“DuPont”). Since 1993, DuPont has been investigating and cleaning up the Kinston site under the supervision of the U.S. Environmental Protection Agency and the North Carolina Department of Environmental Quality (“DEQ”) pursuant to the Resource Conservation and Recovery Act Corrective Action program. The program requires DuPont to identify all potential areas of environmental concern (“AOCs”), assess the extent of containment at the identified AOCs and remediate the AOCs to comply with applicable regulatory standards. Effective March 20, 2008, 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 UK of any future responsibility for environmental remediation, other than participation with DuPont, if so called upon, with regard to 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.
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. 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 UK, DuPont and UK had a duty to monitor and report the environmental status of the Kentec site to DEQ.
Effective April 10, 2019, UK assumed sole remediator responsibility of the Kentec site pursuant to its contractual obligations with INVISTA and received $180 of net monitoring and reporting costs due from DuPont. In connection with monitoring, UK expects to sample and report to DEQ annually. UNIFI expects nominimal active site remediation willmay be required, andbut has no basis to determine any costs that may be associated with active remediation.
21. Related Party Transactions
For details regarding the nature of certain related party relationships, see Note 25, “Related Party Transactions,” to the consolidated financial statements in the 2019 Form 10-K.
There were no related party receivables as of SeptemberMarch 29, 20192020 or June 30, 2019.
Related party payables consists of the following:
|
| September 29, 2019 |
|
| June 30, 2019 |
|
| March 29, 2020 |
|
| June 30, 2019 |
| ||||
Salem Leasing Corporation (included within accounts payable) |
| $ | 351 |
|
| $ | 634 |
|
| $ | 403 |
|
| $ | 634 |
|
Salem Leasing Corporation (operating lease obligations) |
|
| 3,625 |
|
|
| — |
|
|
| 1,578 |
|
|
| — |
|
Salem Leasing Corporation (finance lease obligations) |
|
| 1,663 |
|
|
| 806 |
|
|
| 6,765 |
|
|
| 806 |
|
Total related party payables |
| $ | 5,639 |
|
| $ | 1,440 |
|
| $ | 8,746 |
|
| $ | 1,440 |
|
16
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Related party transactions in excess of $120 include:
|
|
|
| For the Three Months Ended |
|
|
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| |||||||||||||||
Affiliated Entity |
| Transaction Type |
| September 29, 2019 |
|
| September 30, 2018 |
|
| Transaction Type |
| March 29, 2020 |
|
| March 31, 2019 |
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||||||
Salem Leasing Corporation |
| Transportation equipment costs and finance lease debt service |
| $ | 1,008 |
|
| $ | 1,021 |
|
| Transportation equipment costs and finance lease debt service |
| $ | 985 |
|
| $ | 1,006 |
|
| $ | 3,101 |
|
| $ | 3,046 |
|
22. Business Segment Information
UNIFI defines operating segments as components of the organization for which discrete financial information is available and operating results are evaluated on a regular basis by UNIFI’s principal executive officer, who is the chief operating decision maker (the “CODM”), in order to assess performance and allocate resources. Characteristics of the organization which were relied upon in making the determination of reportable segments include the nature of the products sold, the organization’s internal structure, the trade policies in the geographic regions in which UNIFI operates, and the information that is regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.
UNIFI’s operating segments are aggregated into four reportable segments (the Polyester Segment, the Nylon Segment, the Brazil Segment and the Asia Segment) based on similarities between the operating segments’ economic characteristics, nature of products sold, type of customer, methods of distribution and regulatory environment.
The operations within the Polyester Segment exhibit similar long-term economic characteristics and primarily 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”) (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, automotive, industrial and other end-use markets. The Polyester Segment consists of sales and manufacturing operations in the U.S. and El Salvador.
15
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)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 and hosiery 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.
(Unaudited)
|
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 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 sellssources polyester-based products from third-party suppliers and sells to knitters and weavers that produce fabric for the apparel, automotive, home furnishings, automotive, industrial and other end-use markets principally in Asia. The Asia Segment includes sales offices primarily in China and Sri Lanka.China.
In addition to UNIFI’s reportable segments, the selected financial information presented below includes an All Other category. All Other consists primarily of for-hire transportation services. For-hire transportation services revenue is derived from performing common carrier services utilizing UNIFI’s fleet of transportation equipment.
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, which represents segment gross profit plus segment depreciation expense. This measurement of segment profit best aligns segment reporting with the current assessments and evaluations performed by, and information provided to, the CODM.
The accounting policies for the segments are consistent with UNIFI’s accounting policies. Intersegment sales are omitted from segment disclosures, as they are (i) insignificant to UNIFI’s segments and eliminated from consolidated reporting and (ii) excluded from segment evaluations performed by the CODM.
Selected financial information is presented below:
|
| For the Three Months Ended September 29, 2019 |
|
| For the Three Months Ended March 29, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Polyester |
|
| Nylon |
|
| Brazil |
|
| Asia |
|
| All Other |
|
| Total |
|
| Polyester |
|
| Nylon |
|
| Brazil |
|
| Asia |
|
| All Other |
|
| Total |
| ||||||||||||
Net sales |
| $ | 88,695 |
|
| $ | 20,202 |
|
| $ | 24,172 |
|
| $ | 45,957 |
|
| $ | 923 |
|
| $ | 179,949 |
|
| $ | 89,767 |
|
| $ | 20,567 |
|
| $ | 21,060 |
|
| $ | 38,621 |
|
| $ | 979 |
|
| $ | 170,994 |
|
Cost of sales |
|
| 80,900 |
|
|
| 19,024 |
|
|
| 20,013 |
|
|
| 41,675 |
|
|
| 894 |
|
|
| 162,506 |
|
|
| 82,735 |
|
|
| 20,234 |
|
|
| 17,644 |
|
|
| 34,038 |
|
|
| 960 |
|
|
| 155,611 |
|
Gross profit |
|
| 7,795 |
|
|
| 1,178 |
|
|
| 4,159 |
|
|
| 4,282 |
|
|
| 29 |
|
|
| 17,443 |
|
|
| 7,032 |
|
|
| 333 |
|
|
| 3,416 |
|
|
| 4,583 |
|
|
| 19 |
|
|
| 15,383 |
|
Segment depreciation expense |
|
| 4,041 |
|
|
| 491 |
|
|
| 375 |
|
|
| — |
|
|
| 39 |
|
|
| 4,946 |
|
|
| 4,301 |
|
|
| 471 |
|
|
| 421 |
|
|
| — |
|
|
| 137 |
|
|
| 5,330 |
|
Segment Profit |
| $ | 11,836 |
|
| $ | 1,669 |
|
| $ | 4,534 |
|
| $ | 4,282 |
|
| $ | 68 |
|
| $ | 22,389 |
|
| $ | 11,333 |
|
| $ | 804 |
|
| $ | 3,837 |
|
| $ | 4,583 |
|
| $ | 156 |
|
| $ | 20,713 |
|
|
| For the Three Months Ended September 30, 2018 |
| |||||||||||||||||||||
|
| Polyester |
|
| Nylon |
|
| Brazil |
|
| Asia |
|
| All Other |
|
| Total |
| ||||||
Net sales |
| $ | 100,131 |
|
| $ | 27,949 |
|
| $ | 26,913 |
|
| $ | 25,440 |
|
| $ | 1,178 |
|
| $ | 181,611 |
|
Cost of sales |
|
| 92,330 |
|
|
| 25,805 |
|
|
| 20,495 |
|
|
| 21,908 |
|
|
| 1,054 |
|
|
| 161,592 |
|
Gross profit |
|
| 7,801 |
|
|
| 2,144 |
|
|
| 6,418 |
|
|
| 3,532 |
|
|
| 124 |
|
|
| 20,019 |
|
Segment depreciation expense |
|
| 4,252 |
|
|
| 561 |
|
|
| 359 |
|
|
| — |
|
|
| 75 |
|
|
| 5,247 |
|
Segment Profit |
| $ | 12,053 |
|
| $ | 2,705 |
|
| $ | 6,777 |
|
| $ | 3,532 |
|
| $ | 199 |
|
| $ | 25,266 |
|
The reconciliations of segment gross profit to consolidated income before income taxes are as follows:
|
| For the Three Months Ended |
| |||||
|
| September 29, 2019 |
|
| September 30, 2018 |
| ||
Polyester |
| $ | 7,795 |
|
| $ | 7,801 |
|
Nylon |
|
| 1,178 |
|
|
| 2,144 |
|
Brazil |
|
| 4,159 |
|
|
| 6,418 |
|
Asia |
|
| 4,282 |
|
|
| 3,532 |
|
All Other |
|
| 29 |
|
|
| 124 |
|
Segment gross profit |
|
| 17,443 |
|
|
| 20,019 |
|
Selling, general and administrative expenses |
|
| 10,980 |
|
|
| 14,411 |
|
Provision for bad debts |
|
| 9 |
|
|
| 131 |
|
Other operating expense (income), net |
|
| 108 |
|
|
| (240 | ) |
Operating income |
|
| 6,346 |
|
|
| 5,717 |
|
Interest income |
|
| (210 | ) |
|
| (147 | ) |
Interest expense |
|
| 1,257 |
|
|
| 1,467 |
|
Equity in loss (earnings) of unconsolidated affiliates |
|
| 866 |
|
|
| (239 | ) |
Income before income taxes |
| $ | 4,433 |
|
| $ | 4,636 |
|
1617
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
|
| For the Three Months Ended March 31, 2019 |
| |||||||||||||||||||||
|
| Polyester |
|
| Nylon |
|
| Brazil |
|
| Asia |
|
| All Other |
|
| Total |
| ||||||
Net sales |
| $ | 95,745 |
|
| $ | 25,563 |
|
| $ | 25,110 |
|
| $ | 32,571 |
|
| $ | 1,000 |
|
| $ | 179,989 |
|
Cost of sales |
|
| 90,941 |
|
|
| 23,251 |
|
|
| 22,334 |
|
|
| 28,730 |
|
|
| 942 |
|
|
| 166,198 |
|
Gross profit |
|
| 4,804 |
|
|
| 2,312 |
|
|
| 2,776 |
|
|
| 3,841 |
|
|
| 58 |
|
|
| 13,791 |
|
Segment depreciation expense |
|
| 3,858 |
|
|
| 516 |
|
|
| 420 |
|
|
| — |
|
|
| 47 |
|
|
| 4,841 |
|
Segment Profit |
| $ | 8,662 |
|
| $ | 2,828 |
|
| $ | 3,196 |
|
| $ | 3,841 |
|
| $ | 105 |
|
| $ | 18,632 |
|
|
| For the Nine Months Ended March 29, 2020 |
| |||||||||||||||||||||
|
| Polyester |
|
| Nylon |
|
| Brazil |
|
| Asia |
|
| All Other |
|
| Total |
| ||||||
Net sales |
| $ | 261,212 |
|
| $ | 57,853 |
|
| $ | 66,094 |
|
| $ | 132,496 |
|
| $ | 2,799 |
|
| $ | 520,454 |
|
Cost of sales |
|
| 239,725 |
|
|
| 56,296 |
|
|
| 55,089 |
|
|
| 118,114 |
|
|
| 2,739 |
|
|
| 471,963 |
|
Gross profit |
|
| 21,487 |
|
|
| 1,557 |
|
|
| 11,005 |
|
|
| 14,382 |
|
|
| 60 |
|
|
| 48,491 |
|
Segment depreciation expense |
|
| 12,525 |
|
|
| 1,465 |
|
|
| 1,153 |
|
|
| — |
|
|
| 300 |
|
|
| 15,443 |
|
Segment Profit |
| $ | 34,012 |
|
| $ | 3,022 |
|
| $ | 12,158 |
|
| $ | 14,382 |
|
| $ | 360 |
|
| $ | 63,934 |
|
|
| For the Nine Months Ended March 31, 2019 |
| |||||||||||||||||||||
|
| Polyester |
|
| Nylon |
|
| Brazil |
|
| Asia |
|
| All Other |
|
| Total |
| ||||||
Net sales |
| $ | 281,665 |
|
| $ | 76,159 |
|
| $ | 76,257 |
|
| $ | 92,014 |
|
| $ | 3,216 |
|
| $ | 529,311 |
|
Cost of sales |
|
| 265,748 |
|
|
| 69,671 |
|
|
| 62,654 |
|
|
| 80,317 |
|
|
| 2,955 |
|
|
| 481,345 |
|
Gross profit |
|
| 15,917 |
|
|
| 6,488 |
|
|
| 13,603 |
|
|
| 11,697 |
|
|
| 261 |
|
|
| 47,966 |
|
Segment depreciation expense |
|
| 12,047 |
|
|
| 1,576 |
|
|
| 1,146 |
|
|
| — |
|
|
| 190 |
|
|
| 14,959 |
|
Segment Profit |
| $ | 27,964 |
|
| $ | 8,064 |
|
| $ | 14,749 |
|
| $ | 11,697 |
|
| $ | 451 |
|
| $ | 62,925 |
|
The reconciliations of segment gross profit to consolidated income (loss) before income taxes are as follows:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| March 29, 2020 |
|
| March 31, 2019 |
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||||
Polyester |
| $ | 7,032 |
|
| $ | 4,804 |
|
| $ | 21,487 |
|
| $ | 15,917 |
|
Nylon |
|
| 333 |
|
|
| 2,312 |
|
|
| 1,557 |
|
|
| 6,488 |
|
Brazil |
|
| 3,416 |
|
|
| 2,776 |
|
|
| 11,005 |
|
|
| 13,603 |
|
Asia |
|
| 4,583 |
|
|
| 3,841 |
|
|
| 14,382 |
|
|
| 11,697 |
|
All Other |
|
| 19 |
|
|
| 58 |
|
|
| 60 |
|
|
| 261 |
|
Segment gross profit |
|
| 15,383 |
|
|
| 13,791 |
|
|
| 48,491 |
|
|
| 47,966 |
|
Selling, general and administrative expenses |
|
| 11,720 |
|
|
| 11,439 |
|
|
| 35,208 |
|
|
| 40,672 |
|
Provision for bad debts |
|
| 580 |
|
|
| 218 |
|
|
| 331 |
|
|
| 381 |
|
Other operating (income) expense, net |
|
| (62 | ) |
|
| 1,359 |
|
|
| 900 |
|
|
| 1,218 |
|
Operating income |
|
| 3,145 |
|
|
| 775 |
|
|
| 12,052 |
|
|
| 5,695 |
|
Interest income |
|
| (173 | ) |
|
| (149 | ) |
|
| (595 | ) |
|
| (448 | ) |
Interest expense |
|
| 1,231 |
|
|
| 1,256 |
|
|
| 3,589 |
|
|
| 4,078 |
|
Equity in earnings of unconsolidated affiliates |
|
| (3,526 | ) |
|
| (1,873 | ) |
|
| (1,904 | ) |
|
| (3,126 | ) |
Impairment of investment in unconsolidated affiliate |
|
| 45,194 |
|
|
| — |
|
|
| 45,194 |
|
|
| — |
|
Loss on extinguishment of debt |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 131 |
|
(Loss) income before income taxes |
| $ | (39,581 | ) |
| $ | 1,541 |
|
| $ | (34,232 | ) |
| $ | 5,060 |
|
The reconciliations of segment total assets to consolidated total assets are as follows:
|
| September 29, 2019 |
|
| June 30, 2019 |
|
| March 29, 2020 |
|
| June 30, 2019 |
| ||||
Polyester |
| $ | 294,163 |
|
| $ | 287,608 |
|
| $ | 295,192 |
|
| $ | 287,608 |
|
Nylon |
|
| 54,947 |
|
|
| 57,055 |
|
|
| 50,905 |
|
|
| 57,055 |
|
Brazil |
|
| 65,598 |
|
|
| 67,490 |
|
|
| 54,040 |
|
|
| 67,490 |
|
Asia |
|
| 40,599 |
|
|
| 35,219 |
|
|
| 45,530 |
|
|
| 35,219 |
|
Segment total assets |
|
| 455,307 |
|
|
| 447,372 |
|
|
| 445,667 |
|
|
| 447,372 |
|
Other current assets |
|
| 8,857 |
|
|
| 10,327 |
|
|
| 7,235 |
|
|
| 10,327 |
|
Other PP&E |
|
| 19,278 |
|
|
| 18,664 |
|
|
| 24,412 |
|
|
| 18,664 |
|
Other non-current operating lease assets |
|
| 3,366 |
|
|
| — |
|
|
| 1,599 |
|
|
| — |
|
Other non-current assets |
|
| 1,631 |
|
|
| 1,468 |
|
|
| 5,275 |
|
|
| 1,468 |
|
Investments in unconsolidated affiliates |
|
| 102,601 |
|
|
| 114,320 |
|
|
| 58,854 |
|
|
| 114,320 |
|
Total assets |
| $ | 591,040 |
|
| $ | 592,151 |
|
| $ | 543,042 |
|
| $ | 592,151 |
|
18
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
23. Supplemental Cash Flow Information
Cash payments (refunds) for interest and taxes consist of the following:
|
| For the Three Months Ended |
| |||||
|
| September 29, 2019 |
|
| September 30, 2018 |
| ||
Interest, net of capitalized interest of $31 and $59, respectively |
| $ | 1,290 |
|
| $ | 1,627 |
|
Income tax payments (refunds), net |
|
| 1,275 |
|
|
| (4,204 | ) |
|
| For the Nine Months Ended |
| |||||
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||
Interest, net of capitalized interest of $86 and $178, respectively |
| $ | 3,535 |
|
| $ | 4,053 |
|
Income tax payments, net |
|
| 4,833 |
|
|
| 617 |
|
Cash payments for taxes shown above consist primarily of income and withholding tax payments made by UNIFI in both U.S. and foreign jurisdictions, net of refunds. Cash refunds of taxes shown above consist primarily of refunds received in the U.S.
Non-Cash Investing and Financing Activities
As of SeptemberMarch 29, 20192020 and June 30, 2019, $847$619 and $1,329, respectively, were included in accounts payable for unpaid capital expenditures. As of September 30, 2018March 31, 2019 and June 24, 2018, $1,607$2,205 and $3,187, respectively, were included in accounts payable for unpaid capital expenditures.
Non-cash investing and financing activities related to leases have been disclosed in Note 4, “Leases.”
24. Subsequent Events
Global demand declines and decreased economic activity caused by the COVID-19 pandemic led to a decline in demand for UNIFI products. Accordingly, during the fourth quarter of fiscal 2020, UNIFI’s manufacturing operations have been reduced from recent production levels to adjust for the change in demand. UNIFI’s facilities in El Salvador are currently not operational in connection with temporary government mandates in that country.
As further disclosed in Note 19, “Investment in Unconsolidated Affiliates and Variable Interest Entities,” in April 2020, UNIFI and Parkdale finalized negotiations to sell UNIFI’s PAL Investment to Parkdale for $60,000. The transaction closed on April 29, 2020 and UNIFI received $60,000 in cash.
As further disclosed in Note 11, “Long-Term Debt,” in connection and concurrent with the sale of the PAL Investment, UNIFI entered into the Fourth Amendment to Amended and Restated Credit Agreement.
Item 2. | Management’s Discussion and |
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 SeptemberMarch 29, 2019,2020, while a reference to the “prior period” refers to the three-month period ended September 30, 2018.March 31, 2019. A reference to the “current nine-month period” refers to the nine-month period ended March 29, 2020, while a reference to the “prior nine-month period” refers to the nine-month period ended March 31, 2019. Such references may be accompanied by certain phrases for added clarity. The current period and the prior period each consisted of 13 weeks. The current nine-month period and the prior nine-month period consisted of 39 weeks and 1440 weeks, respectively.
Our discussions in this Item 2 focus on our results during, or as of, the three months and nine months ended SeptemberMarch 29, 20192020 and September 30, 2018,March 31, 2019, and, to the extent applicable, any material changes from the information discussed in the 2019 Form 10-K or other important intervening developments or information. These discussions should be read in conjunction with the 2019 Form 10-K for more detailed and background information about our business, operations and financial condition. Discussion of unfavorable foreign currency translation is primarily associated with the weakening of the Brazilian Real (“BRL”) and the Chinese Renminbi (“RMB”) against the U.S. Dollar (“USD”).
All amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted.
Overview and Significant General Matters
Underlying Business and Operational Overview for the Nine Months Ending March 29, 2020
UNIFI’s business focuses on delivering 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 three supporting pillars: (1) engaging in strategic relationships with like-minded entities, (2) growing our existing portfolio of technologies and capabilities and (3) expanding our supply chain to best serve our direct and indirect customers. We refer to this three-pillared strategy as our “Partner, Innovate and Build” strategy. UNIFI remains committed to this strategy, which it believeswe believe will increase profitability and generate improved cash flows from operations.
UNIFI has four reportable segments for its operations – the Polyester Segment, the Nylon Segment, the Brazil Segment and the Asia 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. In discussion of its operating results in this report, UNIFI refers to its operations in the “NACA” region, which is the region comprised of the trade zones covered by NAFTA and CAFTA-DR.
Significant general matters for the current period and the current nine-month period include the following, each of which is addressed in more detail below:
net sales for the current period decreased $1,662,$8,995, or 0.9%5.0%, to $179,949,$170,994, compared to $181,611$179,989 for the prior period;
net sales for the current nine-month period were $520,454, compared to $529,311 for the prior nine-month period;
revenues from PVA products for the current period grew approximately 26%5% compared to the prior period and represented 54%52% of consolidated net sales for the current period compared to 43%47% for the prior period;
gross margin was 9.7%9.0% for the current period, compared to 11.0%7.7% for the prior period and was 9.3% for the current nine-month period, compared to 9.1% for the prior nine-month period;
operating income was $6,346$3,145 for the current period, compared to $5,717$775 for the prior period and was $12,052 for the nine-month period, compared to $5,695 for the prior nine-month period;
UNIFI recorded an impairment charge of $45,194 in the current period in connection with the April 29, 2020 sale of the Company’s 34% interest in PAL; and
dilutedbasic EPS was $0.20$(2.23) for the current period, compared to $0.10$(0.08) for the prior period and was $(2.00) for the current nine-month period, compared to $0.08 for the prior nine-month period.
During the current nine-month period, (i) UNIFI’s NACA operationsthe Polyester Segment faced suppressed demand for certain yarns across the industrial, automotive and apparel sectors, (ii) UNIFI’s operationsthe Nylon Segment experienced lower revenues and gross margin in connection with two customers shifting certain programs to overseas garment production during calendar 2019 and (iii) the Brazil Segment experienced a weakerlower gross margin as market price declines (inin connection with declining raw material costs)costs outpaced inventory turnover.
However, UNIFI achieved favorable operating results and overall improvement compared to the prior nine-month period, despite one lessfewer sales week in the NACA region. The improvement was primarily attributable to (i) a declining raw material cost environment that benefited our NACA operationsPolyester Segment and (ii) lower selling, general and administrative expenses (“SG&A”) resulting from cost reduction efforts that began in the second half of fiscal 2019.
Additionally, UNIFI’s operating cash flows and net debt (debt principal less cash and cash equivalents) improved significantly during the current nine-month period primarily as a result of better working capital management(i) comparatively less cash invested in inventories, which was influenced by lower raw material costs and $10,437(ii) $9,057 of increased distributions from PAL.equity affiliates.
UNIFI remains committed to pursuing relief from the competitive pressures that have resulted from the elevated levels of low-cost and subsidized polyester textured yarn entering the U.S. market from countries such as China and India. In connection with the anti-dumping and countervailing duties petitions we filed in October 2018, the preliminary duties imposed by the U.S. Department of Commerce during calendarand the U.S. International Trade Commission completed their investigations and began imposing associated final duties on imports, subsequent to preliminary duties that were in effect from April 2019 have the potential to significantly improve UNIFI’s market shareDecember 2019. Accordingly, subject imports from China and competitive position against such imported yarns. Such an improvement could lead to better fixed cost leverageIndia are being assessed combined antidumping and countervailing duty rates of 97% and higher gross margins forand 18% and higher, respectively, in addition to normal course duties in effect. The positive developments in our NACA operations. While final determinations are expected at the endpursuit of calendar 2019, the positive announcementsrelief from the U.S. Department of Commerce earlier in calendar 2019low-cost and subsidized imports are critical steps in UNIFI’sour efforts to better compete against imported yarns that have flooded the U.S. market in recent years. UNIFI will continue to monitor whether polyester textured yarn from China or India is being shipped through third-party countries and then entering the U.S. market to avoid the increased duties.
Discussion of the Global Coronavirus Pandemic in Calendar 2020
In March 2020, the World Health Organization declared the current coronavirus disease (“COVID-19”) outbreak a global pandemic. Through the current period and current nine-month period, the COVID-19 pandemic had no significant adverse impact on UNIFI’s business, although sales growth for our Asia Segment was temporarily slowed by the extensive government shutdown in China during the current period.
Efforts to contain the spread of COVID-19 intensified during March and April 2020, especially in the U.S. Several states, including North Carolina, where UNIFI’s primary manufacturing and administrative operations are located, have declared states of emergency. A number of national, state, and local governments also enacted temporary business closures, issued quarantine orders and took other restrictive measures in response to the COVID-19 pandemic. The local and global measures have significantly reduced economic activity and demand, thereby reducing overall demand for UNIFI’s products.
UNIFI’s U.S. manufacturing has continued operating as an essential business, allowing UNIFI to continue to serve customers that remain operational. However, UNIFI’s global manufacturing operations have adjusted to the declines in economic activity and global demand by reducing production from recent levels. UNIFI’s facilities in El Salvador are currently not operational in connection with temporary government mandates in that country. In an effort to protect the health and safety of our employees, customers and communities, UNIFI has taken proactive, aggressive action from the earliest signs of the outbreak in the U.S. by adopting social distancing and travel restriction policies for all locations.
Global measures taken to reduce the spread of COVID-19 have generated a significant decline in global business activity in the immediate term that may have a lasting impact on the global economy and consumer demand. The duration of the COVID-19 pandemic and its related impact on our businesses are currently unknown. UNIFI anticipates that the global disruption caused by COVID-19 has and will continue to negatively impact overall global demand and business activity, including for textiles in both the Americas and Asia.
Significant restoration of consumer spending and retail activity levels will be critical to both our end-markets and an economic rebound. UNIFI anticipates a rebound in global economic activity when COVID-19 is demonstrably contained. The business impact of such a rebound will depend on the pace and effectiveness of the containment efforts deployed by various national, state, and local governments, along with the speed and effectiveness with which potential treatment and vaccine methods are deployed.
UNIFI will continue to monitor the COVID-19 pandemic, prioritizing the health and safety of employees, while delivering on customer demand, but we expect an adverse impact to the remainder of our fiscal 2020 and at least the first half of our fiscal 2021, based on the present factors and conditions.
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 (loss) and diluted EPS;
Segment Profit, which equals segment gross profit 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;
|
|
working capital, which represents current assets less current liabilities;
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), which represents Net (loss) income before net interest expense, income tax expense and depreciation and amortization expense;
Adjusted EBITDA, which represents EBITDA adjusted to exclude equity in lossearnings of PAL, and, from time to time, certain other adjustments necessary to understand and compare the underlying results of UNIFI;
Adjusted Net Income (Loss), which represents Net (loss) income calculated under GAAP, adjusted to exclude certain amounts which management believes do not reflect the ongoing operations and performance of UNIFI and/or which are necessary to understand and compare the underlying results of UNIFI;
Adjusted EPS, which represents Adjusted Net Income (Loss) divided by UNIFI’s weighted average common shares outstanding;
Adjusted Working Capital, which equals receivables plus inventories and other current assets, less accounts payable and accrued expenses; and
Net Debt, which represents debt principal less cash and cash equivalents.
EBITDA, Adjusted EBITDA, Adjusted Net Income (Loss), Adjusted EPS, 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 (as defined in the Credit Agreement).operations. Equity in lossearnings of PAL is excluded from Adjusted EBITDA because such results do not reflect our operating performance.
Management uses Adjusted Net Income (Loss) 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.
Management uses Adjusted Working Capital as an indicator of UNIFI’s production efficiency and ability to manage inventories and receivables.
Management uses Net Debt as a liquidity and leverage metric to determine how much debt would remain if all cash and cash equivalents were used to pay down debt principal.
Review of Results of Operations
Three Months Ended SeptemberMarch 29, 20192020 Compared to Three Months Ended September 30, 2018March 31, 2019
Consolidated Overview
The components of Net income,loss, 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 |
|
|
|
|
|
| For the Three Months Ended |
|
|
|
|
| ||||||||||||||||||||||||||
|
| September 29, 2019 |
|
| September 30, 2018 |
|
|
|
|
|
| March 29, 2020 |
|
| March 31, 2019 |
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
| ||||||
Net sales |
| $ | 179,949 |
|
|
| 100.0 |
|
| $ | 181,611 |
|
|
| 100.0 |
|
|
| (0.9 | ) |
| $ | 170,994 |
|
|
| 100.0 |
|
| $ | 179,989 |
|
|
| 100.0 |
|
|
| (5.0 | ) |
Cost of sales |
|
| 162,506 |
|
|
| 90.3 |
|
|
| 161,592 |
|
|
| 89.0 |
|
|
| 0.6 |
|
|
| 155,611 |
|
|
| 91.0 |
|
|
| 166,198 |
|
|
| 92.3 |
|
|
| (6.4 | ) |
Gross profit |
|
| 17,443 |
|
|
| 9.7 |
|
|
| 20,019 |
|
|
| 11.0 |
|
|
| (12.9 | ) |
|
| 15,383 |
|
|
| 9.0 |
|
|
| 13,791 |
|
|
| 7.7 |
|
|
| 11.5 |
|
SG&A |
|
| 10,980 |
|
|
| 6.1 |
|
|
| 14,411 |
|
|
| 7.9 |
|
|
| (23.8 | ) |
|
| 11,720 |
|
|
| 6.9 |
|
|
| 11,439 |
|
|
| 6.4 |
|
|
| 2.5 |
|
Provision for bad debts |
|
| 9 |
|
|
| — |
|
|
| 131 |
|
|
| 0.1 |
|
|
| (93.1 | ) |
|
| 580 |
|
|
| 0.3 |
|
|
| 218 |
|
|
| 0.1 |
|
|
| 166.1 |
|
Other operating expense (income), net |
|
| 108 |
|
|
| 0.1 |
|
|
| (240 | ) |
|
| (0.1 | ) |
|
| (145.0 | ) | ||||||||||||||||||||
Other operating (income) expense, net |
|
| (62 | ) |
|
| — |
|
|
| 1,359 |
|
|
| 0.8 |
|
|
| (104.6 | ) | ||||||||||||||||||||
Operating income |
|
| 6,346 |
|
|
| 3.5 |
|
|
| 5,717 |
|
|
| 3.1 |
|
|
| 11.0 |
|
|
| 3,145 |
|
|
| 1.8 |
|
|
| 775 |
|
|
| 0.4 |
|
| nm |
| |
Interest expense, net |
|
| 1,047 |
|
|
| 0.6 |
|
|
| 1,320 |
|
|
| 0.7 |
|
|
| (20.7 | ) |
|
| 1,058 |
|
|
| 0.6 |
|
|
| 1,107 |
|
|
| 0.6 |
|
|
| (4.4 | ) |
Equity in loss (earnings) of unconsolidated affiliates |
|
| 866 |
|
|
| 0.4 |
|
|
| (239 | ) |
|
| (0.2 | ) |
| nm |
| |||||||||||||||||||||
Income before income taxes |
|
| 4,433 |
|
|
| 2.5 |
|
|
| 4,636 |
|
|
| 2.6 |
|
|
| (4.4 | ) | ||||||||||||||||||||
Equity in earnings of unconsolidated affiliates |
|
| (3,526 | ) |
|
| (2.1 | ) |
|
| (1,873 | ) |
|
| (1.1 | ) |
|
| 88.3 |
| ||||||||||||||||||||
Impairment of investment in unconsolidated affiliate |
|
| 45,194 |
|
|
| 26.4 |
|
|
| — |
|
|
| — |
|
| nm |
| |||||||||||||||||||||
(Loss) income before income taxes |
|
| (39,581 | ) |
|
| (23.1 | ) |
|
| 1,541 |
|
|
| 0.9 |
|
| nm |
| |||||||||||||||||||||
Provision for income taxes |
|
| 721 |
|
|
| 0.4 |
|
|
| 2,824 |
|
|
| 1.6 |
|
|
| (74.5 | ) |
|
| 1,530 |
|
|
| 0.9 |
|
|
| 3,070 |
|
|
| 1.7 |
|
|
| (50.2 | ) |
Net income |
| $ | 3,712 |
|
|
| 2.1 |
|
| $ | 1,812 |
|
|
| 1.0 |
|
|
| 104.9 |
| ||||||||||||||||||||
Net loss |
| $ | (41,111 | ) |
|
| (24.0 | ) |
| $ | (1,529 | ) |
|
| (0.8 | ) |
| nm |
|
nm – Not meaningful
Net Sales
Consolidated net sales for the current period decreased by $1,662,$8,995, or 0.9%5.0%, as compared to the prior period, primarily due to one less week of sales(i) lower demand for our nylon products in the current periodNACA region, (ii) lower average selling prices for our NACA operations, partially offset by thepolyester products in connection with lower polyester raw material costs and (iii) unfavorable foreign currency translation. However, PVA product sales growth remained strong for the Asia Segment, despite the adverse impact of PVA products.COVID-19 on that region’s production and distribution abilities.
Consolidated sales volumes increased 16.1%6.5%, primarily attributable to continued sales growth of REPREVE®-branded products, primarilyprincipally Chip and staple fiber in the Asia Segment, partially offset by (i) one less week of sales in the current period for our NACA operations and (ii) softerlower yarn sales in the Polyester and Nylon Segments.Segment. Sales in the Asia Segment continued to expand as our REPREVE® portfolio resonates with our brand partners that are focused on sustainable solutions. Soft Polyester Segment sales resulted from lower demand in certain market segments. Comparatively, lower Nylon Segment sales primarily reflect the loss of a customer program to overseas production during the fourth quarter of fiscal 2019.
We believe the softnessincremental revenue generated in the domestic polyester environment and competition from imports continue to be challenges for the textile supply chain and we haveconnection with our recently taken action in the form ofcompleted trade petitions relating to help alleviate such competitive pressures. Ourpolyester textured yarn is helping to offset suppressed demand from certain market sectors. However, our Nylon Segment results also reflect (i) two customers shifting certain programs to overseas garment production during calendar 2019 and (ii) the current global trend of declining demand for nylon socks, ladies’ hosiery and intimate apparel.
Consolidated average sales prices decreased 17.0%11.5%, primarily attributable to (i) significant sales growth of Chip and staple fiber in the Asia Segment, which have lower average salesselling prices, (ii) a decline in higher-priced nylon product sales and (iii) sales price declines associated with polyester raw material cost changes.changes and global pricing pressures.
PVA products at the end of the current period comprised 54%52% of consolidated net sales, up from 47% for fiscal 2019 and from 43%47% at the end of the prior period. Even with the relative growth in the proportion of PVA sales as a percentage of overall sales, our customers may choose between various PVA products, some of which carry higher margins than others. Accordingly, growth in PVA sales does not necessarily translate into higher margins or increased profitability on a consolidated basis.
Unfavorable foreign currency translation is primarily associated with the weakening of the Brazilian Real (“BRL”) and the Chinese Renminbi (“RMB”) against the U.S. Dollar (“USD”).
Gross Profit
Gross profit for the current period decreasedincreased by $2,576,$1,592, or 12.9%11.5%, as compared to the prior period.
For the Polyester Segment, gross profit improved, primarily due to a more favorable sales mix and raw material cost environment during the current period. For the Asia Segment, gross profit increased as net sales increased but was partially offset by (i) a greater mix of lower-priced product sales and (ii) unfavorable foreign currency translation effects as the RMB weakened against the USD during the current period. adverse impact of COVID-19 on that region’s production and distribution abilities.
For the Brazil Segment, gross profit decreasedincreased primarily due to (a)higher conversion margin from an improved sales mix and stabilized market price declines (in connection with declining raw material costs) outpacing inventory turnover, (b) lower sales volumes and (c)pricing, partially offset by unfavorable foreign currency translation effects as the BRL weakened against the USD during the current period.
For the Polyester Segment, gross profit remained flat as the effects of (i) lower fixed cost absorption driven by lower textured yarn sales in connection with soft demand in certain market segments, and (ii) one less shipping week in the current period were offset by (a) an improved conversion margin in connection with declining raw material costs during the current period and (b) comparatively higher technologies expense charged to the Asia Segment. For the Nylon Segment, gross profit decreased primarily due to a less favorable sales mixlower revenues and weaker fixed cost absorption due in part to the loss of a customer programconnection with two customers shifting certain programs to overseas garment production during the fourth quarter of fiscalcalendar 2019.
SG&A
The changes in SG&A were as follows:
SG&A for the prior period |
| $ | 14,411 |
|
Decrease in compensation expenses |
|
| (1,663 | ) |
Other net decreases |
|
| (927 | ) |
Impact of an additional week in fiscal 2019 |
|
| (841 | ) |
SG&A for the current period |
| $ | 10,980 |
|
SG&A decreasedchanged insignificantly from the prior period to the current period, primarily as a result of significantly lower compensation expenses in connection with fewer executive officers in the current period as compared to the prior period and cost reduction efforts taken during the fourth quarter ofSG&A benefited from compensation forfeitures due to executive officer departures in fiscal 2019.
Provision for Bad Debts
There was no significant activity reflected in the current period or the prior period for bad debts.
Other Operating (Income) Expense, (Income), Net
Other operating expense (income), net primarily reflects severance expenses recordedThere was no significant activity reflected in the current period for other operating (income) expense, net. The prior period primarily reflects executive officer severance charges and foreign currency transaction gains recordedlosses.
Interest Expense, Net
There was no significant change in bothinterest expense, net from the prior period to the current period and the prior period.
The components of consolidated interest expense, net were as follows:
|
| For the Three Months Ended |
|
| For the Three Months Ended |
| ||||||||||
|
| September 29, 2019 |
|
| September 30, 2018 |
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||||
Interest and fees on the ABL Facility |
| $ | 1,112 |
|
| $ | 1,246 |
|
| $ | 977 |
|
| $ | 1,073 |
|
Other interest |
|
| 113 |
|
|
| 193 |
|
|
| 223 |
|
|
| 183 |
|
Subtotal of interest on debt obligations |
|
| 1,225 |
|
|
| 1,439 |
|
|
| 1,200 |
|
|
| 1,256 |
|
Other components of interest expense |
|
| 32 |
|
|
| 28 |
|
|
| 31 |
|
|
| — |
|
Total interest expense |
|
| 1,257 |
|
|
| 1,467 |
|
|
| 1,231 |
|
|
| 1,256 |
|
Interest income |
|
| (210 | ) |
|
| (147 | ) |
|
| (173 | ) |
|
| (149 | ) |
Interest expense, net |
| $ | 1,047 |
|
| $ | 1,320 |
|
| $ | 1,058 |
|
| $ | 1,107 |
|
Impairment of Investment in Unconsolidated Affiliate
Interest expense, net decreased fromAs of March 29, 2020, UNIFI owned a 34% interest in PAL (the “PAL Investment”) and Parkdale, Incorporated (“Parkdale”) owned the prior periodmajority 66% interest. During March 2020, UNIFI commenced negotiations to sell the current period, primarily as a resultPAL Investment to Parkdale. Such negotiations indicated that the fair value of lower debt principalthe PAL Investment was less than UNIFI’s carrying value and lower market interest ratesUNIFI no longer intended to hold the PAL Investment to allow recovery of the carrying value. UNIFI recorded an other-than-temporary impairment of $45,194 to adjust the PAL Investment to fair value.
In April 2020, UNIFI and Parkdale finalized negotiations to sell UNIFI’s PAL Investment to Parkdale for $60,000. The March 29, 2020 adjusted carrying value, after recording the other-than-temporary impairment of the PAL Investment, was comprised of (i) $56,641 reflected in investments in unconsolidated affiliates and (ii) $3,359 of cumulative translation adjustments reflected in other comprehensive loss, totaling the $60,000 fair value. The transaction closed on our variable-rate debt.April 29, 2020 and UNIFI received $60,000 in cash.
Equity in Loss (Earnings)Earnings of Unconsolidated Affiliates
The components of equity in loss (earnings)earnings of unconsolidated affiliates were as follows:
|
| For the Three Months Ended |
| |||||
|
| September 29, 2019 |
|
| September 30, 2018 |
| ||
Loss from PAL |
| $ | 1,175 |
|
| $ | 17 |
|
Earnings from nylon joint ventures |
|
| (309 | ) |
|
| (256 | ) |
Total equity in loss (earnings) of unconsolidated affiliates |
| $ | 866 |
|
| $ | (239 | ) |
|
|
|
|
|
|
|
|
|
As a percentage of consolidated income before income taxes |
|
| (19.5 | )% |
|
| 5.2 | % |
|
| For the Three Months Ended |
| |||||
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||
Earnings from PAL |
| $ | (3,336 | ) |
| $ | (1,409 | ) |
Earnings from nylon joint ventures |
|
| (190 | ) |
|
| (464 | ) |
Total equity in earnings of unconsolidated affiliates |
| $ | (3,526 | ) |
| $ | (1,873 | ) |
|
|
|
|
|
|
|
|
|
As a percentage of consolidated (loss) income before income taxes |
|
| 8.9 | % |
|
| 121.5 | % |
The performance declinecomparative increase in earnings from PAL primarily reflects lower input costs and fixed costs. The comparative decrease in earnings from nylon joint ventures primarily reflects lower utilization in connection with lower sales volumes for unconsolidated affiliates was primarily attributable to lower operating leverage and, particularly for PAL, comparably higher costs.the Nylon Segment.
Income Taxes
Provision for income taxes and the effective tax rate were as follows:
|
| For the Three Months Ended |
|
| For the Three Months Ended |
| ||||||||||
|
| September 29, 2019 |
|
| September 30, 2018 |
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||||
Provision for income taxes |
| $ | 721 |
|
| $ | 2,824 |
|
| $ | 1,530 |
|
| $ | 3,070 |
|
Effective tax rate |
|
| 16.3 | % |
|
| 60.9 | % |
|
| (3.9 | )% |
|
| 199.2 | % |
The effective tax rate is subject to variation due to numerous factors, including variability in the amount of pre-tax and taxable income before income taxes, the mix of income by jurisdiction, changes in deferred tax valuation allowances and changes in statutes, regulations and case law. Additionally, the impacts of discrete and other rate impacting items isare greater when pre-tax income before income taxes is lower.
The decreasesignificant change in the effective tax rate from the prior period to the current period is primarily attributable to (i) an impairment charge in the current period for which UNIFI does not expect to realize a future tax benefit, (ii) lower U.S. tax on GILTI in the current period and (iii) adjustments to enactment date tax reform impacts negatively impacting the prior period.
Net Loss
Net loss for the current period was $41,111, or $2.23 per share, compared to a net loss of $1,529 or $0.08 per share, for the prior period. The decrease was primarily attributable to an impairment charge for the PAL Investment. Excluding the impairment charge, UNIFI achieved comparably higher gross profit and a more favorable effective tax rate in the current period, while the prior period included executive officer severance charges and foreign currency transaction losses.
EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
The reconciliations of the amounts reported under GAAP for Net loss to EBITDA and Adjusted EBITDA were as follows:
|
| For the Three Months Ended |
| |||||
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||
Net loss |
| $ | (41,111 | ) |
| $ | (1,529 | ) |
Interest expense, net |
|
| 1,058 |
|
|
| 1,107 |
|
Provision for income taxes |
|
| 1,530 |
|
|
| 3,070 |
|
Depreciation and amortization expense (1) |
|
| 6,014 |
|
|
| 5,535 |
|
EBITDA |
|
| (32,509 | ) |
|
| 8,183 |
|
|
|
|
|
|
|
|
|
|
Equity in earnings of PAL |
|
| (3,336 | ) |
|
| (1,409 | ) |
EBITDA excluding PAL |
|
| (35,845 | ) |
|
| 6,774 |
|
|
|
|
|
|
|
|
|
|
Impairment of investment in unconsolidated affiliate (2) |
|
| 45,194 |
|
|
| — |
|
Adjusted EBITDA |
| $ | 9,349 |
|
| $ | 6,774 |
|
(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. |
(2) | In the third quarter of fiscal 2020, UNIFI recorded an impairment charge of $45,194 related to the sale of its 34% interest in PAL. |
Adjusted EBITDA increased from the prior period to the current period, primarily as a result of (i) higher gross profit in the current period and (ii) executive officer severance charges and foreign currency transaction losses in the prior period.
Adjusted Net Income (Loss) and Adjusted EPS
The tables below set forth reconciliations of (i) Income before income taxes (“Pre-tax Income”), Provision for income taxes (“Tax Impact”) and Net (Loss) Income to Adjusted Net Income (Loss) and (ii) Basic EPS to Adjusted EPS.
|
| For the Three Months Ended March 29, 2020 |
|
| For the Three Months Ended March 31, 2019 |
| ||||||||||||||||||||||||||
|
| Pre-tax (Loss) Income |
|
| Tax Impact |
|
| Net (Loss) Income |
|
| Basic EPS |
|
| Pre-tax Income |
|
| Tax Impact |
|
| Net Loss |
|
| Basic EPS |
| ||||||||
GAAP results |
| $ | (39,581 | ) |
| $ | (1,530 | ) |
| $ | (41,111 | ) |
| $ | (2.23 | ) |
| $ | 1,541 |
|
| $ | (3,070 | ) |
| $ | (1,529 | ) |
| $ | (0.08 | ) |
Impairment of investment in unconsolidated affiliate (1) |
|
| 45,194 |
|
|
| — |
|
|
| 45,194 |
|
|
| 2.45 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Adjusted results |
| $ | 5,613 |
|
| $ | (1,530 | ) |
| $ | 4,083 |
|
| $ | 0.22 |
|
| $ | 1,541 |
|
| $ | (3,070 | ) |
| $ | (1,529 | ) |
| $ | (0.08 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
| 18,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 18,394 |
|
(1) | For the three months ended March 29, 2020, UNIFI recorded an impairment charge of $45,194 before tax, related to the sale of its 34% interest in PAL. |
Adjusted Net Income (Loss) and Adjusted EPS improved from the prior period to the current period, primarily as a result of (i) higher gross profit in the current period, (ii) executive officer severance charges and foreign currency transaction losses in the prior period, (iii) higher earnings from PAL in the current period and (iv) a more favorable effective tax rate in the current period.
Segment Overview
Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for the current period. As noted in the 2019 Form 10-K, segment gross profit includes the effect of certain technology-related expenses charged by the Polyester Segment to the Asia Segment. Such amounts are recorded as a benefit to cost of sales for the Polyester Segment and a charge to cost of sales for the Asia Segment, thereby impacting gross profit for each segment. The prior period segment results have been revised to reflect comparability for this change.
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, were as follows:
|
| For the Three Months Ended |
|
|
|
|
| |||||||||||||
|
| March 29, 2020 |
|
| March 31, 2019 |
|
|
|
|
| ||||||||||
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
| |||
Net sales |
| $ | 89,767 |
|
|
| 100.0 |
|
| $ | 95,745 |
|
|
| 100.0 |
|
|
| (6.2 | ) |
Cost of sales |
|
| 82,735 |
|
|
| 92.2 |
|
|
| 90,941 |
|
|
| 95.0 |
|
|
| (9.0 | ) |
Gross profit |
|
| 7,032 |
|
|
| 7.8 |
|
|
| 4,804 |
|
|
| 5.0 |
|
|
| 46.4 |
|
Depreciation expense |
|
| 4,301 |
|
|
| 4.8 |
|
|
| 3,858 |
|
|
| 4.0 |
|
|
| 11.5 |
|
Segment Profit |
| $ | 11,333 |
|
|
| 12.6 |
|
| $ | 8,662 |
|
|
| 9.0 |
|
|
| 30.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net sales as a percentage of consolidated amounts |
|
| 52.5 | % |
|
|
|
|
|
| 53.2 | % |
|
|
|
|
|
|
|
|
Segment Profit as a percentage of consolidated amounts |
|
| 54.7 | % |
|
|
|
|
|
| 46.5 | % |
|
|
|
|
|
|
|
|
The change in net sales for the Polyester Segment was as follows:
Net sales for the prior period |
| $ | 95,745 |
|
Net change in average selling price and sales mix |
|
| (3,743 | ) |
Decrease in underlying sales volumes |
|
| (2,235 | ) |
Net sales for the current period |
| $ | 89,767 |
|
The decrease in net sales for the Polyester Segment from the prior period to the current period was primarily attributable to lower average selling prices in connection with lower raw material costs and moderate competitive pricing pressures. Textured yarn volume increases are recapturing market share from our recent trade actions, but such volume increases were offset by (i) weaker demand from certain customers in the industrial, automotive and apparel sectors and (ii) lower sales of partially oriented yarn due to greater internal consumption for conversion to textured yarn.
The change in Segment Profit for the Polyester Segment was as follows:
Segment Profit for the prior period |
| $ | 8,662 |
|
Net increase in underlying margins |
|
| 2,874 |
|
Decrease in underlying sales volumes |
|
| (203 | ) |
Segment Profit for the current period |
| $ | 11,333 |
|
The increase in Segment Profit for the Polyester Segment from the prior period to the current period was primarily attributable to a more favorable sales mix and raw material cost environment.
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 were as follows:
|
| For the Three Months Ended |
|
|
|
|
| |||||||||||||
|
| March 29, 2020 |
|
| March 31, 2019 |
|
|
|
|
| ||||||||||
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
| |||
Net sales |
| $ | 20,567 |
|
|
| 100.0 |
|
| $ | 25,563 |
|
|
| 100.0 |
|
|
| (19.5 | ) |
Cost of sales |
|
| 20,234 |
|
|
| 98.4 |
|
|
| 23,251 |
|
|
| 91.0 |
|
|
| (13.0 | ) |
Gross profit |
|
| 333 |
|
|
| 1.6 |
|
|
| 2,312 |
|
|
| 9.0 |
|
|
| (85.6 | ) |
Depreciation expense |
|
| 471 |
|
|
| 2.3 |
|
|
| 516 |
|
|
| 2.1 |
|
|
| (8.7 | ) |
Segment Profit |
| $ | 804 |
|
|
| 3.9 |
|
| $ | 2,828 |
|
|
| 11.1 |
|
|
| (71.6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net sales as a percentage of consolidated amounts |
|
| 12.0 | % |
|
|
|
|
|
| 14.2 | % |
|
|
|
|
|
|
|
|
Segment Profit as a percentage of consolidated amounts |
|
| 3.9 | % |
|
|
|
|
|
| 15.2 | % |
|
|
|
|
|
|
|
|
The change in net sales for the Nylon Segment was as follows:
Net sales for the prior period |
| $ | 25,563 |
|
Decrease in underlying sales volumes |
|
| (4,093 | ) |
Net change in average selling price and sales mix |
|
| (903 | ) |
Net sales for the current period |
| $ | 20,567 |
|
The decrease in net sales for the Nylon Segment from the prior period to the current period was primarily attributable to (i) two customers shifting certain programs to overseas garment production during calendar 2019 and (ii) continued demand declines in certain nylon product categories.
The change in Segment Profit for the utilizationNylon Segment was as follows:
Segment Profit for the prior period |
| $ | 2,828 |
|
Net decrease in underlying margins |
|
| (1,571 | ) |
Decrease in underlying sales volumes |
|
| (453 | ) |
Segment Profit for the current period |
| $ | 804 |
|
The decrease in Segment Profit for the Nylon Segment from the prior period to the current period was primarily attributable to lower sales and weaker fixed cost absorption, as described in the net sales analysis above.
Brazil Segment
The components of Segment Profit, each component as a percentage of net sales and the percentage increase or decrease over the prior period amounts for the Brazil Segment were as follows:
|
| For the Three Months Ended |
|
|
|
|
| |||||||||||||
|
| March 29, 2020 |
|
| March 31, 2019 |
|
|
|
|
| ||||||||||
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
| |||
Net sales |
| $ | 21,060 |
|
|
| 100.0 |
|
| $ | 25,110 |
|
|
| 100.0 |
|
|
| (16.1 | ) |
Cost of sales |
|
| 17,644 |
|
|
| 83.8 |
|
|
| 22,334 |
|
|
| 88.9 |
|
|
| (21.0 | ) |
Gross profit |
|
| 3,416 |
|
|
| 16.2 |
|
|
| 2,776 |
|
|
| 11.1 |
|
|
| 23.1 |
|
Depreciation expense |
|
| 421 |
|
|
| 2.0 |
|
|
| 420 |
|
|
| 1.6 |
|
|
| 0.2 |
|
Segment Profit |
| $ | 3,837 |
|
|
| 18.2 |
|
| $ | 3,196 |
|
|
| 12.7 |
|
|
| 20.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net sales as a percentage of consolidated amounts |
|
| 12.3 | % |
|
|
|
|
|
| 14.0 | % |
|
|
|
|
|
|
|
|
Segment Profit as a percentage of consolidated amounts |
|
| 18.5 | % |
|
|
|
|
|
| 17.2 | % |
|
|
|
|
|
|
|
|
The change in net sales for the Brazil Segment was as follows:
Net sales for the prior period |
| $ | 25,110 |
|
Unfavorable foreign currency translation effects |
|
| (3,887 | ) |
Decrease in average selling price |
|
| (1,379 | ) |
Increase in sales volumes |
|
| 1,216 |
|
Net sales for the current period |
| $ | 21,060 |
|
The decrease in net sales for the Brazil Segment from the prior period to the current period was primarily attributable to unfavorable foreign tax credits,currency translation effects and lower selling prices due to lower raw material costs.
The BRL weighted average exchange rate was 4.44 BRL/USD and 3.77 BRL/USD for the current period and the prior period, respectively.
The change in Segment Profit for the Brazil Segment was as follows:
Segment Profit for the prior period |
| $ | 3,196 |
|
Increase in underlying margins |
|
| 979 |
|
Increase in sales volumes |
|
| 150 |
|
Unfavorable foreign currency translation effects |
|
| (488 | ) |
Segment Profit for the current period |
| $ | 3,837 |
|
The increase in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to higher conversion margin from an improved sales mix and stabilized market pricing, partially offset by unfavorable foreign currency translation effects as the BRL weakened significantly against the USD during 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 |
|
|
|
|
| |||||||||||||
|
| March 29, 2020 |
|
| March 31, 2019 |
|
|
|
|
| ||||||||||
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
| |||
Net sales |
| $ | 38,621 |
|
|
| 100.0 |
|
| $ | 32,571 |
|
|
| 100.0 |
|
|
| 18.6 |
|
Cost of sales |
|
| 34,038 |
|
|
| 88.1 |
|
|
| 28,730 |
|
|
| 88.2 |
|
|
| 18.5 |
|
Gross profit |
|
| 4,583 |
|
|
| 11.9 |
|
|
| 3,841 |
|
|
| 11.8 |
|
|
| 19.3 |
|
Depreciation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Segment Profit |
| $ | 4,583 |
|
|
| 11.9 |
|
| $ | 3,841 |
|
|
| 11.8 |
|
|
| 19.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment net sales as a percentage of consolidated amounts |
|
| 22.6 | % |
|
|
|
|
|
| 18.1 | % |
|
|
|
|
|
|
|
|
Segment Profit as a percentage of consolidated amounts |
|
| 22.1 | % |
|
|
|
|
|
| 20.6 | % |
|
|
|
|
|
|
|
|
The change in net sales for the Asia Segment was as follows:
Net sales for the prior period |
| $ | 32,571 |
|
Increase in sales volumes of Chip and staple fiber |
|
| 6,315 |
|
Change in average selling price and sales mix |
|
| 1,161 |
|
Unfavorable foreign currency translation effects |
|
| (1,044 | ) |
Change in sales volumes of other PVA products |
|
| (382 | ) |
Net sales for the current period |
| $ | 38,621 |
|
The increase in net sales for the Asia Segment from the prior period to the current period was primarily attributable to higher sales volumes of REPREVE®-branded products, primarily Chip and staple fiber.
The RMB weighted average exchange rate was 6.98 RMB/USD and 6.75 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 |
| $ | 3,841 |
|
Increase in underlying margins and sales mix |
|
| 815 |
|
Increase in sales volumes of Chip and staple fiber |
|
| 448 |
|
Change in sales volumes of other PVA products |
|
| (354 | ) |
Unfavorable foreign currency translation effects |
|
| (167 | ) |
Segment Profit for the current period |
| $ | 4,583 |
|
The increase in Segment Profit for the Asia Segment from the prior period to the current period was primarily attributable to the increase in sales volumes described in the net sales analysis above.
Review of Results of Operations
Nine Months Ended March 29, 2020 Compared to Nine Months Ended March 31, 2019
Consolidated Overview
The components of Net (loss) income, each component as a percentage of net sales and the percentage increase or decrease over the prior nine-month period amounts, are as follows:
|
| For the Nine Months Ended |
|
|
|
|
| |||||||||||||
|
| March 29, 2020 |
|
| March 31, 2019 |
|
|
|
|
| ||||||||||
|
|
|
|
|
| % of Net Sales |
|
|
|
|
|
| % of Net Sales |
|
| % Change |
| |||
Net sales |
| $ | 520,454 |
|
|
| 100.0 |
|
| $ | 529,311 |
|
|
| 100.0 |
|
|
| (1.7 | ) |
Cost of sales |
|
| 471,963 |
|
|
| 90.7 |
|
|
| 481,345 |
|
|
| 90.9 |
|
|
| (1.9 | ) |
Gross profit |
|
| 48,491 |
|
|
| 9.3 |
|
|
| 47,966 |
|
|
| 9.1 |
|
|
| 1.1 |
|
SG&A |
|
| 35,208 |
|
|
| 6.8 |
|
|
| 40,672 |
|
|
| 7.7 |
|
|
| (13.4 | ) |
Provision for bad debts |
|
| 331 |
|
|
| — |
|
|
| 381 |
|
|
| 0.1 |
|
|
| (13.1 | ) |
Other operating expense, net |
|
| 900 |
|
|
| 0.2 |
|
|
| 1,218 |
|
|
| 0.2 |
|
|
| (26.1 | ) |
Operating income |
|
| 12,052 |
|
|
| 2.3 |
|
|
| 5,695 |
|
|
| 1.1 |
|
|
| 111.6 |
|
Interest expense, net |
|
| 2,994 |
|
|
| 0.6 |
|
|
| 3,630 |
|
|
| 0.7 |
|
|
| (17.5 | ) |
Equity in earnings of unconsolidated affiliates |
|
| (1,904 | ) |
|
| (0.4 | ) |
|
| (3,126 | ) |
|
| (0.6 | ) |
|
| (39.1 | ) |
Impairment of investment in unconsolidated affiliate |
|
| 45,194 |
|
|
| 8.7 |
|
|
| — |
|
|
| — |
|
| nm |
| |
Loss on extinguishment of debt |
|
| — |
|
|
| — |
|
|
| 131 |
|
|
| — |
|
|
| (100.0 | ) |
(Loss) income before income taxes |
|
| (34,232 | ) |
|
| (6.6 | ) |
|
| 5,060 |
|
|
| 1.0 |
|
| nm |
| |
Provision for income taxes |
|
| 2,758 |
|
|
| 0.5 |
|
|
| 3,606 |
|
|
| 0.7 |
|
|
| (23.5 | ) |
Net (loss) income |
| $ | (36,990 | ) |
|
| (7.1 | ) |
| $ | 1,454 |
|
|
| 0.3 |
|
| nm |
|
nm – Not meaningful
Net Sales
Consolidated net sales for the current nine-month period were slightly lower in comparison to the prior nine-month period, as the impacts of (i) one fewer week of sales in the current nine-month period for our NACA operations, (ii) lower nylon sales volumes, (iii) lower average selling prices and (iv) unfavorable foreign currency translation were offset by the sales growth of PVA products and the Asia Segment.
Consolidated sales volumes increased 13.4%, primarily attributable to continued sales growth of REPREVE®-branded products, principally Chip and staple fiber in the Asia Segment, partially offset by (i) one fewer week of sales in the current nine-month period for our NACA operations and (ii) lower yarn sales in the Nylon Segment. Sales in the Asia Segment continued to expand, despite the adverse impacts from COVID-19, as our REPREVE® portfolio resonates with our brand partners that are focused on sustainable solutions.
We believe the incremental revenue generated in connection with our recently completed trade petitions relating to polyester textured yarn is helping to offset suppressed demand from certain market sectors. However, our Nylon Segment results reflect (i) two customers shifting certain programs to overseas garment production during calendar 2019 and (ii) the current global trend of declining demand for nylon socks, ladies’ hosiery and intimate apparel.
Consolidated average sales prices decreased 15.1%, primarily attributable to (i) growth of Chip and staple fiber in the Asia Segment, which have lower average sales prices, (ii) a decreasedecline in higher-priced nylon product sales and (iii) sales price declines associated with lower polyester raw material costs.
PVA products at the end of the current nine-month period comprised 54% of consolidated net sales, up from 47% for fiscal 2019 and from 45% at the end of the prior nine-month period. Even with the relative growth in the proportion of PVA sales as a percentage of overall sales, customers may choose between various PVA products, some of which carry higher margins than others. Accordingly, growth in PVA sales does not necessarily translate into higher margins or increased profitability on a consolidated basis.
Gross Profit
Gross profit for the current nine-month period increased by $525, or 1.1%, as compared to the prior nine-month period.
For the Polyester Segment, gross profit improved, primarily due to an improved conversion margin in connection with the comparative impact of (i) a declining raw material cost environment during the current nine-month period and (ii) an unfavorable raw material cost environment in the prior nine-month period. For the Asia Segment, gross profit increased as net sales increased, but was partially offset by a greater mix of lower-priced product sales.
For the Brazil Segment, gross profit decreased primarily due to (i) market price declines (in connection with declining raw material costs) outpacing inventory turnover and (ii) unfavorable foreign currency translation effects as the BRL weakened against the USD. For the Nylon Segment, gross profit decreased primarily due to weaker fixed cost absorption in connection with two customers shifting certain programs to overseas garment production during calendar 2019.
The changes in SG&A were as follows:
SG&A for the prior nine-month period | $ | 40,672 |
|
Decrease in professional fees and marketing expenses |
| (2,699 | ) |
Decrease in salaries and fringe expenses |
| (2,159 | ) |
Impact of an additional week in fiscal 2019 |
| (841 | ) |
Change in cash-based incentive compensation expense |
| 1,932 |
|
Other net decreases |
| (1,697 | ) |
SG&A for the current nine-month period | $ | 35,208 |
|
SG&A decreased from the prior nine-month period to the current nine-month period primarily as a result of (i) lower professional fees and marketing expenses primarily due to cost reduction efforts undertaken during the fourth quarter of fiscal 2019 and (ii) lower compensation expenses in connection with fewer executive officers in the current nine-month period as compared to the prior nine-month period.
Provision for Bad Debts
There was no significant activity reflected in the current nine-month period or the prior nine-month period for bad debts.
Other Operating Expense, Net
Other operating expense, net primarily reflects severance expenses recorded in both the current nine-month period and the prior nine-month period.
Interest Expense, Net
The components of consolidated interest expense, net were as follows:
|
| For the Nine Months Ended |
| |||||
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||
Interest and fees on the ABL Facility |
| $ | 3,026 |
|
| $ | 3,467 |
|
Other interest |
|
| 463 |
|
|
| 563 |
|
Subtotal of interest on debt obligations |
|
| 3,489 |
|
|
| 4,030 |
|
Other components of interest expense |
|
| 100 |
|
|
| 48 |
|
Total interest expense |
|
| 3,589 |
|
|
| 4,078 |
|
Interest income |
|
| (595 | ) |
|
| (448 | ) |
Interest expense, net |
| $ | 2,994 |
|
| $ | 3,630 |
|
Interest expense, net decreased from the prior nine-month period to the current nine-month period, primarily as a result of lower market interest rates on our variable-rate debt and a more favorable pricing structure on the ABL Facility in connection with the 2018 Amendment.
Impairment of Investment in Unconsolidated Affiliate
As of March 29, 2020, UNIFI owned a 34% interest in PAL (the “PAL Investment”) and Parkdale, Incorporated (“Parkdale”) owned the majority 66% interest. In April 2020, UNIFI and Parkdale finalized negotiations to sell UNIFI’s PAL Investment to Parkdale for $60,000. UNIFI recorded an impairment charge of $45,194 to adjust the PAL Investment to fair value. The transaction closed on April 29, 2020 and UNIFI received $60,000 in cash.
Equity in Earnings of Unconsolidated Affiliates
The components of equity in earnings of unconsolidated affiliates were as follows:
|
| For the Nine Months Ended |
| |||||
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||
Earnings from PAL |
| $ | (1,324 | ) |
| $ | (2,154 | ) |
Earnings from nylon joint ventures |
|
| (580 | ) |
|
| (972 | ) |
Total equity in earnings of unconsolidated affiliates |
| $ | (1,904 | ) |
| $ | (3,126 | ) |
|
|
|
|
|
|
|
|
|
As a percentage of consolidated (loss) income before income taxes |
|
| 5.6 | % |
|
| 61.8 | % |
The performance decline for unconsolidated affiliates was primarily attributable to lower operating leverage and, particularly for PAL, comparably higher costs.
Provision for income taxes and the effective tax rate were as follows:
|
| For the Nine Months Ended |
| |||||
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||
Provision for income taxes |
| $ | 2,758 |
|
| $ | 3,606 |
|
Effective tax rate |
|
| (8.1 | )% |
|
| 71.3 | % |
The effective tax rate is subject to variation due to numerous factors, including variability in the amount of income before income taxes, the mix of income by jurisdiction, changes in deferred tax valuation allowances, and changes in statutes, regulations and case law. Additionally, the impacts of discrete and other rate impacting items are greater when income before income taxes is lower.
The significant change in the effective tax rate from the prior period to the current period is primarily attributable to (i) an impairment charge in the current period for which UNIFI does not expect to realize a future tax benefit, (ii) lower U.S. tax on GILTI in the current period and (iii) adjustments to enactment date tax reform impacts negatively impacting the prior period.
Net (Loss) Income
Net loss for the current nine-month period was $(36,990), or $(2.00) per share, compared to net income of $1,454, or $0.08 per share, for the prior nine-month period. The decrease was primarily attributable to the impairment charge for the PAL Investment. Excluding the impairment charge, net income improved over the prior nine-month period primarily due to lower SG&A.
EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
The reconciliations of the amounts reported under GAAP for Net income to EBITDA and Adjusted EBITDA were as follows:
|
| For the Nine Months Ended |
| |||||
|
| March 29, 2020 |
|
| March 31, 2019 |
| ||
Net (loss) income |
| $ | (36,990 | ) |
| $ | 1,454 |
|
Interest expense, net |
|
| 2,994 |
|
|
| 3,630 |
|
Provision for income taxes |
|
| 2,758 |
|
|
| 3,606 |
|
Depreciation and amortization expense (1) |
|
| 17,499 |
|
|
| 17,015 |
|
EBITDA |
|
| (13,739 | ) |
|
| 25,705 |
|
|
|
|
|
|
|
|
|
|
Equity in earnings of PAL |
|
| (1,324 | ) |
|
| (2,154 | ) |
EBITDA excluding PAL |
|
| (15,063 | ) |
|
| 23,551 |
|
|
|
|
|
|
|
|
|
|
Impairment of investment in unconsolidated affiliate (2) |
|
| 45,194 |
|
|
| — |
|
Facility shutdown costs (3) |
|
| 383 |
|
|
| — |
|
Adjusted EBITDA |
| $ | 30,514 |
|
| $ | 23,551 |
|
(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. |
(2) | In the third quarter of fiscal 2020, UNIFI recorded an impairment charge for the PAL Investment. |
(3) | In the second quarter of fiscal 2020, UNIFI commenced a wind-down plan for its operations in Sri Lanka. The adjustment primarily reflects accrued severance and exit costs. |
Adjusted EBITDA increased from the prior nine-month period to the current nine-month period, primarily as a smaller impact from losses in tax jurisdictionsresult of lower SG&A.
Adjusted Net Income and Adjusted EPS
The tables below set forth reconciliations of (i) Income before income taxes (“Pre-tax Income”), Provision for which no benefit could be recognized.income taxes (“Tax Impact”) and Net (Loss) Income to Adjusted Net Income and (ii) Basic EPS to Adjusted EPS.