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UFI UNIFI

Filed: 7 May 20, 9:54am

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 29, 2020

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission File Number: 1-10542

 

UNIFI, INC.

(Exact name of registrant as specified in its charter)

 

 

New York

 

11-2165495

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

7201 West Friendly Avenue

 

 

Greensboro, North Carolina  

 

27410

(Address of principal executive offices)

 

(Zip Code)

(336) 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

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

As of May 4, 2020, there were 18,446,436 shares of the registrant’s common stock, par value $0.10 per share, outstanding.

 

 

 


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” 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.

 


UNIFI, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 29, 2020

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Page

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 29, 2020 and June 30, 2019

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended March 29, 2020 and March 31, 2019

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months and Nine Months Ended March 29, 2020 and March 31, 2019

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months and Nine Months Ended March 29, 2020 and March 31, 2019

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 29, 2020 and March 31, 2019

 

5

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

38

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

38

 

PART II—OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

39

 

 

 

 

 

Item 1A.

 

Risk Factors

 

39

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

 

 

 

 

 

Item 6.

 

Exhibits

 

40

 

 

 

 

 

 

 

Signatures

 

41

 

 

 

 

 

 

 

 

 


PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

March 29, 2020

 

 

June 30, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

33,393

 

 

$

22,228

 

Receivables, net

 

 

86,376

 

 

 

88,884

 

Inventories

 

 

124,146

 

 

 

133,781

 

Income taxes receivable

 

 

589

 

 

 

4,373

 

Other current assets

 

 

18,477

 

 

 

16,356

 

Total current assets

 

 

262,981

 

 

 

265,622

 

Property, plant and equipment, net

 

 

206,993

 

 

 

206,787

 

Operating lease assets

 

 

6,084

 

 

 

 

Deferred income taxes

 

 

5,943

 

 

 

2,581

 

Investments in unconsolidated affiliates

 

 

58,854

 

 

 

114,320

 

Other non-current assets

 

 

2,187

 

 

 

2,841

 

Total assets

 

$

543,042

 

 

$

592,151

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

40,862

 

 

$

41,796

 

Accrued expenses

 

 

15,347

 

 

 

16,849

 

Income taxes payable

 

 

5,841

 

 

 

569

 

Current operating lease liabilities

 

 

1,709

 

 

 

 

Current portion of long-term debt

 

 

14,112

 

 

 

15,519

 

Total current liabilities

 

 

77,871

 

 

 

74,733

 

Long-term debt

 

 

118,827

 

 

 

111,541

 

Non-current operating lease liabilities

 

 

4,481

 

 

 

 

Other long-term liabilities

 

 

8,029

 

 

 

6,185

 

Deferred income taxes

 

 

5

 

 

 

6,847

 

Total liabilities

 

 

209,213

 

 

 

199,306

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.10 par value (500,000,000 shares authorized; 18,446,436 and 18,462,296

   shares issued and outstanding as of March 29, 2020 and June 30, 2019, respectively)

 

 

1,845

 

 

 

1,846

 

Capital in excess of par value

 

 

61,080

 

 

 

59,560

 

Retained earnings

 

 

335,971

 

 

 

374,668

 

Accumulated other comprehensive loss

 

 

(65,067

)

 

 

(43,229

)

Total shareholders’ equity

 

 

333,829

 

 

 

392,845

 

Total liabilities and shareholders’ equity

 

$

543,042

 

 

$

592,151

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

1


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

March 29, 2020

 

 

March 31, 2019

 

 

March 29, 2020

 

 

March 31, 2019

 

Net sales

 

$

170,994

 

 

$

179,989

 

 

$

520,454

 

 

$

529,311

 

Cost of sales

 

 

155,611

 

 

 

166,198

 

 

 

471,963

 

 

 

481,345

 

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

 

Provision for income taxes

 

 

1,530

 

 

 

3,070

 

 

 

2,758

 

 

 

3,606

 

Net (loss) income

 

$

(41,111

)

 

$

(1,529

)

 

$

(36,990

)

 

$

1,454

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per common share:

 

Basic

 

$

(2.23

)

 

$

(0.08

)

 

$

(2.00

)

 

$

0.08

 

Diluted

 

$

(2.23

)

 

$

(0.08

)

 

$

(2.00

)

 

$

0.08

 

 

See accompanying notes to condensed consolidated financial statements.

 


2


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

March 29, 2020

 

 

March 31, 2019

 

 

March 29, 2020

 

 

March 31, 2019

 

Net (loss) income

 

$

(41,111

)

 

$

(1,529

)

 

$

(36,990

)

 

$

1,454

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(15,684

)

 

 

55

 

 

 

(18,900

)

 

 

(1,454

)

Foreign currency translation adjustments for an

   unconsolidated affiliate

 

 

(1,586

)

 

 

102

 

 

 

(1,450

)

 

 

144

 

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

 

 

(18,719

)

 

 

(415

)

 

 

(21,838

)

 

 

(2,607

)

Comprehensive loss

 

$

(59,830

)

 

$

(1,944

)

 

$

(58,828

)

 

$

(1,153

)

 

See accompanying notes to condensed consolidated financial statements.

 

3


CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(In thousands)

 

 

 

Shares

 

 

Common Stock

 

 

Capital in Excess of Par Value

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Loss

 

 

Total Shareholders’ Equity

 

Balance at December 29, 2019

 

 

18,505

 

 

$

1,851

 

 

$

61,187

 

 

$

378,789

 

 

$

(46,348

)

 

$

395,479

 

Options exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of restricted stock units

 

 

42

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

596

 

 

 

 

 

 

 

 

 

596

 

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

 

 

(17

)

 

 

(2

)

 

 

(420

)

 

 

 

 

 

 

 

 

(422

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,719

)

 

 

(18,719

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(41,111

)

 

 

 

 

 

(41,111

)

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 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

 

 

76

 

 

 

8

 

 

 

(8

)

 

 

 

 

 

 

 

 

 

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 Nine Months Ended

 

 

 

March 29, 2020

 

 

March 31, 2019

 

Cash and cash equivalents at beginning of period

 

$

22,228

 

 

$

44,890

 

Operating activities:

 

 

 

 

 

 

 

 

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

 

 

 

1,380

 

Depreciation and amortization expense

 

 

17,685

 

 

 

17,242

 

Impairment of investment in unconsolidated affiliate

 

 

45,194

 

 

 

 

Non-cash compensation expense

 

 

2,510

 

 

 

2,758

 

Deferred income taxes

 

 

(10,029

)

 

 

(190

)

Other, net

 

 

(171

)

 

 

(459

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables, net

 

 

(2,295

)

 

 

(5,877

)

Inventories

 

 

2,126

 

 

 

(13,409

)

Other current assets

 

 

(3,020

)

 

 

(1,338

)

Income taxes

 

 

8,849

 

 

 

3,388

 

Accounts payable and accrued expenses

 

 

(488

)

 

 

(4,523

)

Other, net

 

 

201

 

 

 

1,183

 

Net cash provided by (used in) operating activities

 

 

32,105

 

 

 

(1,517

)

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(14,971

)

 

 

(19,199

)

Other, net

 

 

35

 

 

 

9

 

Net cash used in investing activities

 

 

(14,936

)

 

 

(19,190

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from ABL Revolver

 

 

79,000

 

 

 

93,300

 

Payments on ABL Revolver

 

 

(67,500

)

 

 

(97,400

)

Proceeds from ABL Term Loan

 

 

 

 

 

20,000

 

Payments on ABL Term Loan

 

 

(7,500

)

 

 

(5,000

)

Payments on finance lease obligations

 

 

(4,606

)

 

 

(5,308

)

Common stock repurchased and retired under publicly announced program

 

 

(1,994

)

 

 

 

Proceeds from stock option exercises

 

 

29

 

 

 

273

 

Payments of debt financing fees

 

 

 

 

 

(720

)

Other

 

 

(521

)

 

 

(1,017

)

Net cash (used in) provided by financing activities

 

 

(3,092

)

 

 

4,128

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(2,912

)

 

 

(413

)

Net increase (decrease) in cash and cash equivalents

 

 

11,165

 

 

 

(16,992

)

Cash and cash equivalents at end of period

 

$

33,393

 

 

$

27,898

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

1.  Background

Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, “UNIFI,” the “Company,” “we,” “us” or “our”), is a multi-national 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 and the United States (“U.S.”). As of March 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 March 29, 2020, the Sunday nearest to March 31, 2019. Unifi, Inc.’s remaining material operating subsidiaries’ fiscal quarter ended on 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 periods ended March 29, 2020 and March 31, 2019 consisted of 13 weeks.  For the primary subsidiaries in the U.S. and Central America, the nine-month period ended March 29, 2020 consisted of 39 weeks and the 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 begin 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 adopted the new revenue recognition guidance on December 30, 2018, with no material impact on its consolidated financial position, results of operations or cash flows in connection with the adoption.

6


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 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 March 29, 2020:

Classification

 

Balance Sheet Location

 

March 29, 2020

 

Lease Assets

 

 

 

 

 

 

Operating lease assets

 

Operating lease assets

 

$

6,084

 

Finance lease assets

 

Property, plant & equipment, net

 

 

23,257

 

Total lease assets

 

 

 

$

29,341

 

 

 

 

 

 

 

 

Lease Liabilities

 

 

 

 

 

 

Current operating lease liabilities

 

Current operating lease liabilities

 

$

1,709

 

Current finance lease liabilities

 

Current portion of long-term debt

 

 

4,112

 

Total current lease liabilities

 

 

 

$

5,821

 

 

 

 

 

 

 

 

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

 

 

 

$

19,001

 

The following table sets forth the components of UNIFI’s total lease cost for the three months and nine months ended March 29, 2020:

 

 

For the Three

 

 

For the Nine

 

 

 

Months Ended

 

 

Months Ended

 

Lease Cost

 

March 29, 2020

 

 

March 29, 2020

 

Operating lease cost

 

$

507

 

 

$

2,104

 

Variable lease cost

 

 

158

 

 

 

355

 

Finance lease cost:

 

 

 

 

 

 

 

 

   Amortization of lease assets

 

 

669

 

 

 

1,874

 

   Interest on lease liabilities

 

 

126

 

 

 

327

 

Short-term lease cost

 

 

316

 

 

 

863

 

Total lease cost

 

$

1,776

 

 

$

5,523

 

7


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

The following table presents supplemental information related to leases at March 29, 2020:

 

 

For the Nine

 

 

 

Months Ended

 

Other Information

 

March 29, 2020

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

   Operating cash flows used by operating leases

 

$

2,104

 

   Financing cash flows used by finance leases

 

$

4,606

 

Non-cash activities:

 

 

 

 

Leased assets obtained in exchange for new operating lease liabilities

 

$

175

 

Leased assets obtained in exchange for new finance lease liabilities

 

$

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 March 29, 2020:

Weighted Average Remaining Lease Term and Discount Rate

 

March 29, 2020

 

Weighted average remaining lease term (years):

 

 

 

 

  Operating leases

 

 

4.2

 

  Finance leases

 

 

4.2

 

Weighted average discount rate (percentage):

 

 

 

 

  Operating leases

 

 

3.8

%

  Finance leases

 

 

3.6

%

Lease Maturity Analysis

Future minimum finance lease payments and future minimum payments under non-cancelable operating leases with initial lease terms in excess of one year under Topic 842 as of March 29, 2020 by fiscal year were:

Maturity of Lease Liabilities

 

Finance Leases

 

 

Operating Leases

 

Fiscal 2020

 

$

1,560

 

 

$

495

 

Fiscal 2021

 

 

3,989

 

 

 

1,870

 

Fiscal 2022

 

 

3,684

 

 

 

1,425

 

Fiscal 2023

 

 

1,260

 

 

 

1,231

 

Fiscal 2024

 

 

1,307

 

 

 

1,086

 

Fiscal years thereafter

 

 

2,625

 

 

 

628

 

Total minimum lease payments

 

$

14,425

 

 

$

6,735

 

Less estimated executory costs

 

 

(588

)

 

 

 

Less imputed interest

 

 

(1,026

)

 

 

(545

)

Present value of net minimum lease payments

 

 

12,811

 

 

 

6,190

 

Less current portion of lease obligations

 

 

(4,112

)

 

 

(1,709

)

Long-term portion of lease obligations

 

$

8,699

 

 

$

4,481

 

Prior Year Disclosure

As reported in the 2019 Form 10-K under the previous accounting guidance, future minimum capital lease payments and future minimum lease payments under non-cancelable operating leases with initial lease terms in excess of one 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

 

 

 

 

 

 

8


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 Nine Months Ended

 

 

 

March 29, 2020

 

 

March 31, 2019

 

 

March 29, 2020

 

 

March 31, 2019

 

Third-party manufacturer

 

$

169,033

 

 

$

177,977

 

 

$

514,590

 

 

$

522,636

 

Service

 

 

1,961

 

 

 

2,012

 

 

 

5,864

 

 

 

6,675

 

Net sales

 

$

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:

 

 

 

March 29, 2020

 

 

June 30, 2019

 

Customer receivables

 

$

87,091

 

 

$

89,495

 

Allowance for uncollectible accounts

 

 

(2,397

)

 

 

(2,338

)

Reserves for quality claims

 

 

(1,231

)

 

 

(961

)

Net customer receivables

 

 

83,463

 

 

 

86,196

 

Other receivables

 

 

2,913

 

 

 

2,688

 

Total receivables, net

 

$

86,376

 

 

$

88,884

 

 

9


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

7.  Inventories

Inventories consists of the following:

 

 

 

March 29, 2020

 

 

June 30, 2019

 

Raw materials

 

$

49,100

 

 

$

55,531

 

Supplies

 

 

9,252

 

 

 

9,020

 

Work in process

 

 

7,558

 

 

 

8,510

 

Finished goods

 

 

61,496

 

 

 

63,111

 

Gross inventories

 

 

127,406

 

 

 

136,172

 

Inventory reserves

 

 

(3,260

)

 

 

(2,391

)

Total inventories

 

$

124,146

 

 

$

133,781

 

 

8.  Other Current Assets

 

Other current assets consists of the following:

 

 

 

March 29, 2020

 

 

June 30, 2019

 

Contract assets

 

$

9,909

 

 

$

7,794

 

Value-added taxes receivable

 

 

3,437

 

 

 

2,519

 

Vendor deposits

 

 

3,328

 

 

 

4,187

 

Prepaid expenses

 

 

1,803

 

 

 

1,856

 

Total other current assets

 

$

18,477

 

 

$

16,356

 

 

9.  Property, Plant and Equipment, Net

Property, plant and equipment (“PP&E”), net consists of the following:

 

 

 

March 29, 2020

 

 

June 30, 2019

 

Land

 

$

3,164

 

 

$

3,138

 

Land improvements

 

 

16,333

 

 

 

15,249

 

Buildings and improvements

 

 

158,388

 

 

 

161,566

 

Assets under finance leases

 

 

30,749

 

 

 

31,897

 

Machinery and equipment

 

 

602,956

 

 

 

603,950

 

Computers, software and office equipment

 

 

22,355

 

 

 

23,011

 

Transportation equipment

 

 

6,929

 

 

 

5,809

 

Construction in progress

 

 

6,219

 

 

 

6,483

 

Gross PP&E

 

 

847,093

 

 

 

851,103

 

Less: accumulated depreciation

 

 

(632,608

)

 

 

(636,135

)

Less: accumulated amortization – finance leases

 

 

(7,492

)

 

 

(8,181

)

Total PP&E, net

 

$

206,993

 

 

$

206,787

 

 

Depreciation and amortization expense and repair and maintenance expenses were as follows:

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

March 29, 2020

 

 

March 31, 2019

 

 

March 29, 2020

 

 

March 31, 2019

 

Depreciation and amortization expense

 

$

5,799

 

 

$

5,257

 

 

$

16,858

 

 

$

16,181

 

Repair and maintenance expenses

 

 

5,602

 

 

 

5,301

 

 

 

14,924

 

 

 

16,148

 

 

10.  Accrued Expenses

Accrued expenses consists of the following:

 

 

 

March 29, 2020

 

 

June 30, 2019

 

Payroll and fringe benefits

 

$

8,861

 

 

$

9,775

 

Deferred revenue

 

 

2,624

 

 

 

516

 

Severance

 

 

225

 

 

 

2,058

 

Other

 

 

3,637

 

 

 

4,500

 

Total accrued expenses

 

$

15,347

 

 

$

16,849

 

 

10


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

11.  Long-Term Debt

Debt Obligations

The following table presents the total balances outstanding for UNIFI’s debt obligations, their scheduled maturity dates and the weighted average interest rates for borrowings as well as the applicable current portion of long-term debt:

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

Scheduled

 

Interest Rate as of

 

 

Principal Amounts as of

 

 

 

Maturity Date

 

March 29, 2020

 

 

March 29, 2020

 

 

June 30, 2019

 

ABL Revolver

 

December 2023

 

2.2%

 

 

$

30,900

 

 

$

19,400

 

ABL Term Loan (1)

 

December 2023

 

3.1%

 

 

 

90,000

 

 

 

97,500

 

Finance lease obligations

 

(2)

 

3.6%

 

 

 

12,811

 

 

 

11,118

 

Total debt

 

 

 

 

 

 

 

 

133,711

 

 

 

128,018

 

Current ABL Term Loan

 

 

 

 

 

 

 

 

(10,000

)

 

 

(10,000

)

Current portion of finance lease obligations

 

 

 

 

 

 

 

 

(4,112

)

 

 

(5,519

)

Unamortized debt issuance costs

 

 

 

 

 

 

 

 

(772

)

 

 

(958

)

Total long-term debt

 

 

 

 

 

 

 

$

118,827

 

 

$

111,541

 

 

(1)

Includes the effects of interest rate swaps.

(2)

Scheduled maturity dates for finance lease obligations range from June 2020 to November 2027, as further outlined in Note 4, “Leases.”

ABL Facility

On December 18, 2018, Unifi, Inc. and certain of its subsidiaries entered into a Third Amendment to Amended and Restated Credit Agreement and Second Amendment to Amended and Restated Guaranty and Security Agreement (the “2018 Amendment”).  The 2018 Amendment amended the Amended and Restated Credit Agreement, dated as of March 26, 2015, by and among Unifi, Inc. and a syndicate of lenders, as previously amended (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

 

ABL Revolver

 

$

 

 

$

 

 

$

 

 

$

 

 

$

30,900

 

 

$

 

ABL Term Loan

 

 

2,500

 

 

 

10,000

 

 

 

10,000

 

 

 

10,000

 

 

 

57,500

 

 

 

 

Finance lease obligations

 

 

1,429

 

 

 

3,563

 

 

 

3,388

 

 

 

1,094

 

 

 

1,132

 

 

 

2,205

 

Total

 

$

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:

 

 

 

March 29, 2020

 

 

June 30, 2019

 

Supplemental post-employment plan

 

$

2,843

 

 

$

2,695

 

Interest rate swaps

 

 

2,569

 

 

 

647

 

Uncertain tax positions

 

 

1,161

 

 

 

1,043

 

Other

 

 

1,456

 

 

 

1,800

 

Total other long-term liabilities

 

$

8,029

 

 

$

6,185

 

 

13.  Income Taxes

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

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

March 29, 2020

 

 

March 31, 2019

 

 

March 29, 2020

 

 

March 31, 2019

 

Provision for income taxes

 

$

1,530

 

 

$

3,070

 

 

$

2,758

 

 

$

3,606

 

Effective tax rate

 

 

(3.9

)%

 

 

199.2

%

 

 

(8.1

)%

 

 

71.3

%

Income Tax Expense

 

UNIFI’s provision for income taxes for the nine months ended March 29, 2020 and March 31, 2019 was calculated by applying an estimate of the annual effective tax rate for the full fiscal year to year-to-date 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 March 29, 2020 was lower than the U.S. federal statutory rate primarily due to an increase in the valuation allowance for UNIFI’s investment in PAL as a result of the impairment charge, for which UNIFI does not expect to realize a future tax benefit.

 

The effective tax rate for the three months ended March 31, 2019 was higher than the U.S. federal statutory rate primarily due to 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 nine months ended March 31, 2019 was higher than the U.S. federal statutory rate primarily due to U.S. tax on GILTI, losses in tax jurisdictions for which no tax benefit could be recognized, earnings taxed at higher rates in foreign jurisdictions, and 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

On April 23, 2014, UNIFI announced that its Board of Directors (the “Board”) 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.

 

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

 

 

Total Number

of Shares

Repurchased as

Part of Publicly

Announced Plans

or Programs

 

 

Average Price

Paid per Share

 

 

Approximate Dollar

Value that May

Yet Be Repurchased

Under Publicly

Announced Plans

or Programs

 

Fiscal 2019

 

 

 

 

$

 

 

 

 

 

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”). 

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 or the 2008 LTIP; however, awards outstanding remain subject to each plan’s respective provisions.

The following table provides information as of March 29, 2020 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

 

 

156

 

Less: Awards granted to employees

 

 

(425

)

Less: Awards granted to non-employee directors

 

 

(117

)

Available for issuance under the Amended 2013 Plan

 

 

864

 

 

Stock-based compensation units granted or issued was as follows:

 

 

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

 

 

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 nine months ended March 29, 2020 and 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.

 

 

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

 

Balance at June 30, 2019

 

$

(42,729

)

 

$

(500

)

 

$

(43,229

)

Other comprehensive loss

 

 

(20,350

)

 

 

(1,488

)

 

 

(21,838

)

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 March 29, 2020 and March 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 Nine Months Ended

 

 

 

March 29, 2020

 

 

March 31, 2019

 

 

March 29, 2020

 

 

March 31, 2019

 

Net (loss) income

 

$

(41,111

)

 

$

(1,529

)

 

$

(36,990

)

 

$

1,454

 

Basic weighted average shares

 

 

18,475

 

 

 

18,394

 

 

 

18,485

 

 

 

18,381

 

Net potential common share equivalents

 

 

 

 

 

 

 

 

 

 

 

361

 

Diluted weighted average shares

 

 

18,475

 

 

 

18,394

 

 

 

18,485

 

 

 

18,742

 

Excluded from diluted weighted average shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive common share equivalents

 

 

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 maintained investments in three entities classified as unconsolidated affiliates: PAL; U.N.F. Industries, Ltd. (“UNF”); and UNF America LLC (“UNFA”). UNIFI’s investment in PAL was $56,641 and UNIFI’s combined investments in UNF and UNFA were $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 has accounted for this investment 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 March 29, 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 March 29, 2020

 

$

119,926

 

Initial excess capital contributions

 

 

53,363

 

Impairment charge recorded by UNIFI in fiscal 2007

 

 

(74,106

)

Anti-trust lawsuit against PAL in which UNIFI did not participate

 

 

2,652

 

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.

UNF America LLC

Raw material and production services for UNFA are provided by Nilit America Inc. under separate supply and services agreements.  UNFA’s fiscal year end is December 31, and it is a limited liability company treated as a partnership for income tax reporting purposes located in Ridgeway, Virginia.

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 March 29, 2020, UNIFI’s open purchase orders related to this supply agreement were $807.

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

 

 

 

For the Nine Months Ended

 

 

 

March 29, 2020

 

 

March 31, 2019

 

UNF

 

$

1,343

 

 

$

1,478

 

UNFA

 

 

13,219

 

 

 

17,199

 

Total

 

$

14,562

 

 

$

18,677

 

 

As of March 29, 2020 and June 30, 2019, UNIFI had combined accounts payable due to UNF and UNFA of $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 was defined as significant and its information is separately disclosed. PAL has not met the criteria for segment reporting.

 

 

 

As of March 29, 2020

 

 

As of June 30, 2019

 

 

 

PAL

 

 

Other

 

 

Total

 

 

PAL

 

 

Other

 

 

Total

 

Current assets

 

$

258,113

 

 

$

6,716

 

 

$

264,829

 

 

$

299,610

 

 

$

7,218

 

 

$

306,828

 

Non-current assets

 

 

151,720

 

 

 

583

 

 

 

152,303

 

 

 

158,304

 

 

 

696

 

 

 

159,000

 

Current liabilities

 

 

54,513

 

 

 

2,873

 

 

 

57,386

 

 

 

70,875

 

 

 

4,069

 

 

 

74,944

 

Non-current liabilities

 

 

2,602

 

 

 

 

 

 

2,602

 

 

 

3,252

 

 

 

 

 

 

3,252

 

Shareholders’ equity and capital

   accounts

 

 

352,718

 

 

 

4,426

 

 

 

357,144

 

 

 

383,787

 

 

 

3,845

 

 

 

387,632

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UNIFI’s portion of undistributed

   earnings

 

 

34,230

 

 

 

1,334

 

 

 

35,564

 

 

 

43,343

 

 

 

821

 

 

 

44,164

 

 

 

 

For the Three Months Ended March 29, 2020

 

 

For the Three Months Ended March 31, 2019

 

 

 

PAL

 

 

Other

 

 

Total

 

 

PAL

 

 

Other

 

 

Total

 

Net sales

 

$

170,854

 

 

$

4,076

 

 

$

174,930

 

 

$

225,160

 

 

$

6,217

 

 

$

231,377

 

Gross profit

 

 

12,182

 

 

 

392

 

 

 

12,574

 

 

 

8,638

 

 

 

1,149

 

 

 

9,787

 

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

 

 

8,647

 

 

 

23

 

 

 

8,670

 

 

 

9,285

 

 

 

48

 

 

 

9,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash received by PAL under

   cotton rebate program

 

 

3,210

 

 

 

 

 

 

3,210

 

 

 

3,053

 

 

 

 

 

 

3,053

 

Earnings recognized by PAL for

   cotton rebate program

 

 

3,215

 

 

 

 

 

 

3,215

 

 

 

3,195

 

 

 

 

 

 

3,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions received

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

Environmental

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 minimal active site remediation may be required, but 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 March 29, 2020 or June 30, 2019.

 

Related party payables consists of the following:

 

 

 

March 29, 2020

 

 

June 30, 2019

 

Salem Leasing Corporation (included within accounts payable)

 

$

403

 

 

$

634

 

Salem Leasing Corporation (operating lease obligations)

 

 

1,578

 

 

 

 

Salem Leasing Corporation (finance lease obligations)

 

 

6,765

 

 

 

806

 

Total related party payables

 

$

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 Nine Months Ended

 

Affiliated Entity

 

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

 

$

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.

 

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

 

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 sources 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.

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 March 29, 2020

 

 

 

Polyester

 

 

Nylon

 

 

Brazil

 

 

Asia

 

 

All Other

 

 

Total

 

Net sales

 

$

89,767

 

 

$

20,567

 

 

$

21,060

 

 

$

38,621

 

 

$

979

 

 

$

170,994

 

Cost of sales

 

 

82,735

 

 

 

20,234

 

 

 

17,644

 

 

 

34,038

 

 

 

960

 

 

 

155,611

 

Gross profit

 

 

7,032

 

 

 

333

 

 

 

3,416

 

 

 

4,583

 

 

 

19

 

 

 

15,383

 

Segment depreciation expense

 

 

4,301

 

 

 

471

 

 

 

421

 

 

 

 

 

 

137

 

 

 

5,330

 

Segment Profit

 

$

11,333

 

 

$

804

 

 

$

3,837

 

 

$

4,583

 

 

$

156

 

 

$

20,713

 

17


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:

 

 

 

March 29, 2020

 

 

June 30, 2019

 

Polyester

 

$

295,192

 

 

$

287,608

 

Nylon

 

 

50,905

 

 

 

57,055

 

Brazil

 

 

54,040

 

 

 

67,490

 

Asia

 

 

45,530

 

 

 

35,219

 

Segment total assets

 

 

445,667

 

 

 

447,372

 

Other current assets

 

 

7,235

 

 

 

10,327

 

Other PP&E

 

 

24,412

 

 

 

18,664

 

Other non-current operating lease assets

 

 

1,599

 

 

 

 

Other non-current assets

 

 

5,275

 

 

 

1,468

 

Investments in unconsolidated affiliates

 

 

58,854

 

 

 

114,320

 

Total assets

 

$

543,042

 

 

$

592,151

 

18


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

23.  Supplemental Cash Flow Information

Cash payments for interest and taxes consist of the following: 

 

 

 

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.

Non-Cash Investing and Financing Activities

As of March 29, 2020 and June 30, 2019, $619 and $1,329, respectively, were included in accounts payable for unpaid capital expenditures. As of March 31, 2019 and June 24, 2018, $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.

 

19


 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis of certain significant factors that have affected UNIFI’s operations, along with material changes in financial condition, during the periods included in the accompanying condensed consolidated financial statements. A reference to a “note” in this section refers to the accompanying notes to condensed consolidated financial statements. A reference to the “current period” refers to the three-month period ended March 29, 2020, while a reference to the “prior period” refers to the three-month period ended 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 40 weeks, respectively.

Our discussions in this Item 2 focus on our results during, or as of, the three months and nine months ended March 29, 2020 and 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. UNIFI remains committed to this strategy, which we 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 $8,995, or 5.0%, to $170,994, compared to $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 5% compared to the prior period and represented 52% of consolidated net sales for the current period compared to 47% for the prior period;

 

gross margin was 9.0% for the current period, compared to 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 $3,145 for the current period, compared to $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

 

basic EPS was $(2.23) for the current period, compared to $(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) the Polyester Segment faced suppressed demand for certain yarns across the industrial, automotive and apparel sectors, (ii) the 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 lower gross margin as market price declines in connection with declining raw material costs outpaced inventory turnover.

However, UNIFI achieved favorable operating results and overall improvement compared to the prior nine-month period, despite one fewer sales week in the NACA region.  The improvement was primarily attributable to (i) a declining raw material cost environment that benefited our Polyester 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 improved significantly during the current nine-month period primarily as a result of (i) comparatively less cash invested in inventories, which was influenced by lower raw material costs and (ii) $9,057 of increased distributions from equity affiliates.

20


 

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 U.S. Department of Commerce and 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 to December 2019. Accordingly, subject imports from China and India are being assessed combined antidumping and countervailing duty rates of 97% and higher and 18% and higher, respectively, in addition to normal course duties in effect. The positive developments in our pursuit of relief from low-cost and subsidized imports are critical steps in our efforts to 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 earnings of PAL, and, from time to time, certain other adjustments necessary to understand and compare the underlying results of UNIFI;

 

Adjusted Net Income (Loss), which represents Net (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.

21


 

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. Equity in earnings 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 March 29, 2020 Compared to Three Months Ended March 31, 2019

Consolidated Overview

The components of Net 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

 

 

 

 

 

 

 

March 29, 2020

 

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

170,994

 

 

 

100.0

 

 

$

179,989

 

 

 

100.0

 

 

 

(5.0

)

Cost of sales

 

 

155,611

 

 

 

91.0

 

 

 

166,198

 

 

 

92.3

 

 

 

(6.4

)

Gross profit

 

 

15,383

 

 

 

9.0

 

 

 

13,791

 

 

 

7.7

 

 

 

11.5

 

SG&A

 

 

11,720

 

 

 

6.9

 

 

 

11,439

 

 

 

6.4

 

 

 

2.5

 

Provision for bad debts

 

 

580

 

 

 

0.3

 

 

 

218

 

 

 

0.1

 

 

 

166.1

 

Other operating (income) expense, net

 

 

(62

)

 

 

 

 

 

1,359

 

 

 

0.8

 

 

 

(104.6

)

Operating income

 

 

3,145

 

 

 

1.8

 

 

 

775

 

 

 

0.4

 

 

nm

 

Interest expense, net

 

 

1,058

 

 

 

0.6

 

 

 

1,107

 

 

 

0.6

 

 

 

(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

 

 

1,530

 

 

 

0.9

 

 

 

3,070

 

 

 

1.7

 

 

 

(50.2

)

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 $8,995, or 5.0%, as compared to the prior period, primarily due (i) lower demand for our nylon products in the NACA region, (ii) lower average selling prices for our polyester 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 COVID-19 on that region’s production and distribution abilities.

Consolidated sales volumes increased 6.5%, primarily attributable to continued sales growth of REPREVE®-branded products, principally Chip and staple fiber in the Asia Segment, partially offset by lower yarn sales in the Nylon Segment. Sales in the Asia Segment continued to expand as our REPREVE® portfolio resonates with our brand partners that are focused on sustainable solutions.

22


 

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 11.5%, primarily attributable to (i) significant sales growth of Chip and staple fiber in the Asia Segment, which have lower average selling prices, (ii) a decline in higher-priced nylon product sales and (iii) sales price declines associated with polyester raw material cost changes and global pricing pressures.

PVA products at the end of the current period comprised 52% of consolidated net sales, up from 47% for fiscal 2019 and from 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, 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 period increased by $1,592, or 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 a greater mix of lower-priced product sales and the adverse impact of COVID-19 on that region’s production and distribution abilities.

For the Brazil Segment, gross profit increased primarily due 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 against the USD during the current period. For the Nylon Segment, gross profit decreased primarily due to lower revenues and weaker fixed cost absorption in connection with two customers shifting certain programs to overseas garment production during calendar 2019.

SG&A

SG&A changed insignificantly from the prior period to the current period, primarily as prior period SG&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, Net

There 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 losses.

Interest Expense, Net

There was no significant change in interest expense, net from the prior period to the current period. The components of consolidated interest expense, net were as follows:

 

 

 

For the Three Months Ended

 

 

 

March 29, 2020

 

 

March 31, 2019

 

Interest and fees on the ABL Facility

 

$

977

 

 

$

1,073

 

Other interest

 

 

223

 

 

 

183

 

Subtotal of interest on debt obligations

 

 

1,200

 

 

 

1,256

 

Other components of interest expense

 

 

31

 

 

 

 

Total interest expense

 

 

1,231

 

 

 

1,256

 

Interest income

 

 

(173

)

 

 

(149

)

Interest expense, net

 

$

1,058

 

 

$

1,107

 

23


 

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. 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.

Equity in Earnings of Unconsolidated Affiliates

The components of equity in earnings of unconsolidated affiliates were as follows:

 

 

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 comparative 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 the Nylon Segment.

Income Taxes

Provision for income taxes and the effective tax rate were as follows:

 

 

 

For the Three Months Ended

 

 

 

March 29, 2020

 

 

March 31, 2019

 

Provision for income taxes

 

$

1,530

 

 

$

3,070

 

Effective tax rate

 

 

(3.9

)%

 

 

199.2

%

 

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

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

 

24


 

 

(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.

25


 

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 Nylon 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

%

 

 

 

 

 

 

 

 

26


 

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 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.

27


 

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 decline 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.

28


 

SG&A

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.

29


 

Income Taxes

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 result 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 income taxes (“Tax Impact”) and Net (Loss) Income to Adjusted Net Income and (ii) Basic EPS to Adjusted EPS.

 

 

For the Nine Months Ended March 29, 2020

 

 

For the Nine Months Ended March 31, 2019

 

 

 

Pre-tax

(Loss) Income

 

 

Tax Impact

 

 

Net (Loss) Income

 

 

Basic EPS

 

 

Pre-tax Income

 

 

Tax Impact

 

 

Net Income

 

 

Basic EPS

 

GAAP results

 

$

(34,232

)

 

$

(2,758

)

 

$

(36,990

)

 

$

(2.00

)

 

$

5,060

 

 

$

(3,606

)

 

$

1,454

 

 

$

0.08

 

Impairment of investment in

  unconsolidated affiliate (1)

 

 

45,194

 

 

 

 

 

 

45,194

 

 

 

2.44

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted results

 

$

10,962

 

 

$

(2,758

)

 

$

8,204

 

 

$

0.44

 

 

$

5,060

 

 

$

(3,606

)

 

$

1,454

 

 

$

0.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

18,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,381

 

(1)

For the nine 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.

30


 

Adjusted Net Income and Adjusted EPS increased from the prior period to the current period, primarily as a result of (i) lower SG&A and (ii) a more favorable effective tax rate in the current nine-month period.

Segment Overview

Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for the current nine-month 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 nine-month 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 nine-month period amounts for the Polyester Segment, were as follows:

 

 

For the Nine Months Ended

 

 

 

 

 

 

 

March 29, 2020

 

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

261,212

 

 

 

100.0

 

 

$

281,665

 

 

 

100.0

 

 

 

(7.3

)

Cost of sales

 

 

239,725

 

 

 

91.8

 

 

 

265,748

 

 

 

94.3

 

 

 

(9.8

)

Gross profit

 

 

21,487

 

 

 

8.2

 

 

 

15,917

 

 

 

5.7

 

 

 

35.0

 

Depreciation expense

 

 

12,525

 

 

 

4.8

 

 

 

12,047

 

 

 

4.2

 

 

 

4.0

 

Segment Profit

 

$

34,012

 

 

 

13.0

 

 

$

27,964

 

 

 

9.9

 

 

 

21.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

  consolidated amounts

 

 

50.2

%

 

 

 

 

 

 

53.2

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

  consolidated amounts

 

 

53.2

%

 

 

 

 

 

 

44.4

%

 

 

 

 

 

 

 

 

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

Net sales for the prior nine-month period

 

$

281,665

 

Net change in average selling price and sales mix

 

 

(9,311

)

Decrease due to an additional week of sales in fiscal 2019

 

 

(6,868

)

Decrease in underlying sales volumes

 

 

(4,274

)

Net sales for the current nine-month period

 

$

261,212

 

The decrease in net sales for the Polyester Segment from the prior nine-month period to the current nine-month period was primarily attributable to (i) lower average selling prices associated with polyester raw material cost changes, (ii) one fewer week of sales in the current nine-month period and (iii) lower sales of Flake due to increased internal consumption.

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

Segment Profit for the prior nine-month period

 

$

27,964

 

Net increase in underlying margins

 

 

6,767

 

Decrease in underlying sales volumes

 

 

(431

)

Decrease due to an additional week of sales in fiscal 2019

 

 

(288

)

Segment Profit for the current nine-month period

 

$

34,012

 

The increase in Segment Profit for the Polyester Segment from the prior nine-month period to the current nine-month period was primarily attributable 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.

31


 

Nylon Segment

The components of Segment Profit, each component as a percentage of net sales and the percentage increase or decrease over the prior nine-month period amounts for the Nylon Segment were as follows:

 

 

For the Nine Months Ended

 

 

 

 

 

 

 

March 29, 2020

 

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

57,853

 

 

 

100.0

 

 

$

76,159

 

 

 

100.0

 

 

 

(24.0

)

Cost of sales

 

 

56,296

 

 

 

97.3

 

 

 

69,671

 

 

 

91.5

 

 

 

(19.2

)

Gross profit

 

 

1,557

 

 

 

2.7

 

 

 

6,488

 

 

 

8.5

 

 

 

(76.0

)

Depreciation expense

 

 

1,465

 

 

 

2.5

 

 

 

1,576

 

 

 

2.1

 

 

 

(7.0

)

Segment Profit

 

$

3,022

 

 

 

5.2

 

 

$

8,064

 

 

 

10.6

 

 

 

(62.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

  consolidated amounts

 

 

11.1

%

 

 

 

 

 

 

14.4

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

  consolidated amounts

 

 

4.7

%

 

 

 

 

 

 

12.8

%

 

 

 

 

 

 

 

 

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

Net sales for the prior nine-month period

 

$

76,159

 

Decrease in underlying sales volumes

 

 

(15,407

)

Decrease due to an additional week of sales in fiscal 2019

 

 

(2,114

)

Net change in average selling price and sales mix

 

 

(785

)

Net sales for the current nine-month period

 

$

57,853

 

The decrease in net sales for the Nylon Segment from the prior nine-month period to the current nine-month period was primarily attributable to (i) continued demand declines in certain nylon product categories, (ii) two customers shifting certain programs to overseas garment production during calendar 2019 and (iii) an additional week of sales in the prior nine-month period.

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

Segment Profit for the prior nine-month period

 

$

8,064

 

Net decrease in underlying margins

 

 

(3,208

)

Decrease in underlying sales volumes

 

 

(1,637

)

Decrease due to an additional week of sales in fiscal 2019

 

 

(197

)

Segment Profit for the current nine-month period

 

$

3,022

 

The decrease in Segment Profit for the Nylon Segment from the prior nine-month period to the current nine-month 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 nine-month period amounts for the Brazil Segment were as follows:

 

 

For the Nine Months Ended

 

 

 

 

 

 

 

March 29, 2020

 

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

66,094

 

 

 

100.0

 

 

$

76,257

 

 

 

100.0

 

 

 

(13.3

)

Cost of sales

 

 

55,089

 

 

 

83.3

 

 

 

62,654

 

 

 

82.2

 

 

 

(12.1

)

Gross profit

 

 

11,005

 

 

 

16.7

 

 

 

13,603

 

 

 

17.8

 

 

 

(19.1

)

Depreciation expense

 

 

1,153

 

 

 

1.7

 

 

 

1,146

 

 

 

1.5

 

 

 

0.6

 

Segment Profit

 

$

12,158

 

 

 

18.4

 

 

$

14,749

 

 

 

19.3

 

 

 

(17.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

  consolidated amounts

 

 

12.7

%

 

 

 

 

 

 

14.4

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

  consolidated amounts

 

 

19.0

%

 

 

 

 

 

 

23.4

%

 

 

 

 

 

 

 

 

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

Net sales for the prior nine-month period

 

$

76,257

 

Unfavorable foreign currency translation effects

 

 

(5,892

)

Decrease in average selling price

 

 

(5,386

)

Increase in sales volumes

 

 

1,115

 

Net sales for the current nine-month period

 

$

66,094

 

32


 

The decrease in net sales for the Brazil Segment from the prior nine-month period to the current nine-month period was primarily attributable to unfavorable foreign currency translation effects, along with lower selling prices associated with declining raw material costs and competitive pricing pressures.

The BRL weighted average exchange rate was 4.17 BRL/USD and 3.85 BRL/USD for the current nine-month period and the prior nine-month period, respectively.  

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

Segment Profit for the prior nine-month period

 

$

14,749

 

Decrease in underlying margins

 

 

(1,909

)

Unfavorable foreign currency translation effects

 

 

(899

)

Increase in sales volumes

 

 

217

 

Segment Profit for the current nine-month period

 

$

12,158

 

The decrease in Segment Profit for the Brazil Segment from the prior nine-month period to the current nine-month period was primarily attributable to competitive pricing pressures during a declining raw material cost environment and unfavorable foreign currency translation. For the Brazil Segment, declining raw material costs place immediate downward market pressure on selling prices and, since the Brazil Segment’s supply chain is generally longer, average inventory costs decline slower than selling prices. Additionally, the Brazil Segment accelerated certain raw material purchases in the fourth quarter of fiscal 2019, which exacerbated the above impact.

Asia Segment

The components of Segment Profit, each component as a percentage of net sales and the percentage increase or decrease over the prior nine-month period amounts for the Asia Segment were as follows:

 

 

For the Nine Months Ended

 

 

 

 

 

 

 

March 29, 2020

 

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

132,496

 

 

 

100.0

 

 

$

92,014

 

 

 

100.0

 

 

 

44.0

 

Cost of sales

 

 

118,114

 

 

 

89.1

 

 

 

80,317

 

 

 

87.3

 

 

 

47.1

 

Gross profit

 

 

14,382

 

 

 

10.9

 

 

 

11,697

 

 

 

12.7

 

 

 

23.0

 

Depreciation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Profit

 

$

14,382

 

 

 

10.9

 

 

$

11,697

 

 

 

12.7

 

 

 

23.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

  consolidated amounts

 

 

25.5

%

 

 

 

 

 

 

17.4

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

  consolidated amounts

 

 

22.5

%

 

 

 

 

 

 

18.6

%

 

 

 

 

 

 

 

 

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

Net sales for the prior nine-month period

 

$

92,014

 

Increase in sales volumes of Chip and staple fiber

 

 

34,530

 

Net increase in sales volumes of other PVA products

 

 

8,419

 

Change in average selling price and sales mix

 

 

41

 

Unfavorable foreign currency translation effects

 

 

(2,508

)

Net sales for the current nine-month period

 

$

132,496

 

The increase in net sales for the Asia Segment from the prior nine-month period to the current nine-month period was primarily attributable to higher sales volumes of REPREVE®-branded products, primarily Chip and staple fiber, partially offset by (i) the impact of lower-priced Chip and staple fiber sales on average selling price and sales mix and (ii) unfavorable foreign currency translation effects due to the comparable weakening of the RMB.

The RMB weighted average exchange rate was 7.02 RMB/USD and 6.82 RMB/USD for the current nine-month period and the prior nine-month period, respectively.  

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

Segment Profit for the prior nine-month period

 

$

11,697

 

Increase in sales volumes of Chip and staple fiber

 

 

3,084

 

Net increase in sales volumes of other PVA products

 

 

169

 

Unfavorable foreign currency translation effects

 

 

(421

)

Decrease in underlying margins and sales mix

 

 

(147

)

Segment Profit for the current nine-month period

 

$

14,382

 

The increase in Segment Profit for the Asia Segment from the prior nine-month period to the current nine-month period was primarily attributable to the increase in sales volumes and related sales mix change described in the net sales analysis above.

33


 

Liquidity and Capital Resources

UNIFI’s primary capital requirements are for working capital, capital expenditures, debt service and share repurchases.  UNIFI’s primary sources of capital are cash generated from operations and borrowings available under the ABL Revolver of its credit facility.  For the current nine-month period, cash generated from operations was $32,105, and, at March 29, 2020, excess availability under the ABL Revolver was $47,793.  

As of March 29, 2020, all of UNIFI’s $133,711 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, while nearly all of UNIFI’s cash and cash equivalents were held by its foreign subsidiaries. Cash and cash equivalents held by foreign subsidiaries may not be presently available to fund UNIFI’s domestic capital requirements, including its domestic debt obligations. UNIFI employs a variety of strategies to ensure that its worldwide cash is available in the locations where it is needed. The following table presents a summary of cash and cash equivalents, borrowings available under financing arrangements, liquidity, working capital and total debt obligations as of March 29, 2020 for domestic operations compared to foreign operations:  

 

 

 

Domestic

 

 

Foreign

 

 

Total

 

Cash and cash equivalents

 

$

347

 

 

$

33,046

 

 

$

33,393

 

Borrowings available under financing arrangements

 

 

47,793

 

 

 

 

 

 

47,793

 

Liquidity

 

$

48,140

 

 

$

33,046

 

 

$

81,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

$

87,262

 

 

$

97,848

 

 

$

185,110

 

Total debt obligations

 

$

133,711

 

 

$

 

 

$

133,711

 

 

COVID-19 Impact on Liquidity

Because global economic activity slowed within a short period of time, the COVID-19 pandemic has introduced liquidity risk that was not present prior to calendar 2020. UNIFI believes that aggressive and prudent actions are necessary to preserve liquidity in the current economic environment, which is pressured by significant global demand declines that began in the current period and which are expected to continue for the remainder of calendar 2020 and potentially beyond. Accordingly, to minimize further disruption to operations, UNIFI has prioritized health and safety measures that include suspending travel and group meetings, enforcing social distancing and healthy habits, increased sanitation and disinfection and increased wellness monitoring. Additionally, the following aid in reducing risk and ensuring adequate cash is available to fund ongoing operations and obligations:

 

Participating in the supply chain for personal protective equipment necessary for our first responders, healthcare personnel, and military.

 

Reducing future capital expenditures while prioritizing safety and maintenance.

 

Capitalizing on raw material pricing, which remains at low levels and aids short-term working capital and liquidity.

 

Implementing a strategic reduction in manufacturing operations to support critical businesses and manage working capital.

 

Lowering discretionary expenses that focus on long-term returns, such as marketing, event and other commercial expenses.

 

Maintaining significant cash reserves from the proceeds from the PAL Investment sale.

While we currently expect these measures to provide adequate liquidity under the currently anticipated pressures of the pandemic, should global demand and economic activity remain subdued beyond the short term, UNIFI maintains the ability to (i) utilize aid and lending programs from governmental entities, (ii) seek additional credit or financing arrangements or extensions and (iii) explore further cost reduction initiatives to preserve cash and secure the longevity of the business and operations. Further, we do not currently expect our cost of or access to capital and funding sources to materially change as a result of the COVID-19 pandemic.

Debt Obligations

ABL Facility

On December 18, 2018, Unifi, Inc. and certain of its subsidiaries entered into the 2018 Amendment, which amended the Credit Agreement.  The Credit Agreement provides for the ABL Facility, which is a $200,000 senior secured credit facility that includes the $100,000 ABL Revolver and the ABL Term Loan, which can be reset up to a maximum amount of $100,000, once per fiscal year, if certain conditions are met. 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 pricing structure for Base Rate Loans and LIBOR Rate Loans 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 utilizes variable-rate borrowings under the ABL Facility that are made with reference to USD LIBOR Rate Loans and is party to LIBOR-based interest rate swaps. Management recognizes the potential challenges posed by the previously announced termination of LIBOR. The Credit Agreement, as amended, includes fallback language to allow for a conversion of LIBOR Rate Loans to a mutually agreed upon alternative rate of interest, such as the Secured Overnight Financing Rate. Management will continue to monitor the potential termination of LIBOR and the potential impact on UNIFI’s operations. However, management does not expect (i) significant efforts are necessary to accommodate a termination of LIBOR or (ii) a significant impact to UNIFI’s operations upon a termination of LIBOR.

34


 

The ABL Facility is secured by a first-priority perfected security interest in substantially all owned property and assets (together with all proceeds and products) of Unifi, Inc., Unifi Manufacturing, Inc. and certain subsidiary guarantors (collectively, the “Loan Parties”). It is also secured by a first-priority security interest in all (or 65% in the case of UNIFI’s first-tier controlled foreign subsidiary, as required by the lenders) of the stock of (or other ownership interests in) each of the Loan Parties (other than Unifi, Inc.) and certain subsidiaries of the Loan Parties, together with all proceeds and products thereof.

If excess availability under the ABL Revolver falls below the Trigger Level (as defined in the Credit Agreement), a financial covenant requiring the Loan Parties to maintain a Fixed Charge Coverage Ratio on a quarterly basis of at least 1.05 to 1.00 becomes effective. The Trigger Level as of March 29, 2020 was $23,750. In addition, the ABL Facility contains restrictions on particular payments and investments, including certain restrictions on share repurchases and the payment of dividends. Subject to specific provisions, the ABL Term Loan may be prepaid at par, in whole or in part, at any time before the maturity date, at UNIFI’s discretion.

ABL Facility borrowings bear interest at LIBOR plus an Applicable Margin of 1.25% to 1.75%, or the Base Rate (as defined below) plus an Applicable Margin of 0.25% to 0.75%, with interest currently being paid on a monthly basis. The Applicable Margin is based on (i) the excess availability under the ABL Revolver and (ii) the consolidated leverage ratio, calculated as of the end of each fiscal quarter. The Base Rate means the greater of (a) the prime lending rate as publicly announced from time to time by Wells Fargo Bank, National Association, (b) the Federal Funds Rate (as defined in the Credit Agreement) plus 0.5% and (c) LIBOR plus 1.0%. UNIFI’s ability to borrow under the ABL Revolver is limited to a borrowing base equal to specified percentages of eligible accounts receivable and inventories and is subject to certain conditions and limitations. There is also a monthly unused line fee under the ABL Revolver of 0.25%.

As of March 29, 2020, UNIFI was in compliance with all financial covenants in the Credit Agreement and the excess availability under the ABL Revolver was $47,793.  At March 29, 2020, the Fixed Charge Coverage Ratio was 0.94 to 1.00 and UNIFI had $200 of standby letters of credit, none of which had been drawn upon. Management maintains the capability to quickly and easily improve the Fixed Charge Coverage Ratio utilizing existing cash and cash equivalents.

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.

Summary of Debt Obligations

The following table presents the total balances outstanding for UNIFI’s debt obligations, their scheduled maturity dates and the weighted average interest rates for borrowings as well as the applicable current portion of long-term debt:

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

Scheduled

 

Interest Rate as of

 

 

Principal Amounts as of

 

 

 

Maturity Date

 

March 29, 2020

 

 

March 29, 2020

 

 

June 30, 2019

 

ABL Revolver

 

December 2023

 

2.2%

 

 

$

30,900

 

 

$

19,400

 

ABL Term Loan (1)

 

December 2023

 

3.1%

 

 

 

90,000

 

 

 

97,500

 

Finance lease obligations

 

(2)

 

3.6%

 

 

 

12,811

 

 

 

11,118

 

Total debt

 

 

 

 

 

 

 

 

133,711

 

 

 

128,018

 

Current ABL Term Loan

 

 

 

 

 

 

 

 

(10,000

)

 

 

(10,000

)

Current portion of finance lease obligations

 

 

 

 

 

 

 

 

(4,112

)

 

 

(5,519

)

Unamortized debt issuance costs

 

 

 

 

 

 

 

 

(772

)

 

 

(958

)

Total long-term debt

 

 

 

 

 

 

 

$

118,827

 

 

$

111,541

 

 

(1)     Includes the effects of interest rate swaps.

(2)     Scheduled maturity dates for finance lease obligations range from June 2020 to November 2027, as further outlined in Note 4, “Leases.”

In addition to making payments in accordance with the scheduled maturities of debt required under its existing debt obligations, UNIFI may, from time to time, elect to repay additional amounts borrowed under the ABL Facility.  Funds to make such repayments may come from the operating cash flows of the business or other sources and will depend upon UNIFI’s strategy, prevailing market conditions, liquidity requirements, contractual restrictions and other factors.

Scheduled Debt Maturities

The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the remainder of fiscal 2020, the following four fiscal years and thereafter:

 

 

Fiscal 2020

 

 

Fiscal 2021

 

 

Fiscal 2022

 

 

Fiscal 2023

 

 

Fiscal 2024

 

 

Thereafter

 

ABL Revolver

 

$

 

 

$

 

 

$

 

 

$

 

 

$

30,900

 

 

$

 

ABL Term Loan

 

 

2,500

 

 

 

10,000

 

 

 

10,000

 

 

 

10,000

 

 

 

57,500

 

 

 

 

Finance lease obligations

 

 

1,429

 

 

 

3,563

 

 

 

3,388

 

 

 

1,094

 

 

 

1,132

 

 

 

2,205

 

Total

 

$

3,929

 

 

$

13,563

 

 

$

13,388

 

 

$

11,094

 

 

$

89,532

 

 

$

2,205

 

35


 

Net Debt (Non-GAAP Financial Measure)

The reconciliations for Net Debt are as follows:

 

 

March 29, 2020

 

 

June 30, 2019

 

Long-term debt

 

$

118,827

 

 

$

111,541

 

Current portion of long-term debt

 

 

14,112

 

 

 

15,519

 

Unamortized debt issuance costs

 

 

772

 

 

 

958

 

Debt principal

 

 

133,711

 

 

 

128,018

 

Less: cash and cash equivalents

 

 

33,393

 

 

 

22,228

 

Net Debt

 

$

100,318

 

 

$

105,790

 

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

The following table presents the components of working capital and the reconciliation of working capital to Adjusted Working Capital:

 

 

 

March 29, 2020

 

 

June 30, 2019

 

Cash and cash equivalents

 

$

33,393

 

 

$

22,228

 

Receivables, net

 

 

86,376

 

 

 

88,884

 

Inventories

 

 

124,146

 

 

 

133,781

 

Income taxes receivable

 

 

589

 

 

 

4,373

 

Other current assets

 

 

18,477

 

 

 

16,356

 

Accounts payable

 

 

(40,862

)

 

 

(41,796

)

Accrued expenses

 

 

(15,347

)

 

 

(16,849

)

Other current liabilities

 

 

(21,662

)

 

 

(16,088

)

Working capital

 

$

185,110

 

 

$

190,889

 

 

 

 

 

 

 

 

 

 

Less: Cash and cash equivalents

 

 

(33,393

)

 

 

(22,228

)

Less: Income taxes receivable

 

 

(589

)

 

 

(4,373

)

Less: Other current liabilities

 

 

21,662

 

 

 

16,088

 

Adjusted Working Capital

 

$

172,790

 

 

$

180,376

 

 

Working capital decreased from $190,889 as of June 30, 2019 to $185,110 as of March 29, 2020, while Adjusted Working Capital decreased from $180,376 to $172,790.

 

The increase in cash and cash equivalents was driven by the operating cash flows generated by our foreign operations. The decrease in receivables, net was primarily attributable to the timing of cash receipts. The decrease in inventories was primarily attributable to the impact of lower raw material costs, partially offset by an increase in inventory units. The decrease in income taxes receivable was due to the timing and magnitude of tax impacts recognized in the current period, primarily relating to changes in deferred taxes. The increase in other current assets was primarily due to the timing of contract assets revenue recognition. The decrease in accounts payable was primarily attributable to the timing of purchase and payment activity. The decrease in accrued expenses was primarily attributable to (i) the timing of payroll and variable compensation accruals and payments and (ii) severance payments made during fiscal 2020, partially offset by an increase in deferred revenue for increased sales activity in the Asia Segment. The increase in other current liabilities primarily reflects an increase in income taxes payable due to the timing and magnitude of tax impacts recognized in the current period.

Capital Projects

During the current nine-month period, UNIFI invested $14,971 in capital projects, primarily relating to (i) further improvements in production capabilities and technology enhancements in the Americas and (ii) routine annual maintenance capital expenditures.  Maintenance capital expenditures are necessary to support UNIFI’s current operations, capacities and capabilities and exclude expenses relating to repairs and costs that do not extend an asset’s useful life.

For the remainder of fiscal 2020 and in response to the adverse liquidity impacts of COVID-19, we have reduced our expected capital project outlay for fiscal 2020. We now expect to invest approximately $4,000 in capital projects during the fourth quarter of fiscal 2020 for an aggregate annual estimate of approximately $19,000, with a priority on safety and maintenance capital expenditures to allow continued efficient production.

The total amount ultimately invested for fiscal 2020 could be more or less than the currently estimated amount depending on the timing and scale of contemplated initiatives and is expected to be funded by a combination of cash flows from operations and borrowings under the ABL Revolver.  UNIFI expects recent and future capital projects to provide benefits to future profitability. The additional assets from these capital projects consist primarily of machinery and equipment.

Share Repurchase Program

On October 31, 2018, the Board approved 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.

 

As of March 29, 2020, UNIFI repurchased a total of 84 shares, at an average price of $23.72 (for a total of $1,994 inclusive of commission costs) pursuant to

36


 

the 2018 SRP.  $48,008 remains available under the 2018 SRP as of March 29, 2020.

Liquidity Summary

UNIFI has met its historical liquidity requirements for working capital, capital expenditures, debt service requirements and other operating needs from its cash flows from operations and available borrowings.  UNIFI believes that its existing cash balances, cash provided by operating activities, and borrowings available under the ABL Revolver will enable UNIFI to comply with the terms of its indebtedness and to meet its foreseeable liquidity requirements.  Domestically, UNIFI’s existing cash balances, cash provided by operating activities, and borrowings available under the ABL Revolver continue to be sufficient to fund UNIFI’s domestic operating activities as well as cash commitments for its investing and financing activities.  For its existing foreign operations, UNIFI expects its existing cash balances and cash provided by operating activities will provide the needed liquidity to fund its foreign operating activities and any foreign investing activities, such as future capital expenditures. However, expansion of our foreign operations may require cash sourced from our domestic subsidiaries.

Cash Provided by (Used in) Operating Activities

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

 

 

 

For the Nine Months Ended

 

 

 

March 29, 2020

 

 

March 31, 2019

 

Net (loss) income

 

$

(36,990

)

 

$

1,454

 

Equity in earnings of unconsolidated affiliates

 

 

(1,904

)

 

 

(3,126

)

Depreciation and amortization expense

 

 

17,685

 

 

 

17,242

 

Impairment of investment in unconsolidated affiliate

 

 

45,194

 

 

 

 

Non-cash compensation expense

 

 

2,510

 

 

 

2,758

 

Deferred income taxes

 

 

(10,029

)

 

 

(190

)

Subtotal

 

 

16,466

 

 

 

18,138

 

 

 

 

 

 

 

 

 

 

Distributions received from unconsolidated affiliates

 

 

10,437

 

 

 

1,380

 

Change in inventories

 

 

2,126

 

 

 

(13,409

)

Other changes in assets and liabilities

 

 

3,076

 

 

 

(7,626

)

Net cash provided by (used in) operating activities

 

$

32,105

 

 

$

(1,517

)

 

The increase in net cash provided by (used in) operating activities from the prior nine-month period was primarily due to (i) $10,437 of distributions received from PAL in the current nine-month period and (ii) the impact on working capital of a more favorable raw material cost environment.

Cash Used in Investing Activities and Financing Activities

UNIFI utilized $14,936 for investing activities and utilized $3,092 for financing activities during the current nine-month period.

Investing activities include $14,971 for capital expenditures, which primarily relate to ongoing maintenance capital expenditures along with production capabilities and technology enhancements in the Americas.

Financing activities include net payments against the ABL Facility and finance leases during fiscal 2020 and $1,994 for share repurchases.

Contractual Obligations

UNIFI has incurred various financial obligations and commitments in its normal course of business.  Financial obligations are considered to represent known future cash payments that UNIFI is required to make under existing contractual arrangements, such as debt and lease agreements.

Except for the finance leases that commenced during fiscal 2020, as disclosed in Note 4. “Leases,” there have been no material changes in the scheduled maturities of UNIFI’s contractual obligations as disclosed in the table under the heading “Contractual Obligations” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2019 Form 10-K.

Off-Balance Sheet Arrangements

UNIFI is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on UNIFI’s financial condition, results of operations, liquidity or capital expenditures.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  The SEC has defined a company’s most critical accounting policies as those involving accounting estimates that require management to make assumptions about matters that are highly uncertain at the time and where different reasonable estimates or changes in the accounting estimate from quarter to quarter could materially impact the presentation of the financial statements.  UNIFI’s critical accounting policies are discussed in the 2019 Form 10-K.  There were no material changes to these policies during the current nine-month period.

 

37


 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

UNIFI is exposed to market risks associated with changes in interest rates, fluctuations in foreign currency exchange rates, and raw material and commodity costs, which may adversely affect its financial position, results of operations or cash flows.  UNIFI does not enter into derivative financial instruments for trading purposes, nor is it a party to any leveraged financial instruments.

Interest Rate Risk

UNIFI is exposed to interest rate risk through its borrowing activities.  As of March 29, 2020, UNIFI had borrowings under its ABL Revolver and ABL Term Loan that totaled $120,900 and contain variable rates of interest; however, UNIFI hedges a significant portion of such interest rate variability using interest rate swaps.  After considering the variable rate debt obligations that have been hedged and UNIFI’s outstanding debt obligations with fixed rates of interest, UNIFI’s sensitivity analysis indicates that a 50-basis point increase in LIBOR as of March 29, 2020 would result in an increase in annual interest expense of less than $300.

Foreign Currency Exchange Rate Risk

UNIFI conducts its business in various foreign countries and in various foreign currencies.  Each of UNIFI’s subsidiaries may enter into transactions (sales, purchases, fixed purchase commitments, etc.) that are denominated in currencies other than the subsidiary’s functional currency and thereby expose UNIFI to foreign currency exchange rate risk.  UNIFI may enter into foreign currency forward contracts to hedge this exposure.  UNIFI may also enter into foreign currency forward contracts to hedge its exposure for certain equipment or inventory purchase commitments.  As of March 29, 2020, UNIFI had no outstanding foreign currency forward contracts.

A significant portion of raw materials purchased by UNIFI’s Brazilian subsidiary are denominated in USDs, requiring UNIFI to regularly exchange BRL. A significant portion of sales and asset balances for our Asian subsidiaries are denominated in USDs. During recent fiscal years, UNIFI was negatively impacted by a devaluation of the BRL.  Also, the RMB experienced fluctuations in value at times during fiscal 2020 and 2019, which generated foreign currency translation losses in certain fiscal quarters. Discussion and analysis surrounding the impact of the devaluation of the BRL and fluctuations in the value of the RMB on UNIFI’s results of operations are included above in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

As of March 29, 2020, UNIFI’s foreign subsidiaries, whose functional currency is other than the USD, held approximately 18.5% of UNIFI’s consolidated total assets. UNIFI does not enter into foreign currency derivatives to hedge its net investment in its foreign operations.

As of March 29, 2020, $27,398, or 82.0%, of UNIFI’s cash and cash equivalents was held outside the U.S., of which $9,742 was held in USD, $6,318 was held in RMB and $11,150 was held in BRL. Approximately $5,400 of USD were held inside the U.S. by a foreign subsidiary.

Raw Material and Commodity Risks

A significant portion of UNIFI’s raw material and energy costs are derived from petroleum-based chemicals.  The prices for petroleum and petroleum-related products and energy costs are volatile and dependent on global supply and demand dynamics, including certain geo-political risks.  A sudden rise in the price of petroleum and petroleum-based products could have a material impact on UNIFI’s profitability.  UNIFI does not use financial instruments to hedge its exposure to changes in these costs.  The costs of the primary raw materials that UNIFI uses throughout all of its operations are generally based on USD pricing, and such materials are purchased at market or at fixed prices that are established with individual vendors as part of the purchasing process for quantities expected to be consumed in the ordinary course of business.  UNIFI manages fluctuations in the cost of raw materials primarily by making corresponding adjustments to the prices charged to its customers.  Certain customers are subject to an index-based pricing model in which UNIFI’s prices are adjusted based on the change in the cost of raw materials in the prior fiscal quarter.  Pricing adjustments for other customers must be negotiated independently.  UNIFI attempts to pass on to its customers increases in raw material costs, but due to market pressures, this is not always possible. When price increases can be implemented, there is typically a time lag that adversely affects UNIFI and its margins during one or more quarters.  In ordinary market conditions in which raw material price increases have stabilized and sales volumes are consistent with traditional levels, UNIFI has historically been successful in implementing price adjustments within one to two fiscal quarters of the raw material price increase for its index priced customers and within two fiscal quarters of the raw material price increase for its non-index priced customers.

During the first nine months of fiscal 2020, UNIFI experienced a favorable, declining raw material cost environment, in contrast to a generally elevated raw material cost environment in fiscal 2019 and 2018. However, our raw material costs remain subject to the volatility described above and, should raw material costs spike unexpectedly, UNIFI’s results of operations and cash flows are likely to be adversely impacted.

Other Risks

UNIFI is also exposed to political risk, including changing laws and regulations governing international trade, such as quotas, tariffs and tax laws.  The degree of impact and the frequency of these events cannot be predicted.

Item 4.

Controls and Procedures

As of March 29, 2020, an evaluation of the effectiveness of UNIFI’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was performed under the supervision and with the participation of UNIFI’s management, including the principal executive officer and principal financial officer. Based on that evaluation, UNIFI’s principal executive officer and principal financial officer concluded that UNIFI’s disclosure controls and procedures are effective to ensure that information required to be disclosed by UNIFI in its reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that information required to be disclosed by UNIFI in the reports UNIFI files or submits under the Exchange Act is accumulated and communicated to UNIFI’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in UNIFI’s internal control over financial reporting during the three months ended March 29, 2020 that have materially affected, or are reasonably likely to materially affect, UNIFI’s internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

We are from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. With respect to all such lawsuits, claims and proceedings, we record reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. We do not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on our results of operations, financial position or cash flows. We maintain liability insurance for certain risks that is subject to certain self-insurance limits.

Item 1A.

Risk Factors

In addition to the risk factors previously disclosed in the 2019 Form 10-K, the following risk factor was identified:

Catastrophic or extraordinary events, including epidemics or pandemics such as the recent coronavirus disease (“COVID-19”), could disrupt global economic activity and/or demand and negatively impact our financial performance and results of operations.

In March 2020, the World Health Organization declared the current coronavirus disease (“COVID-19”) outbreak a global pandemic.

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 impacted and will continue to impact overall global demand and business activity negatively, especially 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 by prioritizing health and safety while delivering on customer demand, but we expect an adverse impact to the remainder of our fiscal 2020 and the first half of our fiscal 2021 based on the present factors and conditions.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Items 2(a) and (b) are not applicable.

(c) The following table summarizes UNIFI’s purchases of its common stock during the fiscal quarter ended March 29, 2020, all of which purchases were made under the 2018 SRP approved by the Board on October 31, 2018, under which UNIFI is authorized to acquire up to $50,000 of common stock.  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.

Period

 

Total Number of

Shares Purchased

 

 

Average Price

Paid per Share

 

 

Total Number of

Shares Purchased

as Part of Publicly

Announced Plans

or Programs

 

 

Maximum

Approximate

Dollar Value of

Shares that May

Yet Be Purchased

Under the Plans

or Programs

 

12/30/19 – 1/29/20

 

 

 

 

$

 

 

 

 

 

$

50,000

 

1/30/20 – 2/29/20

 

 

84

 

 

$

23.72

 

 

 

84

 

 

 

48,008

 

3/1/20 – 3/29/20

 

 

 

 

$

 

 

 

 

 

 

48,008

 

Total

 

 

84

 

 

$

23.72

 

 

 

84

 

 

 

 

 

Repurchases are subject to applicable limitations and requirements set forth in the ABL Facility. For additional information, including information regarding limitations on payment of dividends and share repurchases, see Note 13, “Long-Term Debt” contained in UNIFI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019.

 

39


 

Item 6.

Exhibits

 

Exhibit No.

 

Description

 

 

 

3.1

 

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

 

 

 

3.2

 

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

 

 

 

3.3

 

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

 

 

 

31.1+

 

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

 

31.2+

 

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

 

 

 

32.1++

 

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

 

 

 

32.2++

 

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

 

 

 

101+

 

The following financial information (unaudited) from Unifi, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 29, 2020, filed May 7, 2020, formatted in eXtensible Business Reporting Language: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Loss, (iv) the Condensed Consolidated Statements of Shareholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.

 

+

Filed herewith.

++

Furnished herewith.

 

40


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

UNIFI, INC.

 

 

(Registrant)

 

 

 

 

Date: May 7, 2020

 

By:

/s/ CRAIG A. CREATURO

 

 

 

Craig A. Creaturo

 

 

 

Executive Vice President & Chief Financial Officer

 

 

 

(Principal Financial Officer and Principal

Accounting Officer)

 

 

41