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UFI UNIFI

Filed: 5 May 21, 8:30am

 

 

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 28, 2021

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 April 30, 2021, there were 18,490,338 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 (“COVID-19”);

 

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; 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 28, 2020 or in the Company’s other periodic reports and information filed with the Securities and Exchange Commission (“SEC”).

All such factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control.  New factors emerge from time to time, and it is not possible for management to predict all such factors or to assess the impact of each such factor on the Company.  Any forward-looking statement speaks only as of the date on which such statement is made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, except as may be required by federal securities 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 28, 2021

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Page

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 28, 2021 and June 28, 2020

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended March 28, 2021 and March 29, 2020

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Nine Months Ended March 28, 2021 and March 29, 2020

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months and Nine Months Ended March  28, 2021 and March 29, 2020

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 28, 2021 and March 29, 2020

 

5

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

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

 

17

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

35

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

37

 

PART II—OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

38

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

38

 

 

 

 

 

Item 6.

 

Exhibits

 

38

 

 

 

 

 

 

 

Signatures

 

39

 

 

 

 

 

 

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

March 28, 2021

 

 

June 28, 2020

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

75,598

 

 

$

75,267

 

Receivables, net

 

 

96,988

 

 

 

53,726

 

Inventories

 

 

122,004

 

 

 

109,704

 

Income taxes receivable

 

 

9,594

 

 

 

4,033

 

Other current assets

 

 

8,475

 

 

 

11,763

 

Total current assets

 

 

312,659

 

 

 

254,493

 

Property, plant and equipment, net

 

 

196,762

 

 

 

204,246

 

Operating lease assets

 

 

9,009

 

 

 

8,940

 

Deferred income taxes

 

 

2,344

 

 

 

2,352

 

Other non-current assets

 

 

7,598

 

 

 

4,131

 

Total assets

 

$

528,372

 

 

$

474,162

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

47,645

 

 

$

25,610

 

Accrued expenses

 

 

27,145

 

 

 

13,689

 

Income taxes payable

 

 

10,245

 

 

 

349

 

Current operating lease liabilities

 

 

1,849

 

 

 

1,783

 

Current portion of long-term debt

 

 

13,726

 

 

 

13,563

 

Total current liabilities

 

 

100,610

 

 

 

54,994

 

Long-term debt

 

 

75,134

 

 

 

84,607

 

Non-current operating lease liabilities

 

 

7,264

 

 

 

7,251

 

Other long-term liabilities

 

 

8,811

 

 

 

8,606

 

Deferred income taxes

 

 

956

 

 

 

2,549

 

Total liabilities

 

 

192,775

 

 

 

158,007

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.10 par value (500,000,000 shares authorized; 18,490,338 and 18,446,436

   shares issued and outstanding as of March 28, 2021 and June 28, 2020, respectively)

 

 

1,849

 

 

 

1,845

 

Capital in excess of par value

 

 

64,686

 

 

 

62,392

 

Retained earnings

 

 

331,378

 

 

 

315,724

 

Accumulated other comprehensive loss

 

 

(62,316

)

 

 

(63,806

)

Total shareholders’ equity

 

 

335,597

 

 

 

316,155

 

Total liabilities and shareholders’ equity

 

$

528,372

 

 

$

474,162

 

 

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 28, 2021

 

 

March 29, 2020

 

 

March 28, 2021

 

 

March 29, 2020

 

Net sales

 

$

178,866

 

 

$

170,994

 

 

$

483,147

 

 

$

520,454

 

Cost of sales

 

 

153,271

 

 

 

155,611

 

 

 

417,057

 

 

 

471,963

 

Gross profit

 

 

25,595

 

 

 

15,383

 

 

 

66,090

 

 

 

48,491

 

Selling, general and administrative

  expenses

 

 

14,581

 

 

 

11,720

 

 

 

38,570

 

 

 

35,208

 

(Benefit) provision for bad debts

 

 

(184

)

 

 

580

 

 

 

(1,330

)

 

 

331

 

Other operating expense (income), net

 

 

2,582

 

 

 

(62

)

 

 

4,236

 

 

 

900

 

Operating income

 

 

8,616

 

 

 

3,145

 

 

 

24,614

 

 

 

12,052

 

Interest income

 

 

(159

)

 

 

(173

)

 

 

(471

)

 

 

(595

)

Interest expense

 

 

885

 

 

 

1,231

 

 

 

2,589

 

 

 

3,589

 

Equity in earnings of

  unconsolidated affiliates

 

 

(528

)

 

 

(3,526

)

 

 

(751

)

 

 

(1,904

)

Impairment of investment in

  unconsolidated affiliate

 

 

 

 

 

45,194

 

 

 

 

 

 

45,194

 

Income (loss) before income taxes

 

 

8,418

 

 

 

(39,581

)

 

 

23,247

 

 

 

(34,232

)

Provision for income taxes

 

 

3,660

 

 

 

1,530

 

 

 

7,593

 

 

 

2,758

 

Net income (loss)

 

$

4,758

 

 

$

(41,111

)

 

$

15,654

 

 

$

(36,990

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

Basic

 

$

0.26

 

 

$

(2.23

)

 

$

0.85

 

 

$

(2.00

)

Diluted

 

$

0.25

 

 

$

(2.23

)

 

$

0.83

 

 

$

(2.00

)

 

See accompanying notes to condensed consolidated financial statements.

 


2


 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

 

March 28, 2021

 

 

March 29, 2020

 

Net income (loss)

 

$

4,758

 

 

$

(41,111

)

 

$

15,654

 

 

$

(36,990

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(4,996

)

 

 

(17,270

)

 

 

734

 

 

 

(20,350

)

Changes in interest rate swaps, net of tax of

   $77, $434, $233 and $434, respectively

 

 

247

 

 

 

(1,449

)

 

 

756

 

 

 

(1,488

)

Other comprehensive (loss) income, net

 

 

(4,749

)

 

 

(18,719

)

 

 

1,490

 

 

 

(21,838

)

Comprehensive income (loss)

 

$

9

 

 

$

(59,830

)

 

$

17,144

 

 

$

(58,828

)

 

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 27, 2020

 

 

18,481

 

 

$

1,848

 

 

$

63,972

 

 

$

326,620

 

 

$

(57,567

)

 

$

334,873

 

Options exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of restricted stock units

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

4

 

 

 

1

 

 

 

761

 

 

 

 

 

 

 

 

 

762

 

Common stock withheld in satisfaction of tax

  withholding obligations under net share settle

  transactions

 

 

(2

)

 

 

 

 

 

(47

)

 

 

 

 

 

 

 

 

(47

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,749

)

 

 

(4,749

)

Net income

 

 

 

 

 

 

 

 

 

 

 

4,758

 

 

 

 

 

 

4,758

 

Balance at March 28, 2021

 

 

18,490

 

 

$

1,849

 

 

$

64,686

 

 

$

331,378

 

 

$

(62,316

)

 

$

335,597

 

 

 

 

Shares

 

 

Common Stock

 

 

Capital in Excess of Par Value

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Loss

 

 

Total Shareholders’ Equity

 

Balance at June 28, 2020

 

 

18,446

 

 

$

1,845

 

 

$

62,392

 

 

$

315,724

 

 

$

(63,806

)

 

$

316,155

 

Options exercised

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of restricted stock units

 

 

45

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

4

 

 

 

1

 

 

 

2,409

 

 

 

 

 

 

 

 

 

2,410

 

Common stock withheld in satisfaction of tax

  withholding obligations under net share settle

  transactions

 

 

(6

)

 

 

(1

)

 

 

(111

)

 

 

 

 

 

 

 

 

(112

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,490

 

 

 

1,490

 

Net income

 

 

 

 

 

 

 

 

 

 

 

15,654

 

 

 

 

 

 

15,654

 

Balance at March 28, 2021

 

 

18,490

 

 

$

1,849

 

 

$

64,686

 

 

$

331,378

 

 

$

(62,316

)

 

$

335,597

 

 

 

 

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

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

For the Nine Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

Cash and cash equivalents at beginning of period

 

$

75,267

 

 

$

22,228

 

Operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

 

15,654

 

 

 

(36,990

)

Adjustments to reconcile net income (loss) to net cash

   provided by operating activities:

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated affiliates

 

 

(751

)

 

 

(1,904

)

Distributions received from unconsolidated affiliate

 

 

 

 

 

10,437

 

Depreciation and amortization expense

 

 

19,007

 

 

 

17,685

 

Impairment of investment in unconsolidated affiliate

 

 

 

 

 

45,194

 

Non-cash compensation expense

 

 

2,656

 

 

 

2,510

 

Deferred income taxes

 

 

(1,826

)

 

 

(10,029

)

Loss on disposal of assets

 

 

2,773

 

 

 

172

 

Other, net

 

 

(356

)

 

 

(343

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables, net

 

 

(43,034

)

 

 

(2,295

)

Inventories

 

 

(11,825

)

 

 

2,126

 

Other current assets

 

 

3,482

 

 

 

(3,020

)

Income taxes

 

 

4,277

 

 

 

8,849

 

Accounts payable and accrued expenses

 

 

33,033

 

 

 

(488

)

Other, net

 

 

2,620

 

 

 

201

 

Net cash provided by operating activities

 

 

25,710

 

 

 

32,105

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(12,071

)

 

 

(14,971

)

Purchases of intangible assets

 

 

(3,605

)

 

 

 

Other, net

 

 

153

 

 

 

35

 

Net cash used by investing activities

 

 

(15,523

)

 

 

(14,936

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from ABL Revolver

 

 

 

 

 

79,000

 

Payments on ABL Revolver

 

 

 

 

 

(67,500

)

Payments on ABL Term Loan

 

 

(7,500

)

 

 

(7,500

)

Payments on finance lease obligations

 

 

(2,727

)

 

 

(4,606

)

Common stock repurchased and retired under publicly announced program

 

 

 

 

 

(1,994

)

Other, net

 

 

(111

)

 

 

(492

)

Net cash used by financing activities

 

 

(10,338

)

 

 

(3,092

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

482

 

 

 

(2,912

)

Net increase in cash and cash equivalents

 

 

331

 

 

 

11,165

 

Cash and cash equivalents at end of period

 

$

75,598

 

 

$

33,393

 

 

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 multinational 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 products include partially oriented yarn (“POY”), textured, solution and package dyed, twisted, beamed and draw wound yarns, and each is available in virgin or recycled varieties.  Nylon products include virgin or recycled textured, solution dyed and spandex covered yarns. Recycled solutions, made from both pre-consumer and post-consumer waste, include plastic bottle flake (“Flake”) made from polyester, and polymer beads (“Chip”) and staple fiber made from polyester or nylon.

UNIFI maintains one of the textile industry’s most comprehensive product offerings that includes a range of specialized, value-added and commodity solutions, with principal geographic markets in the Americas, Asia and Europe. UNIFI has direct manufacturing operations in 4 countries and participates in joint ventures with operations in Israel and the United States (“U.S.”).

 

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 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 28, 2020 (the “2020 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 28, 2021. Unifi, Inc.’s remaining material operating subsidiaries’ fiscal quarter ended on March 31, 2021. There were no significant transactions or events that occurred between Unifi, Inc.’s fiscal quarter end and such wholly owned subsidiaries’ subsequent fiscal quarter end. The three-month periods ended March 28, 2021 and March 29, 2020 both consisted of 13 weeks. The nine-month periods ended March 28, 2021 and March 29, 2020 both consisted of 39 weeks.  

3.  Recent Accounting Pronouncements

Recently Adopted

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses, with an effective date consistent with UNIFI’s fiscal 2021. The new guidance requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected and eliminates the probable initial recognition threshold to instead reflect an entity’s current estimate of all expected credit losses. UNIFI adopted the ASU in fiscal 2021 using the modified retrospective approach and the adoption did not have a material impact to UNIFI’s financial position or results of operations.

Based on UNIFI’s review of ASUs issued since the filing of the 2020 Form 10-K, there have been no other newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a material impact on UNIFI’s consolidated financial statements.

 

4.  Revenue Recognition

The following tables present net sales grouped by (i) classification of sales type and (ii) REPREVE® Fiber sales:

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

 

March 28, 2021

 

 

March 29, 2020

 

Third-party manufacturer

 

$

176,100

 

 

$

169,033

 

 

$

475,087

 

 

$

514,590

 

Service

 

 

2,766

 

 

 

1,961

 

 

 

8,060

 

 

 

5,864

 

Net sales

 

$

178,866

 

 

$

170,994

 

 

$

483,147

 

 

$

520,454

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

 

March 28, 2021

 

 

March 29, 2020

 

REPREVE® Fiber

 

$

59,171

 

 

$

49,091

 

 

$

169,689

 

 

$

162,469

 

All other products and services

 

 

119,695

 

 

 

121,903

 

 

 

313,458

 

 

 

357,985

 

Net sales

 

$

178,866

 

 

$

170,994

 

 

$

483,147

 

 

$

520,454

 

6


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

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.

REPREVE® Fiber

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

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. For fiscal 2021, 2020 and 2019, variable consideration has been immaterial to UNIFI’s financial statements.

 

5.  Receivables, Net

Receivables, net consists of the following:

 

 

 

March 28, 2021

 

 

June 28, 2020

 

Customer receivables

 

$

83,436

 

 

$

53,307

 

Allowance for uncollectible accounts

 

 

(2,433

)

 

 

(3,796

)

Reserves for quality claims

 

 

(708

)

 

 

(928

)

Net customer receivables

 

 

80,295

 

 

 

48,583

 

Other receivables

 

 

16,693

 

 

 

5,143

 

Total receivables, net

 

$

96,988

 

 

$

53,726

 

 

Other receivables includes $14,043 of banker’s acceptance notes (“BANs”) as of March 28, 2021 in connection with the settlement of certain customer receivables generated from trade activity in the Asia Segment. The BANs are redeemable upon maturity from the drawing financial institutions, or earlier at a discount. BANs of $1,596 previously reflected in customer receivables as of June 28, 2020 have been reclassified to other receivables to conform to the current presentation.

 

6.  Inventories

Inventories consists of the following:

 

 

 

March 28, 2021

 

 

June 28, 2020

 

Raw materials

 

$

44,392

 

 

$

42,758

 

Supplies

 

 

9,677

 

 

 

9,294

 

Work in process

 

 

7,875

 

 

 

6,267

 

Finished goods

 

 

62,690

 

 

 

55,609

 

Gross inventories

 

 

124,634

 

 

 

113,928

 

Net realizable value adjustment

 

 

(2,630

)

 

 

(4,224

)

Total inventories

 

$

122,004

 

 

$

109,704

 

 

7


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

7.  Other Current Assets

 

Other current assets consists of the following:

 

 

 

March 28, 2021

 

 

June 28, 2020

 

Vendor deposits

 

$

3,326

 

 

$

2,349

 

Value-added taxes receivable

 

 

2,132

 

 

 

2,604

 

Contract assets

 

 

277

 

 

 

4,953

 

Prepaid expenses and other

 

 

2,740

 

 

 

1,857

 

Total other current assets

 

$

8,475

 

 

$

11,763

 

 

8.  Property, Plant and Equipment, Net

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

 

 

 

March 28, 2021

 

 

June 28, 2020

 

Land

 

$

3,146

 

 

$

3,154

 

Land improvements

 

 

16,371

 

 

 

16,344

 

Buildings and improvements

 

 

158,571

 

 

 

158,025

 

Assets under finance leases

 

 

22,000

 

 

 

29,857

 

Machinery and equipment

 

 

605,668

 

 

 

602,867

 

Computers, software and office equipment

 

 

23,250

 

 

 

22,677

 

Transportation equipment

 

 

10,403

 

 

 

7,806

 

Construction in progress

 

 

11,399

 

 

 

7,582

 

Gross PP&E

 

 

850,808

 

 

 

848,312

 

Less: accumulated depreciation

 

 

(648,584

)

 

 

(636,221

)

Less: accumulated amortization – finance leases

 

 

(5,462

)

 

 

(7,845

)

Total PP&E, net

 

$

196,762

 

 

$

204,246

 

 

9.  Accrued Expenses

Accrued expenses consists of the following:

 

 

 

March 28, 2021

 

 

June 28, 2020

 

Incentive compensation

 

$

11,557

 

 

$

777

 

Payroll and fringe benefits

 

 

7,247

 

 

 

7,259

 

Deferred revenue

 

 

2,976

 

 

 

1,279

 

Supplemental post-employment plan

 

 

1,085

 

 

 

5

 

Severance

 

 

446

 

 

 

1,083

 

Other

 

 

3,834

 

 

 

3,286

 

Total accrued expenses

 

$

27,145

 

 

$

13,689

 

 

10.  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 28, 2021

 

March 28, 2021

 

 

June 28, 2020

 

ABL Revolver

 

December 2023

 

 

0.0

%

 

 

$

 

 

$

 

ABL Term Loan

 

December 2023

 

 

3.3

%

(1)

 

 

80,000

 

 

 

87,500

 

Finance lease obligations

 

(2)

 

 

3.6

%

 

 

 

9,394

 

 

 

11,381

 

Total debt

 

 

 

 

 

 

 

 

 

89,394

 

 

 

98,881

 

Current ABL Term Loan

 

 

 

 

 

 

 

 

 

(10,000

)

 

 

(10,000

)

Current portion of finance lease obligations

 

 

 

 

 

 

 

 

 

(3,726

)

 

 

(3,563

)

Unamortized debt issuance costs

 

 

 

 

 

 

 

 

 

(534

)

 

 

(711

)

Total long-term debt

 

 

 

 

 

 

 

 

$

75,134

 

 

$

84,607

 

 

(1)

Includes the effects of interest rate swaps.

(2)

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

8


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

On December 18, 2018, Unifi, Inc. and certain of its subsidiaries entered into a Third Amendment to Amended and Restated Credit Agreement and Second Amendment to Amended and Restated Guaranty and Security Agreement (the “2018 Amendment”).  The 2018 Amendment amended the Amended and Restated Credit Agreement, dated as of March 26, 2015, by and among Unifi, Inc. and a syndicate of lenders, as previously amended (together with all previous and subsequent amendments, the “Credit Agreement”).  The Credit Agreement provides for a $200,000 senior secured credit facility (the “ABL Facility”), including a $100,000 revolving credit facility (the “ABL Revolver”) and a term loan that can be reset up to a maximum amount of $100,000, once per fiscal year, if certain conditions are met (the “ABL Term Loan”). The ABL Facility has a maturity date of December 18, 2023.

ABL Facility borrowings bear interest at LIBOR plus an applicable margin of 1.25% to 1.75%, or the Base Rate (as defined in the Credit Agreement) plus an applicable margin of 0.25% to 0.75%, with interest currently being paid on a monthly basis. As of March 28, 2021 and June 28, 2020, ABL Facility borrowings carried interest at LIBOR plus 1.50%.

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

Scheduled Debt Maturities

The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the remainder of fiscal 2021, the following four fiscal years and thereafter:

 

 

 

Fiscal 2021

 

 

Fiscal 2022

 

 

Fiscal 2023

 

 

Fiscal 2024

 

 

Fiscal 2025

 

 

Thereafter

 

ABL Revolver

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

ABL Term Loan

 

 

2,500

 

 

 

10,000

 

 

 

10,000

 

 

 

57,500

 

 

 

 

 

 

 

Finance lease obligations

 

 

919

 

 

 

3,545

 

 

 

1,257

 

 

 

1,301

 

 

 

1,195

 

 

 

1,177

 

Total

 

$

3,419

 

 

$

13,545

 

 

$

11,257

 

 

$

58,801

 

 

$

1,195

 

 

$

1,177

 

 

11.  Other Long-Term Liabilities

Other long-term liabilities consists of the following:

 

 

 

March 28, 2021

 

 

June 28, 2020

 

Uncertain tax positions

 

$

2,906

 

 

$

1,112

 

Supplemental post-employment plan

 

 

2,014

 

 

 

3,019

 

Interest rate swaps

 

 

1,562

 

 

 

2,551

 

Other

 

 

2,329

 

 

 

1,924

 

Total other long-term liabilities

 

$

8,811

 

 

$

8,606

 

 

12.  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 28, 2021

 

 

March 29, 2020

 

 

March 28, 2021

 

 

March 29, 2020

 

Provision for income taxes

 

$

3,660

 

 

$

1,530

 

 

$

7,593

 

 

$

2,758

 

Effective tax rate

 

 

43.5

%

 

 

(3.9

)%

 

 

32.7

%

 

 

(8.1

)%

U.S. Tax Law Change

On July 20, 2020, the U.S. Treasury issued and enacted final regulations related to global intangible low-tax income (“GILTI”) that allow certain U.S. taxpayers to elect to exclude foreign income that is subject to a high effective tax rate from their GILTI inclusions. The GILTI high-tax exclusion is an annual election and is retroactively available for tax years beginning after December 31, 2017. The three-month and nine-month periods ended March 28, 2021 include discrete tax expense (benefit) of $273 and $(4,874), respectively, related to the retroactive election.

Valuation Allowance

UNIFI regularly assesses whether it is more-likely-than-not that some portion or all of its deferred tax assets will not be realized.  UNIFI considers the scheduled reversal of taxable temporary differences, taxable income in carryback years, projected future taxable income and tax planning strategies in making this assessment.  Since UNIFI operates in multiple jurisdictions, the assessment is made on a jurisdiction-by-jurisdiction basis, taking into account the effects of local tax law.

As a result of the newly enacted GILTI regulations, and their impact on prior tax periods, UNIFI does not expect to realize the full benefit of its U.S. federal net operating loss and research credit carryforwards. The three-month and nine-month periods ended March 28, 2021 include tax (benefit) expense of $(133) and $1,508, respectively, related to the change in valuation allowance on these deferred tax assets.

9


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

Income Tax Expense

 

UNIFI’s provision for income taxes for the nine months ended March 28, 2021 and March 29, 2020 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 discretely in the interim period in which they occur.

The effective tax rate for the three months ended March 28, 2021 was higher than the U.S. federal statutory rate primarily due to current U.S. tax on GILTI, and earnings taxed at higher rates in foreign jurisdictions. These rate impacts were partially offset by additional research credits claimed during the period. The effective tax rate for the nine months ended March 28, 2021 was higher than the U.S. federal statutory rate primarily due to current U.S. tax on GILTI, the change in valuation allowance for deferred tax assets, and earnings taxed at higher rates in foreign jurisdictions. These rate impacts were partially offset by the retroactive GILTI high-tax exclusion for prior periods, and additional R&D credits claimed during the current period.

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.

Unrecognized Tax Benefits

The amount of unrecognized tax benefits for uncertain tax positions as of March 28, 2021 and June 28, 2020 was $2,899 and $1,218, respectively. Unrecognized benefits would generate a favorable impact of $2,063 on UNIFI’s effective tax rate when recognized. UNIFI does not expect material changes in unrecognized tax benefits within the next 12 months.

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.

 

13.  Shareholders’ Equity

On October 31, 2018, UNIFI announced that its Board of Directors (the “Board”) 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 may be made from time to time in the open market at prevailing market prices, through private transactions or block trades. The timing and amount of repurchases will depend on market conditions, share price, applicable legal requirements and other factors. The share repurchase authorization is discretionary and has no expiration date. Repurchases, if any, are expected to be financed through cash generated from operations and borrowings under the ABL Revolver, and are subject to applicable limitations and restrictions as set forth in the ABL Facility. UNIFI may discontinue repurchases at any time that management determines additional purchases are not beneficial or advisable.

 

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

 

 

84

 

 

$

23.72

 

 

 

 

 

Fiscal 2021 (through March 28, 2021)

 

 

 

 

$

 

 

 

 

 

Total

 

 

84

 

 

$

23.72

 

 

$

48,008

 

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

10


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

14.  Stock-Based Compensation

On October 24, 2018, the Unifi, Inc. Amended and Restated 2013 Incentive Compensation Plan (the “2018 Plan”) became effective, upon approval by shareholders at UNIFI’s annual meeting of shareholders held on October 31, 2018.  The 2018 Plan set the number of shares available for future issuance pursuant to awards granted under the 2018 Plan to 1,250 and updated certain provisions for changes to Section 162(m) of the Internal Revenue Code of 1986, as amended.

On October 29, 2020, UNIFI’s shareholders approved the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (the “2020 Plan”). The 2020 Plan set the number of shares available for future issuance pursuant to awards granted under the 2020 Plan to 850.  No additional awards can be granted under the 2018 Plan or other prior plans; however, awards outstanding under a respective prior plan remain subject to that plan’s provisions.

The following table provides information as of March 28, 2021 with respect to the number of securities remaining available for future issuance under the 2020 Plan:

Authorized under the 2020 Plan

 

 

850

 

Plus: Awards expired, forfeited or otherwise terminated unexercised

 

 

 

Less: Awards granted to employees

 

 

(75

)

Less: Awards granted to non-employee directors

 

 

(4

)

Available for issuance under the 2020 Plan

 

 

771

 

 

Stock-based compensation units granted or issued from the 2018 Plan and/or 2020 Plan were as follows:

 

 

For the Nine Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

Stock options

 

 

155

 

 

 

83

 

Restricted stock units

 

 

110

 

 

 

77

 

Vested share units

 

 

 

 

 

24

 

Common stock

 

 

4

 

 

 

4

 

 

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

UNIFI uses derivative financial instruments such as foreign currency forward contracts or interest rate swaps to reduce its ongoing business exposures to fluctuations in foreign currency exchange rates or interest rates.  UNIFI currently maintains 3 interest rate swaps that fix LIBOR at approximately 1.9% on $75,000 of variable-rate debt. UNIFI does not enter into derivative contracts for speculative purposes.

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

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

 

March 28, 2021

 

 

March 29, 2020

 

Interest expense

 

$

885

 

 

$

1,231

 

 

$

2,589

 

 

$

3,589

 

(Increase) decrease in fair value of interest rate

   swaps

 

 

(324

)

 

 

1,883

 

 

 

(989

)

 

 

1,922

 

Impact of interest rate swaps to increase (decrease)

   interest expense

 

 

339

 

 

 

41

 

 

 

1,003

 

 

 

(7

)

 

For the nine months ended March 28, 2021 and March 29, 2020, there were no significant changes to UNIFI’s assets and liabilities measured at fair value, and there were 0 transfers into or out of the levels of the fair value hierarchy.

 

UNIFI 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.

 

16.  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 28, 2020

 

$

(61,848

)

 

$

(1,958

)

 

$

(63,806

)

Other comprehensive income

 

 

734

 

 

 

756

 

 

 

1,490

 

Balance at March 28, 2021

 

$

(61,114

)

 

$

(1,202

)

 

$

(62,316

)

11


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

 

A summary of the after-tax effects of the components of other comprehensive income (loss), net for the three-month and nine-month periods ended March 28, 2021 and March 29, 2020 is included in the accompanying condensed consolidated statements of comprehensive income (loss).

 

17.  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 28, 2021

 

 

March 29, 2020

 

 

March 28, 2021

 

 

March 29, 2020

 

Net income (loss)

 

$

4,758

 

 

$

(41,111

)

 

$

15,654

 

 

$

(36,990

)

Basic weighted average shares

 

 

18,485

 

 

 

18,475

 

 

 

18,465

 

 

 

18,485

 

Net potential common share equivalents

 

 

482

 

 

 

 

 

 

331

 

 

 

 

Diluted weighted average shares

 

 

18,967

 

 

 

18,475

 

 

 

18,796

 

 

 

18,485

 

Excluded from the calculation of common share equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive common share equivalents

 

 

287

 

 

 

403

 

 

 

557

 

 

 

371

 

Excluded from the calculation of diluted shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested stock options that vest upon achievement

  of certain market conditions

 

 

333

 

 

 

 

 

 

333

 

 

 

 

 

The calculation of EPS is based on the weighted average number of Unifi, Inc.’s common shares outstanding for the applicable period.  The calculation of diluted EPS presents the effect of all potential dilutive common shares that were outstanding during the respective period, unless the effect of doing so is anti-dilutive.

 

18.  Investments in Unconsolidated Affiliates and Variable Interest Entities

As of March 28, 2021, UNIFI maintained investments in 2 entities classified as unconsolidated affiliates: U.N.F. Industries, Ltd. (“UNF”); and UNF America LLC (“UNFA”) (collectively known as “UNFs”). UNIFI’s combined investment in UNFs was $2,847, reflected within other non-current assets in the accompanying condensed consolidated balance sheets.

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 28, 2021, UNIFI’s open purchase orders related to this supply agreement were $10,111.

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

 

 

 

For the Nine Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

UNFA

 

$

13,677

 

 

$

13,219

 

UNF

 

 

548

 

 

 

1,343

 

Total

 

$

14,225

 

 

$

14,562

 

 

As of March 28, 2021 and June 28, 2020, UNIFI had combined accounts payable due to UNF and UNFA of $3,294 and $1,166, 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 (i) UNIFI purchases substantially all of the output from the two entities, (ii) the two entities’ balance sheets constitute 3% or less of UNIFI’s current assets, total assets and total liabilities, and (iii) such balances are not expected to comprise a larger portion in the future, UNIFI has not included the accounts of UNF and UNFA in its consolidated financial statements.  The financial results of UNF and UNFA are included in UNIFI’s consolidated financial statements with a one-month lag, using the equity method of accounting and with intercompany profits eliminated in accordance with UNIFI’s accounting policy.  Other than the supply agreement discussed above, UNIFI does not provide any other commitments or guarantees related to either UNF or UNFA.

12


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

Parkdale America, LLC

Parkdale America, LLC (“PAL”) is a limited liability company treated as a partnership for income tax reporting purposes and in which UNIFI held a 34% ownership interest (the “PAL Investment”) until UNIFI sold the investment on April 29, 2020. UNIFI accounted for the PAL Investment using the equity method of accounting and, because PAL was deemed a significant subsidiary in certain prior fiscal years, comparative prior year data is presented separately below.

Condensed balance sheet and income statement information for UNIFI’s unconsolidated affiliates (including reciprocal balances) are presented in the tables below.

 

 

 

As of March 28, 2021

 

 

As of June 28, 2020

 

 

 

PAL

 

 

UNFs

 

 

Total

 

 

PAL

 

 

UNFs

 

 

Total

 

Current assets

 

$

 

 

$

8,473

 

 

$

8,473

 

 

$

 

 

$

5,190

 

 

$

5,190

 

Non-current assets

 

 

 

 

 

693

 

 

 

693

 

 

 

 

 

 

561

 

 

 

561

 

Current liabilities

 

 

 

 

 

3,472

 

 

 

3,472

 

 

 

 

 

 

1,415

 

 

 

1,415

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity and capital

   accounts

 

 

 

 

 

5,694

 

 

 

5,694

 

 

 

 

 

 

4,336

 

 

 

4,336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UNIFI’s portion of undistributed

   earnings

 

 

 

 

 

2,486

 

 

 

2,486

 

 

 

 

 

 

1,424

 

 

 

1,424

 

 

 

 

For the Three Months Ended March 28, 2021

 

 

For the Three Months Ended March 29, 2020

 

 

 

PAL

 

 

UNFs

 

 

Total

 

 

PAL

 

 

UNFs

 

 

Total

 

Net sales

 

$

 

 

$

5,983

 

 

$

5,983

 

 

$

170,854

 

 

$

4,076

 

 

$

174,930

 

Gross profit

 

 

 

 

 

1,047

 

 

 

1,047

 

 

 

12,182

 

 

 

392

 

 

 

12,574

 

Income from operations

 

 

 

 

 

629

 

 

 

629

 

 

 

7,747

 

 

 

8

 

 

 

7,755

 

Net income

 

 

 

 

 

630

 

 

 

630

 

 

 

9,811

 

 

 

74

 

 

 

9,885

 

Depreciation and amortization

 

 

 

 

 

38

 

 

 

38

 

 

 

8,647

 

 

 

23

 

 

 

8,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash received by PAL under

   cotton rebate program

 

 

 

 

 

 

 

 

 

 

 

3,210

 

 

 

 

 

 

3,210

 

Earnings recognized by PAL for

   cotton rebate program

 

 

 

 

 

 

 

 

 

 

 

3,215

 

 

 

 

 

 

3,215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions received

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended March 28, 2021

 

 

For the Nine Months Ended March 29, 2020

 

 

 

PAL

 

 

UNFs

 

 

Total

 

 

PAL

 

 

UNFs

 

 

Total

 

Net sales

 

$

 

 

$

13,847

 

 

$

13,847

 

 

$

531,669

 

 

$

14,212

 

 

$

545,881

 

Gross profit

 

 

 

 

 

2,580

 

 

 

2,580

 

 

 

13,067

 

 

 

1,745

 

 

 

14,812

 

Income (loss) from operations

 

 

 

 

 

1,348

 

 

 

1,348

 

 

 

(554

)

 

 

497

 

 

 

(57

)

Net income

 

 

 

 

 

1,353

 

 

 

1,353

 

 

 

3,893

 

 

 

581

 

 

 

4,474

 

Depreciation and amortization

 

 

 

 

 

116

 

 

 

116

 

 

 

30,671

 

 

 

113

 

 

 

30,784

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash received by PAL under

   cotton rebate program

 

 

 

 

 

 

 

 

 

 

 

10,366

 

 

 

 

 

 

10,366

 

Earnings recognized by PAL for

   cotton rebate program

 

 

 

 

 

 

 

 

 

 

 

9,569

 

 

 

 

 

 

9,569

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions received

 

 

 

 

 

 

 

 

 

 

 

10,437

 

 

 

 

 

 

10,437

 

 

 

19.  Commitments and Contingencies

Collective Bargaining Agreements

While employees of UNIFI’s Brazilian operations are unionized, none of the labor force employed by UNIFI’s domestic or other foreign subsidiaries is currently covered by a collective bargaining agreement.

Environmental

On September 30, 2004, Unifi 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

13


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

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. At this time, UNIFI does not expect any active site remediation will be required but expects that any costs associated with active site remediation, if ever required, would likely be immaterial.

 

20.  Related Party Transactions

There were 0 related party receivables as of March 28, 2021 or June 28, 2020.

 

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

 

 

 

March 28, 2021

 

 

June 28, 2020

 

Accounts payable

 

$

460

 

 

$

616

 

Operating lease obligations

 

 

1,221

 

 

 

1,481

 

Finance lease obligations

 

 

6,441

 

 

 

6,509

 

Total related party payables

 

$

8,122

 

 

$

8,606

 

 

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

 

 

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

Affiliated Entity

 

Transaction Type

 

March 28, 2021

 

 

March 29, 2020

 

 

March 28, 2021

 

 

March 29, 2020

 

Salem Leasing Corporation

 

Payments for transportation equipment costs and finance lease debt service

 

$

1,236

 

 

$

985

 

 

$

3,099

 

 

$

3,101

 

 

21.  Business Segment Information

UNIFI defines operating segments as components of the organization for which discrete financial information is available and operating results are evaluated on a regular basis by UNIFI’s principal executive officer, who is the chief operating decision maker (the “CODM”), in order to assess performance and allocate resources. Characteristics of UNIFI which were relied upon in making the determination of reportable segments include the nature of the products sold, the internal organizational structure, the trade policies in the geographic regions in which UNIFI operates and the information that is regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.

UNIFI’s operating segments are aggregated into 4 reportable segments (the Polyester Segment, the Asia Segment, the Brazil Segment and the Nylon 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 United States-Mexico-Canada Agreement (“USMCA”), North American Free Trade Agreement (“NAFTA”) and 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 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 a sales office in China.

 

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

 

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

14


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

Mexico utilizing similar methods of distribution.  The Nylon Segment consists of sales and manufacturing operations in the U.S. and Colombia.

In addition to UNIFI’s reportable segments, an All Other category is included in the tables below. 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 (loss) plus segment depreciation expense.  This measurement of segment profit or loss best aligns segment reporting with the current assessments and evaluations performed by, and information provided to, the CODM.

The accounting policies for the segments are consistent with UNIFI’s accounting policies.  Intersegment sales are omitted from segment disclosures, as they are (i) insignificant to UNIFI’s segments and eliminated from consolidated reporting and (ii) excluded from segment evaluations performed by the CODM.

Selected financial information is presented below:

 

 

 

For the Three Months Ended March 28, 2021

 

 

 

Polyester

 

 

Asia

 

 

Brazil

 

 

Nylon

 

 

All Other

 

 

Total

 

Net sales

 

$

82,668

 

 

$

48,483

 

 

$

25,704

 

 

$

20,778

 

 

$

1,233

 

 

$

178,866

 

Cost of sales

 

 

75,446

 

 

 

41,330

 

 

 

15,106

 

 

 

20,341

 

 

 

1,048

 

 

 

153,271

 

Gross profit

 

 

7,222

 

 

 

7,153

 

 

 

10,598

 

 

 

437

 

 

 

185

 

 

 

25,595

 

Segment depreciation expense

 

 

5,036

 

 

 

 

 

 

299

 

 

 

441

 

 

 

161

 

 

 

5,937

 

Segment Profit

 

$

12,258

 

 

$

7,153

 

 

$

10,897

 

 

$

878

 

 

$

346

 

 

$

31,532

 

 

 

 

For the Three Months Ended March 29, 2020

 

 

 

Polyester

 

 

Asia

 

 

Brazil

 

 

Nylon

 

 

All Other

 

 

Total

 

Net sales

 

$

89,767

 

 

$

38,621

 

 

$

21,060

 

 

$

20,567

 

 

$

979

 

 

$

170,994

 

Cost of sales

 

 

82,735

 

 

 

34,038

 

 

 

17,644

 

 

 

20,234

 

 

 

960

 

 

 

155,611

 

Gross profit

 

 

7,032

 

 

 

4,583

 

 

 

3,416

 

 

 

333

 

 

 

19

 

 

 

15,383

 

Segment depreciation expense

 

 

4,301

 

 

 

 

 

 

421

 

 

 

471

 

 

 

137

 

 

 

5,330

 

Segment Profit

 

$

11,333

 

 

$

4,583

 

 

$

3,837

 

 

$

804

 

 

$

156

 

 

$

20,713

 

 

 

 

For the Nine Months Ended March 28, 2021

 

 

 

Polyester

 

 

Asia

 

 

Brazil

 

 

Nylon

 

 

All Other

 

 

Total

 

Net sales

 

$

228,440

 

 

$

130,898

 

 

$

72,563

 

 

$

47,815

 

 

$

3,431

 

 

$

483,147

 

Cost of sales

 

 

205,691

 

 

 

112,639

 

 

 

49,375

 

 

 

46,318

 

 

 

3,034

 

 

 

417,057

 

Gross profit

 

 

22,749

 

 

 

18,259

 

 

 

23,188

 

 

 

1,497

 

 

 

397

 

 

 

66,090

 

Segment depreciation expense

 

 

13,909

 

 

 

 

 

 

1,050

 

 

 

1,321

 

 

 

489

 

 

 

16,769

 

Segment Profit

 

$

36,658

 

 

$

18,259

 

 

$

24,238

 

 

$

2,818

 

 

$

886

 

 

$

82,859

 

 

 

 

For the Nine Months Ended March 29, 2020

 

 

 

Polyester

 

 

Asia

 

 

Brazil

 

 

Nylon

 

 

All Other

 

 

Total

 

Net sales

 

$

261,212

 

 

$

132,496

 

 

$

66,094

 

 

$

57,853

 

 

$

2,799

 

 

$

520,454

 

Cost of sales

 

 

239,725

 

 

 

118,114

 

 

 

55,089

 

 

 

56,296

 

 

 

2,739

 

 

 

471,963

 

Gross profit

 

 

21,487

 

 

 

14,382

 

 

 

11,005

 

 

 

1,557

 

 

 

60

 

 

 

48,491

 

Segment depreciation expense

 

 

12,525

 

 

 

 

 

 

1,153

 

 

 

1,465

 

 

 

300

 

 

 

15,443

 

Segment Profit

 

$

34,012

 

 

$

14,382

 

 

$

12,158

 

 

$

3,022

 

 

$

360

 

 

$

63,934

 

 

15


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

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 28, 2021

 

 

March 29, 2020

 

 

March 28, 2021

 

 

March 29, 2020

 

Polyester

 

$

7,222

 

 

$

7,032

 

 

$

22,749

 

 

$

21,487

 

Asia

 

 

7,153

 

 

 

4,583

 

 

 

18,259

 

 

 

14,382

 

Brazil

 

 

10,598

 

 

 

3,416

 

 

 

23,188

 

 

 

11,005

 

Nylon

 

 

437

 

 

 

333

 

 

 

1,497

 

 

 

1,557

 

All Other

 

 

185

 

 

 

19

 

 

 

397

 

 

 

60

 

Segment gross profit

 

 

25,595

 

 

 

15,383

 

 

 

66,090

 

 

 

48,491

 

Selling, general and administrative expenses

 

 

14,581

 

 

 

11,720

 

 

 

38,570

 

 

 

35,208

 

(Benefit) provision for bad debts

 

 

(184

)

 

 

580

 

 

 

(1,330

)

 

 

331

 

Other operating expense (income), net

 

 

2,582

 

 

 

(62

)

 

 

4,236

 

 

 

900

 

Operating income

 

 

8,616

 

 

 

3,145

 

 

 

24,614

 

 

 

12,052

 

Interest income

 

 

(159

)

 

 

(173

)

 

 

(471

)

 

 

(595

)

Interest expense

 

 

885

 

 

 

1,231

 

 

 

2,589

 

 

 

3,589

 

Equity in earnings of unconsolidated affiliates

 

 

(528

)

 

 

(3,526

)

 

 

(751

)

 

 

(1,904

)

Impairment of investment in unconsolidated affiliate

 

 

 

 

 

45,194

 

 

 

 

 

 

45,194

 

Income (loss) before income taxes

 

$

8,418

 

 

$

(39,581

)

 

$

23,247

 

 

$

(34,232

)

 

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

 

 

 

March 28, 2021

 

 

June 28, 2020

 

Polyester

 

$

271,682

 

 

$

263,496

 

Asia

 

 

61,494

 

 

 

41,452

 

Brazil

 

 

62,898

 

 

 

49,967

 

Nylon

 

 

42,357

 

 

 

42,020

 

Segment total assets

 

 

438,431

 

 

 

396,935

 

Other current assets

 

 

62,460

 

 

 

48,600

 

Other PP&E

 

 

22,036

 

 

 

23,676

 

Other operating lease assets

 

 

1,210

 

 

 

1,503

 

Other non-current assets

 

 

4,235

 

 

 

3,448

 

Total assets

 

$

528,372

 

 

$

474,162

 

 

22.  Supplemental Cash Flow Information

Cash payments for interest and taxes consist of the following: 

 

 

 

For the Nine Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

Interest, net of capitalized interest of $145 and $86, respectively

 

$

2,395

 

 

$

3,535

 

Income tax payments, net

 

 

4,039

 

 

 

4,833

 

 

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 28, 2021 and June 28, 2020, $1,241 and $630, respectively, were included in accounts payable for unpaid capital expenditures. As of March 29, 2020 and June 30, 2019, $619 and $1,329, respectively, were included in accounts payable for unpaid capital expenditures.

During the nine months ended March 28, 2021 and March 29, 2020, UNIFI recorded non-cash activity relating to finance leases of $740 and $6,301, respectively.

 

 

16


 

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 28, 2021, while a reference to the “prior period” refers to the three-month period ended March 29, 2020.  A reference to the “current nine-month period” refers to the nine-month period ended March 28, 2021, while a reference to the “prior nine-month period” refers to the nine-month period ended March 29, 2020. 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 each consisted of 39 weeks.

Our discussions in this Item 2 focus on our results during, or as of, the three months and nine months ended March 28, 2021 and March 29, 2020, and, to the extent applicable, any material changes from the information discussed in the 2020 Form 10-K or other important intervening developments or information.  These discussions should be read in conjunction with the 2020 Form 10-K for more detailed and background information about our business, operations and financial condition. Discussion of foreign currency translation is primarily associated with the weakening of the Brazilian Real (“BRL”) and changes in the Chinese Renminbi (“RMB”) versus the U.S. Dollar (“USD”). In discussion of operating results in this report, we refer to our operations in the “NACA” region, which is the region comprised of the trade zones covered by USMCA, NAFTA and CAFTA-DR.

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

Overview and Significant General Matters

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

COVID-19 Pandemic

In March 2020, the World Health Organization declared the current COVID-19 outbreak a global pandemic. Efforts to contain the spread of COVID-19 intensified during March and April 2020. Several states, including North Carolina, where UNIFI’s primary manufacturing and administrative operations are located, declared states of emergency. A number of foreign 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 significantly reduced economic activity and demand, thereby reducing overall demand for UNIFI’s products from March 2020 to December 2020.

In an effort to protect the health and safety of our employees, customers and communities, UNIFI took proactive, aggressive actions from the earliest signs of the outbreak that included social distancing and travel restriction policies for all locations, along with reducing costs in both manufacturing and selling, general and administrative expenses (“SG&A”) without impacting our ability to service customers. These measures remain in effect and are evaluated regularly against local, state and federal recommendations.

Global measures taken to reduce the spread of the COVID-19 pandemic generated a significant decline in global business activity 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 business is currently unknown. Through March 2020, 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. Throughout calendar 2020, the Asia Segment’s overall performance and profitability was moderately impacted by the COVID-19 pandemic, while our U.S., Brazil and El Salvador operations were more adversely impacted by the COVID-19 pandemic, most notably in the June 2020 quarter during the most intense declines in global demand. The global disruption caused by the COVID-19 pandemic has negatively impacted, and will continue to negatively impact, overall global demand and business activity, including textiles in both the Americas and Asia for a currently unknown duration.

While our operating results for the current nine-month period indicate a robust recovery of the textile supply chain and increased activity from the considerably low levels of demand experienced in the June 2020 quarter, significant restoration of consumer spending and retail activity will be critical to our end-markets to enable a full and sustained economic rebound. UNIFI anticipates a recovery in global economic activity when the COVID-19 pandemic is sufficiently contained.  The economic rebound will depend on the pace and effectiveness of the containment efforts deployed by various international, national, state, and local governments, along with the speed and effectiveness with which potential treatment and vaccine methods are deployed. However, the anticipated economic rebound would be jeopardized by a significant degradation in local and global healthcare systems’ abilities to treat infections, mutations of the virus that cause further difficulty in containment efforts, or shelter-in-place orders in UNIFI’s primary geographic markets.

Specifically, the local government in Sao Paolo, Brazil issued lockdown orders during late March 2021 that continued into April 2021 in an effort to slow the spread of COVID-19 among its citizens. Additionally, store closings and manufacturing shutdowns occurred around that same time. The restrictions caused an immediate disruption to our Brazil Segment’s revenue during the quarantine period. A significant recovery in sales volumes immediately following the lockdown will be necessary for the Brazil Segment to continue achieving quarterly segment net sales in excess of $20,000.

17


 

Despite economic pressures amid the COVID-19 pandemic, textile demand and business activity levels in the current nine-month period exceeded our expectations when we began the fiscal year. However, there is no certainty that such levels will continue or increase during the remainder of calendar 2021. Additionally, there is no clear indication that the recent demand and activity levels were the result of economic restoration, as those levels could have been favorably impacted by pent up demand. UNIFI will continue to monitor the COVID-19 pandemic, prioritizing the health and safety of our employees, while delivering on customer demand.

While our year-to-date fiscal 2021 results have exceeded our expectations and we have experienced several improvements across certain financial metrics, our underlying sales volumes in certain core markets have not fully recovered. Therefore, we are unsure of the impact on our operational and financial results through at least fiscal 2021, based on present factors and conditions, along with the uncertainty surrounding global demand.

Update on Recent Trade Initiatives

UNIFI remains committed to pursuing relief from the elevated levels of low-cost and subsidized polyester textured yarn (“Subject Imports”) entering the U.S. market from foreign countries. Trade petition efforts to slow low-cost and subsidized polyester textured yarn from China and India were successful during calendar 2019, which led to a temporary improvement in our U.S. polyester textured yarn sales prior to the onset of the COVID-19 pandemic during the March 2020 quarter.

Subsequent to the completion of the trade initiatives against China and India, imports from Indonesia, Malaysia, Thailand, and Vietnam seemingly replaced much of the imports from China and India and surged into the U.S. market. Subject Imports from Indonesia, Malaysia, Thailand, and Vietnam increased from calendar 2017 to calendar 2019 by over 80%. Similar to the adverse impacts of imports from China and India in previous years, the Subject Imports from Indonesia, Malaysia, Thailand, and Vietnam undersold the domestic industry, taking sales from and exerting considerable downward pricing pressure on yarns produced by UNIFI. Accordingly, UNIFI is a petitioner to the United States Department of Commerce (the “Department of Commerce”) and the United States International Trade Commission (the "USITC") alleging dumping of polyester textured yarn in the U.S. market from Indonesia, Malaysia, Thailand, and Vietnam.

In December 2020, the USITC made affirmative determinations in its preliminary phase of antidumping duty investigations concerning polyester textured yarn from Indonesia, Malaysia, Thailand, and Vietnam. Preliminary determinations from the Department of Commerce are expected during the June 2021 quarter. The entire investigative process will take approximately one year, with final determinations of dumping rates likely occurring by the end of calendar 2021.

Recent Raw Material Volatility

At the beginning of the March 2021 quarter, UNIFI expected increases in certain raw material costs associated with rising global petroleum prices. As the March 2021 quarter transpired, (i) the state of Texas experienced harsh weather conditions that placed significant pressure on the U.S. supply chain for polyester feedstock and (ii) global petroleum prices rose. Both events caused a rise in polyester raw material costs for UNIFI, increasing the March 28, 2021 inventory balance. UNIFI’s selling price adjustments typically lag raw material cost changes by an average of approximately 90 days. Accordingly, UNIFI’s June 2021 quarter will include gross margin pressure from the impact of higher raw material costs carried in inventory and the inherent lag in implementing responsive selling price adjustments.

Current Nine-Month Period Performance

Prior to the COVID-19 pandemic, our operations were achieving incremental sales volume growth from both (i) continued demand for sustainable products with our REPREVE® platform and (ii) U.S. market share recapture from our trade initiatives that were finalized in January 2020. Additionally, we have recently benefited from a more favorable polyester raw material cost environment, most notably in the first six months of fiscal 2021.

In the current nine-month period, our Polyester and Nylon Segments were adversely impacted by the COVID-19 pandemic, as manufacturing activity in the U.S. has recovered less rapidly than in Asia and Brazil, while production activity in Central America surged following the June 2020 quarter. Although productivity remains pressured by lower global demand, our Asia Segment continues to perform well with both new and existing customer programs. The Brazil Segment was able to navigate its domestic recovery more favorably than competitive importers, resulting in sales volume and market share growth compared to recent fiscal years. We believe the outperformance by the Brazil Segment includes the temporary capture of market share from competitive imports and higher conversion margin due to the unfavorable dynamics facing competitors regarding input and freight costs combined with weaker delivery speed. Competition, pricing, and gross margins are expected to normalize over the mid- to long-term, especially following the exceptional gross margin rates achieved by the Brazil Segment for both the current period and current nine-month period.

Although sales volumes in the NACA region were pressured in the current nine-month period, our operations benefited from raw material and selling price stability and sales mix improvements. Accordingly, we were able to achieve better-than-expected operating results in the current nine-month period.

While sales and gross profit pressures from the COVID-19 pandemic have weighed on our financial results, we have remained diligent in managing our operations as efficiently and effectively as possible while delivering on customer demand. Accordingly, we generated operating cash flows in the current nine-month period and reduced our debt principal during fiscal 2021. Our performance in fiscal 2021 has further strengthened our balance sheet and solidified the foundation for further growth subsequent to the negative impacts of the COVID-19 pandemic.

We believe that several facets of our business will remain drivers for growth once the COVID-19 pandemic subsides, including: (i) continued sales and portfolio growth for our Asia Segment, (ii) U.S. market share recapture from our recent trade initiatives, (iii) continued commitments in sustainability by corporations, governments and other entities leading to further demand for our REPREVE® platform, (iv) leading-edge innovation and commercialization efforts that deliver meaningful consumer products, and (v) continued expansion of our portfolio with additional markets, applications, and brand partners.

18


 

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 income (loss) 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, which represents net income (loss) calculated under GAAP, adjusted to exclude certain amounts which management believes do not reflect the ongoing operations and performance of UNIFI and/or for which exclusion may be necessary to understand and compare the underlying results of UNIFI;

 

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

 

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

 

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

EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Adjusted Working Capital and Net Debt (collectively, the “non-GAAP financial measures”) are not determined in accordance with GAAP and should not be considered a substitute for performance measures determined in accordance with GAAP. The calculations of the non-GAAP financial measures are subjective, based on management’s belief as to which items should be included or excluded in order to provide the most reasonable and comparable view of the underlying operating performance of the business. We may, from time to time, modify the amounts used to determine our non-GAAP financial measures. When applicable, management’s discussion and analysis includes specific consideration for items that comprise the reconciliations of its non-GAAP financial measures. We believe that these non-GAAP financial measures better reflect UNIFI’s underlying operations and performance and that their use, as operating performance measures, provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets, among otherwise comparable companies.

Management uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of (a) items directly related to our asset base (primarily depreciation and amortization) and (b) items that we would not expect to occur as a part of our normal business on a regular basis; (ii) for planning purposes, including the preparation of our annual operating budget; (iii) as a valuation measure for evaluating our operating performance and our capacity to incur and service debt, fund capital expenditures and expand our business; and (iv) as one measure in determining the value of other acquisitions and dispositions. Adjusted EBITDA is a key performance metric utilized in the determination of variable compensation. We also believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity because it serves as a high-level proxy for cash generated from operations and is relevant to our fixed charge coverage ratio. Equity in earnings of PAL is excluded from Adjusted EBITDA because such results do not reflect our operating performance.

Management uses Adjusted Net Income and Adjusted EPS (i) as measurements of net operating performance because they assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to occur as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not expect to occur as a part of our underlying taxable operations; (ii) for planning purposes, including the preparation of our annual operating budget; and (iii) as measures in determining the value of other acquisitions and dispositions.

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.

19


 

Review of Results of Operations

Three Months Ended March 28, 2021 Compared to Three Months Ended March 29, 2020

Consolidated Overview

The below tables provide:

 

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

 

a reconciliation from net income (loss) to EBITDA and Adjusted EBITDA, and

 

a reconciliation from net income (loss) to Adjusted Net Income and Adjusted EPS.

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

Net income (loss)

 

 

For the Three Months Ended

 

 

 

 

 

 

 

March 28, 2021

 

 

March 29, 2020

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

178,866

 

 

 

100.0

 

 

$

170,994

 

 

 

100.0

 

 

 

4.6

 

Cost of sales

 

 

153,271

 

 

 

85.7

 

 

 

155,611

 

 

 

91.0

 

 

 

(1.5

)

Gross profit

 

 

25,595

 

 

 

14.3

 

 

 

15,383

 

 

 

9.0

 

 

 

66.4

 

SG&A

 

 

14,581

 

 

 

8.2

 

 

 

11,720

 

 

 

6.9

 

 

 

24.4

 

(Benefit) provision for bad debts

 

 

(184

)

 

 

(0.1

)

 

 

580

 

 

 

0.3

 

 

 

(131.7

)

Other operating expense (income), net

 

 

2,582

 

 

 

1.4

 

 

 

(62

)

 

 

 

 

nm

 

Operating income

 

 

8,616

 

 

 

4.8

 

 

 

3,145

 

 

 

1.8

 

 

 

174.0

 

Interest expense, net

 

 

726

 

 

 

0.4

 

 

 

1,058

 

 

 

0.6

 

 

 

(31.4

)

Equity in earnings of unconsolidated affiliates

 

 

(528

)

 

 

(0.3

)

 

 

(3,526

)

 

 

(2.1

)

 

 

(85.0

)

Impairment of investment in unconsolidated affiliate

 

 

 

 

 

 

 

 

45,194

 

 

 

26.4

 

 

 

(100.0

)

Income (loss) before income taxes

 

 

8,418

 

 

 

4.7

 

 

 

(39,581

)

 

 

(23.1

)

 

 

(121.3

)

Provision for income taxes

 

 

3,660

 

 

 

2.0

 

 

 

1,530

 

 

 

0.9

 

 

 

139.2

 

Net income (loss)

 

$

4,758

 

 

 

2.7

 

 

$

(41,111

)

 

 

(24.0

)

 

 

(111.6

)

 

nm – Not meaningful

EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)

The reconciliations of the amounts reported under GAAP for Net income (loss) to EBITDA and Adjusted EBITDA were as follows:

 

 

For the Three Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

Net income (loss)

 

$

4,758

 

 

$

(41,111

)

Interest expense, net

 

 

726

 

 

 

1,058

 

Provision for income taxes

 

 

3,660

 

 

 

1,530

 

Depreciation and amortization expense (1)

 

 

6,761

 

 

 

6,014

 

EBITDA

 

 

15,905

 

 

 

(32,509

)

 

 

 

 

 

 

 

 

 

Equity in earnings of PAL

 

 

 

 

 

(3,336

)

EBITDA excluding PAL

 

 

15,905

 

 

 

(35,845

)

 

 

 

 

 

 

 

 

 

Impairment of investment in unconsolidated affiliate (2)

 

 

 

 

 

45,194

 

Adjusted EBITDA

 

$

15,905

 

 

$

9,349

 

 

(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 April 2020 sale of its 34% interest in PAL.

20


 

 

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

The tables below set forth reconciliations of (i) Income (loss) before income taxes (“Pre-tax Income (Loss)”), Provision for income taxes (“Tax Impact”) and Net Income (Loss) to Adjusted Net Income and (ii) Diluted EPS to Adjusted EPS.

 

 

For the Three Months Ended March 28, 2021

 

 

For the Three Months Ended March 29, 2020

 

 

 

Pre-tax Income

 

 

Tax Impact

 

 

Net Income

 

 

Diluted EPS

 

 

Pre-tax

(Loss)

Income

 

 

Tax Impact

 

 

Net (Loss)

Income

 

 

Diluted EPS

 

GAAP results

 

$

8,418

 

 

$

(3,660

)

 

$

4,758

 

 

$

0.25

 

 

$

(39,581

)

 

$

(1,530

)

 

$

(41,111

)

 

$

(2.23

)

Impairment of investment in

  unconsolidated affiliate (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45,194

 

 

 

 

 

 

45,194

 

 

 

2.45

 

Adjusted results

 

$

8,418

 

 

$

(3,660

)

 

$

4,758

 

 

$

0.25

 

 

$

5,613

 

 

$

(1,530

)

 

$

4,083

 

 

$

0.22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

18,967

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,475

 

 

(1)

For the three months ended March 29, 2020, UNIFI recorded an impairment charge of $45,194 related to the April 2020 sale of its 34% interest in PAL.

Net Sales

Consolidated net sales increased $7,872, or 4.6%, for the current period in comparison to the prior period, primarily attributable to (i) sales growth in Asia due to continued sales momentum for REPREVE-branded products and (ii) higher selling prices in Brazil.

Consolidated sales volumes increased 8.3% in the current period, primarily attributable to continued expansion of REPREVE-branded product for the Asia Segment. The increase was partially offset by the adverse impact of the COVID-19 pandemic on U.S. product demand, as the North America market has experienced significant, but not full recovery, since the June 2020 quarter.

Once the COVID-19 pandemic subsides, we believe incremental revenue for the Polyester Segment will be generated from both the polyester textured yarn trade petition completed in early calendar 2020 and the actions currently pending with the USITC and Department of Commerce. However, our Nylon Segment results continue to reflect the current global trend of declining demand for nylon socks, ladies’ hosiery and intimate apparel.

Consolidated average sales prices decreased 3.7%, primarily attributable to a lower priced sales mix.

REPREVE® Fiber products for the current period comprised 33% of consolidated net sales, up from 29% for the prior period and 31% for fiscal 2020.

Gross Profit

Gross profit for the current period increased by $10,212, or 66.4%, as compared to the prior period. Although the COVID-19 pandemic adversely impacted sales volumes in our Polyester Segment, an improved sales mix and manufacturing efficiencies helped drive gross profit improvement. Sales volumes in our Asia Segment outperformed in the current period as compared to the prior period, where sales growth was temporarily slowed by the COVID-19 pandemic.  Further, the Brazil Segment outperformed with an exceptional gross margin in the current period, primarily due to higher pricing levels under an improved competitive position.

 

For the Polyester Segment, gross profit benefited from an improved sales mix and manufacturing efficiencies.

 

For the Asia Segment, gross profit benefited from cost and sales mix improvements combined with higher sales volumes.

 

For the Brazil Segment, gross profit benefited from strong local pricing due to temporary market share capture.

SG&A

SG&A increased from the prior period, primarily due to higher accrued incentive compensation in the current period, as UNIFI recognized the maximum annual bonus accrual through the nine months ended March 28, 2021.

(Benefit) Provision for Bad Debts

The current period and prior period reflect no material activity for bad debts.

Other Operating Expense (Income), Net

The current period reflects a predominantly non-cash loss on the disposal of assets of $2,559 primarily relating to the removal of existing texturing machinery to allow for the future installation of new eAFK Evo texturing machinery. The prior period reflects no material activity.

21


 

Interest Expense, Net

Interest expense, net decreased from the prior period to the current period, primarily attributable to a lower average debt principal. The components of consolidated interest expense, net were as follows:

 

 

 

For the Three Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

Interest and fees on the ABL Facility

 

$

732

 

 

$

977

 

Other interest

 

 

148

 

 

 

223

 

Subtotal of interest on debt obligations

 

 

880

 

 

 

1,200

 

Other components of interest expense

 

 

5

 

 

 

31

 

Total interest expense

 

 

885

 

 

 

1,231

 

Interest income

 

 

(159

)

 

 

(173

)

Interest expense, net

 

$

726

 

 

$

1,058

 

Equity in Earnings of Unconsolidated Affiliates

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

 

 

For the Three Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

Earnings from PAL

 

$

 

 

$

(3,336

)

Earnings from nylon joint ventures

 

 

(528

)

 

 

(190

)

Total equity in earnings of unconsolidated affiliates

 

$

(528

)

 

$

(3,526

)

 

 

 

 

 

 

 

 

 

As a percentage of consolidated income before income taxes

 

 

6.3

%

 

 

8.9

%

On April 29, 2020, UNIFI sold its 34% non-controlling partnership interest in PAL (the “PAL Investment”). The comparative decrease in earnings from PAL reflects earnings recorded in the prior period with no results recorded in the current period.

Impairment of Investment in Unconsolidated Affiliate

As of March 29, 2020, UNIFI owned a 34% interest in PAL 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 transaction closed on April 29, 2020 and UNIFI received $60,000 in cash.

Income Taxes

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

 

 

 

For the Three Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

Provision for income taxes

 

$

3,660

 

 

$

1,530

 

Effective tax rate

 

 

43.5

%

 

 

(3.9

)%

 

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 increase in the effective tax rate from the prior period to the current period is primarily attributable to (i) an impairment charge in the prior period for which UNIFI does not expect to realize a future benefit, and (ii) a higher rate impact of U.S. tax on GILTI in the current period.

Net Income (Loss)

Net income for the current period was $4,758, or $0.25 per share, compared to a net loss of $(41,111) or $(2.23) per share, for the prior period.  The prior period included an impairment charge for the PAL Investment.  Excluding the impairment charge, the change in net income was primarily due to higher gross profit in the current period, partially offset by higher SG&A and the loss on the disposal of assets of $2,559.

Adjusted EBITDA (Non-GAAP Financial Measure)

Adjusted EBITDA increased from the prior period to the current period, commensurate with higher gross profit. The increase was partially offset by higher SG&A and the loss on the disposal of assets of $2,559.

22


 

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

Adjusted Net Income and Adjusted EPS increased from the prior period to the current period, commensurate with higher gross profit. The increase was partially offset by higher SG&A and the loss on the disposal of assets of $2,559.

Segment Overview

Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for the current period.

Polyester Segment

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

 

 

For the Three Months Ended

 

 

 

 

 

 

 

March 28, 2021

 

 

March 29, 2020

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

82,668

 

 

 

100.0

 

 

$

89,767

 

 

 

100.0

 

 

 

(7.9

)

Cost of sales

 

 

75,446

 

 

 

91.3

 

 

 

82,735

 

 

 

92.2

 

 

 

(8.8

)

Gross profit

 

 

7,222

 

 

 

8.7

 

 

 

7,032

 

 

 

7.8

 

 

 

2.7

 

Depreciation expense

 

 

5,036

 

 

 

6.1

 

 

 

4,301

 

 

 

4.8

 

 

 

17.1

 

Segment Profit

 

$

12,258

 

 

 

14.8

 

 

$

11,333

 

 

 

12.6

 

 

 

8.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

   consolidated amounts

 

 

46.2

%

 

 

 

 

 

 

52.5

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

   consolidated amounts

 

 

38.9

%

 

 

 

 

 

 

54.7

%

 

 

 

 

 

 

 

 

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

Net sales for the prior period

 

$

89,767

 

Decrease in sales volumes

 

 

(8,976

)

Net change in average selling price and sales mix

 

 

1,877

 

Net sales for the current period

 

$

82,668

 

The decrease in net sales for the Polyester Segment from the prior period to the current period was primarily attributable to lower sales volumes as our U.S. market continues to recover from demand declines in connection with the COVID-19 pandemic. In the prior period, sales volumes were higher primarily due to the acceleration of customer orders in connection with (i) finalized polyester textured yarn trade petitions against China and India and (ii) anticipation of April 2020 pandemic-related lockdowns.

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

Segment Profit for the prior period

 

$

11,333

 

Net increase in underlying margins

 

 

2,059

 

Decrease in sales volumes

 

 

(1,134

)

Segment Profit for the current period

 

$

12,258

 

The increase in Segment Profit for the Polyester Segment from the prior period to the current period was primarily attributable to (i) improved conversion margin, (ii) manufacturing efficiencies, and (iii) a better sales mix, partially offset by lower sales volumes.

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 28, 2021

 

 

March 29, 2020

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

48,483

 

 

 

100.0

 

 

$

38,621

 

 

 

100.0

 

 

 

25.5

 

Cost of sales

 

 

41,330

 

 

 

85.2

 

 

 

34,038

 

 

 

88.1

 

 

 

21.4

 

Gross profit

 

 

7,153

 

 

 

14.8

 

 

 

4,583

 

 

 

11.9

 

 

 

56.1

 

Depreciation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Profit

 

$

7,153

 

 

 

14.8

 

 

$

4,583

 

 

 

11.9

 

 

 

56.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

   consolidated amounts

 

 

27.1

%

 

 

 

 

 

 

22.6

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

   consolidated amounts

 

 

22.7

%

 

 

 

 

 

 

22.1

%

 

 

 

 

 

 

 

 

23


 

 

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

Net sales for the prior period

 

$

38,621

 

Increase in sales volumes of Chip and staple fiber

 

 

8,029

 

Net increase in sales volumes of certain other products

 

 

5,327

 

Change in average selling price and sales mix

 

 

(6,435

)

Favorable foreign currency translation effects

 

 

2,941

 

Net sales for the current period

 

$

48,483

 

The increase in net sales for the Asia Segment from the prior period to the current period was primarily attributable to higher sales volumes driven by the continued momentum of REPREVE®-branded products and favorable foreign currency translation effects. Sales volumes in the prior period were adversely impacted by manufacturing shutdowns of customers in China in response to the spread of COVID-19.

The RMB weighted average exchange rate was 6.49 RMB/USD and 6.98 RMB/USD for the current period and the prior period, respectively.  

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

Segment Profit for the prior period

 

$

4,583

 

Change in underlying margins and sales mix

 

 

1,181

 

Increase in sales volumes

 

 

1,047

 

Favorable foreign currency translation effects

 

 

342

 

Segment Profit for the current period

 

$

7,153

 

Segment Profit for the Asia Segment increased from the prior period, primarily due to (i) higher sales volumes, (ii) raw material cost benefits achieved on certain product lines, (iii) sales mix improvements, and (iv) favorable foreign currency translation effects.

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 28, 2021

 

 

March 29, 2020

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

25,704

 

 

 

100.0

 

 

$

21,060

 

 

 

100.0

 

 

 

22.1

 

Cost of sales

 

 

15,106

 

 

 

58.8

 

 

 

17,644

 

 

 

83.8

 

 

 

(14.4

)

Gross profit

 

 

10,598

 

 

 

41.2

 

 

 

3,416

 

 

 

16.2

 

 

nm

 

Depreciation expense

 

 

299

 

 

 

1.2

 

 

 

421

 

 

 

2.0

 

 

 

(29.0

)

Segment Profit

 

$

10,897

 

 

 

42.4

 

 

$

3,837

 

 

 

18.2

 

 

 

184.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

   consolidated amounts

 

 

14.4

%

 

 

 

 

 

 

12.3

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

   consolidated amounts

 

 

34.6

%

 

 

 

 

 

 

18.5

%

 

 

 

 

 

 

 

 

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

Net sales for the prior period

 

$

21,060

 

Increase in average selling price

 

 

7,635

 

Increase in sales volumes

 

 

958

 

Unfavorable foreign currency translation effects

 

 

(3,949

)

Net sales for the current period

 

$

25,704

 

 

The increase in net sales for the Brazil Segment from the prior period to the current period was primarily attributable to the Brazil Segment’s ability to capture market share from competitors and increase selling prices, partially offset by unfavorable foreign currency translation effects.

The BRL weighted average exchange rate was 5.47 BRL/USD and 4.44 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

 

$

3,837

 

Increase in underlying margins

 

 

7,576

 

Increase in sales volumes

 

 

178

 

Unfavorable foreign currency translation effects

 

 

(694

)

Segment Profit for the current period

 

$

10,897

 

24


 

 

The exceptional increase in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to the segment’s ability to achieve favorable pricing and utilization levels under a strengthened competitive position, partially offset by unfavorable foreign currency translation effects.

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 28, 2021

 

 

March 29, 2020

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

20,778

 

 

 

100.0

 

 

$

20,567

 

 

 

100.0

 

 

 

1.0

 

Cost of sales

 

 

20,341

 

 

 

97.9

 

 

 

20,234

 

 

 

98.4

 

 

 

0.5

 

Gross profit

 

 

437

 

 

 

2.1

 

 

 

333

 

 

 

1.6

 

 

 

31.2

 

Depreciation expense

 

 

441

 

 

 

2.1

 

 

 

471

 

 

 

2.3

 

 

 

(6.4

)

Segment Profit

 

$

878

 

 

 

4.2

 

 

$

804

 

 

 

3.9

 

 

 

9.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

   consolidated amounts

 

 

11.6

%

 

 

 

 

 

 

12.0

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

   consolidated amounts

 

 

2.8

%

 

 

 

 

 

 

3.9

%

 

 

 

 

 

 

 

 

 

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

Net sales for the prior period

 

$

20,567

 

Increase in sales volumes

 

 

3,813

 

Net change in average selling price and sales mix

 

 

(3,602

)

Net sales for the current period

 

$

20,778

 

The increase in net sales for the Nylon Segment from the prior period to the current period was primarily attributable to higher sales volumes, partially offset by a shift in sales mix following declines in hosiery demand.

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

Segment Profit for the prior period

 

$

804

 

Increase in sales volumes

 

 

149

 

Net decrease in underlying margins

 

 

(75

)

Segment Profit for the current period

 

$

878

 

Segment Profit for the Nylon Segment in the current period was slightly higher, primarily due to higher sales volumes.


25


 

 

Review of Results of Operations

Nine Months Ended March 28, 2021 Compared to Nine Months Ended March 29, 2020

Consolidated Overview

The below tables provide:

 

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

 

a reconciliation from net income (loss) to EBITDA and Adjusted EBITDA, and

 

a reconciliation from net income (loss) to Adjusted Net Income and Adjusted EPS.

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

Net income (loss)

 

 

For the Nine Months Ended

 

 

 

 

 

 

 

March 28, 2021

 

 

March 29, 2020

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

483,147

 

 

 

100.0

 

 

$

520,454

 

 

 

100.0

 

 

 

(7.2

)

Cost of sales

 

 

417,057

 

 

 

86.3

 

 

 

471,963

 

 

 

90.7

 

 

 

(11.6

)

Gross profit

 

 

66,090

 

 

 

13.7

 

 

 

48,491

 

 

 

9.3

 

 

 

36.3

 

SG&A

 

 

38,570

 

 

 

8.0

 

 

 

35,208

 

 

 

6.8

 

 

 

9.5

 

(Benefit) provision for bad debts

 

 

(1,330

)

 

 

(0.3

)

 

 

331

 

 

 

 

 

nm

 

Other operating expense, net

 

 

4,236

 

 

 

0.9

 

 

 

900

 

 

 

0.2

 

 

nm

 

Operating income

 

 

24,614

 

 

 

5.1

 

 

 

12,052

 

 

 

2.3

 

 

 

104.2

 

Interest expense, net

 

 

2,118

 

 

 

0.5

 

 

 

2,994

 

 

 

0.6

 

 

 

(29.3

)

Equity in earnings of unconsolidated affiliates

 

 

(751

)

 

 

(0.2

)

 

 

(1,904

)

 

 

(0.4

)

 

 

(60.6

)

Impairment of investment in unconsolidated affiliate

 

 

 

 

 

 

 

 

45,194

 

 

 

8.7

 

 

 

(100.0

)

Income (loss) before income taxes

 

 

23,247

 

 

 

4.8

 

 

 

(34,232

)

 

 

(6.6

)

 

 

(167.9

)

Provision for income taxes

 

 

7,593

 

 

 

1.6

 

 

 

2,758

 

 

 

0.5

 

 

 

175.3

 

Net income (loss)

 

$

15,654

 

 

 

3.2

 

 

$

(36,990

)

 

 

(7.1

)

 

 

(142.3

)

nm – Not meaningful

EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)

The reconciliations of the amounts reported under GAAP for Net income (loss) to EBITDA and Adjusted EBITDA were as follows:

 

 

For the Nine Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

Net income (loss)

 

$

15,654

 

 

$

(36,990

)

Interest expense, net

 

 

2,118

 

 

 

2,994

 

Provision for income taxes

 

 

7,593

 

 

 

2,758

 

Depreciation and amortization expense (1)

 

 

18,829

 

 

 

17,499

 

EBITDA

 

 

44,194

 

 

 

(13,739

)

 

 

 

 

 

 

 

 

 

Equity in earnings of PAL

 

 

 

 

 

(1,324

)

EBITDA excluding PAL

 

 

44,194

 

 

 

(15,063

)

 

 

 

 

 

 

 

 

 

Impairment of investment in unconsolidated affiliate (2)

 

 

 

 

 

45,194

 

Severance (3)

 

 

 

 

 

383

 

Adjusted EBITDA

 

$

44,194

 

 

$

30,514

 

 

(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 April 2020 sale of its 34% interest in PAL.

(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.

26


 

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

The tables below set forth reconciliations of (i) Income (loss) before income taxes (“Pre-tax Income (Loss)”), Provision for income taxes (“Tax Impact”) and Net Income (Loss) to Adjusted Net Income and (ii) Diluted EPS to Adjusted EPS.

 

 

For the Nine Months Ended March 28, 2021

 

 

For the Nine Months Ended March 29, 2020

 

 

 

Pre-tax Income

 

 

Tax Impact

 

 

Net Income

 

 

Diluted EPS

 

 

Pre-tax

(Loss)

Income

 

 

Tax Impact

 

 

Net (Loss)

Income

 

 

Diluted EPS

 

GAAP results

 

$

23,247

 

 

$

(7,593

)

 

$

15,654

 

 

$

0.83

 

 

$

(34,232

)

 

$

(2,758

)

 

$

(36,990

)

 

$

(2.00

)

Impairment of investment in

  unconsolidated affiliate (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45,194

 

 

 

 

 

 

45,194

 

 

 

2.44

 

Severance (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

383

 

 

 

(80

)

 

 

303

 

 

 

0.02

 

Adjusted results

 

$

23,247

 

 

$

(7,593

)

 

$

15,654

 

 

$

0.83

 

 

$

11,345

 

 

$

(2,838

)

 

$

8,507

 

 

$

0.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

18,796

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,485

 

 

(1)

For the nine months ended March 29, 2020, UNIFI recorded an impairment charge of $45,194 related to the April 2020 sale of its 34% interest in PAL.

 

(2)

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.  

Net Sales

Consolidated net sales decreased $37,307, or 7.2%, for the current nine-month period in comparison to the prior nine-month period primarily attributable to (i) the COVID-19 pandemic, (ii) lower nylon sales volumes, (iii) lower average selling prices, and (iv) unfavorable foreign currency translation.

Consolidated sales volumes decreased 0.1%, primarily attributable to (i) the adverse impact of the COVID-19 pandemic on product demand and (ii) lower sales in the Nylon Segment. However, the overall volume decrease was partially offset by the Brazil Segment, which was agile and responsive to COVID-19 pandemic-related demand fluctuations in the current nine-month period and generated volume growth by capturing market share from competitors.

Once the COVID-19 pandemic subsides, we believe incremental revenue for the Polyester Segment will be generated from both the polyester textured yarn trade petition completed in early calendar 2020 and the actions currently pending with the USITC and Department of Commerce. However, the Nylon Segment results continue to reflect the adverse impacts of (i) customers shifting certain programs to overseas garment production and (ii) the current global trend of declining demand for nylon socks, ladies’ hosiery and intimate apparel.

Consolidated average sales prices decreased 7.1%, primarily attributable to (i) a decline in higher-priced nylon product sales, (ii) sales price declines associated with polyester raw material cost changes, and (iii) unfavorable foreign currency translation.

REPREVE® Fiber products for the current nine-month period comprised 35% of consolidated net sales, up from 31% for the prior nine-month period and 31% for fiscal 2020.

Gross Profit

Gross profit for the current nine-month period increased by $17,599, or 36.3%, as compared to the prior nine-month period. The COVID-19 pandemic adversely impacted sales and production volumes for our Polyester and Nylon Segments, driving comparably lower profitability in the U.S. during the September 2020 quarter. The COVID-19 pandemic also adversely impacted sales volumes for the Asia Segment. However, the Brazil Segment outperformed the prior nine-month period by capturing market share and maintaining strong conversion margin.  

 

For the Polyester Segment, gross profit benefited from a better sales mix, higher conversion margin and manufacturing cost improvements, but was adversely impacted by lower fixed cost absorption due to lower demand in the September 2020 quarter.

 

For the Asia Segment, gross profit increased from the prior nine-month period primarily due to supply chain efficiencies driving lower costs for certain products and sales mix improvements.

 

For the Brazil Segment, gross profit increased from the prior nine-month period primarily due to higher sales volumes and conversion margin due to temporary market share capture, partially offset by unfavorable foreign currency translation impacts.

 

For the Nylon Segment, gross profit decreased primarily due to lower demand levels driven by the COVID-19 pandemic and shifts towards overseas production.

SG&A

SG&A increased from the prior nine-month period, primarily due to higher accrued incentive compensation in the current nine-month period, as UNIFI recognized the maximum annual bonus accrual through the nine months ended March 28, 2021. The increase was partially offset by lower travel and entertainment expenses in the current nine-month period due to COVID-19 pandemic related restrictions.

27


 

(Benefit) Provision for Bad Debts

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

Other Operating Expense, Net

The current nine-month period reflects (i) a predominantly non-cash loss on the disposal of assets of $2,773 primarily relating to the removal of existing texturing machinery to allow for the future installation of new eAFK Evo texturing machinery, (ii) severance charges of $837 and (iii) foreign currency transaction losses of $610. The prior nine-month period reflects severance charges of $1,003.

Interest Expense, Net

Interest expense, net decreased from the prior nine-month period to the current nine-month period, primarily attributable to a lower average debt principal. The components of consolidated interest expense, net were as follows:

 

 

 

For the Nine Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

Interest and fees on the ABL Facility

 

$

2,229

 

 

$

3,026

 

Other interest

 

 

328

 

 

 

463

 

Subtotal of interest on debt obligations

 

 

2,557

 

 

 

3,489

 

Other components of interest expense

 

 

32

 

 

 

100

 

Total interest expense

 

 

2,589

 

 

 

3,589

 

Interest income

 

 

(471

)

 

 

(595

)

Interest expense, net

 

$

2,118

 

 

$

2,994

 

Equity in Earnings of Unconsolidated Affiliates

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

 

 

 

For the Nine Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

Earnings from PAL

 

$

 

 

$

(1,324

)

Earnings from nylon joint ventures

 

 

(751

)

 

 

(580

)

Total equity in earnings of unconsolidated affiliates

 

$

(751

)

 

$

(1,904

)

 

 

 

 

 

 

 

 

 

As a percentage of consolidated income before income taxes

 

 

3.2

%

 

 

5.6

%

On April 29, 2020, UNIFI sold the PAL Investment. The comparative decrease in earnings from PAL reflects earnings recorded in the prior nine-month period with no results recorded in the current nine-month period.

Impairment of Investment in Unconsolidated Affiliate

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.

Income Taxes

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

 

 

 

For the Nine Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

Provision for income taxes

 

$

7,593

 

 

$

2,758

 

Effective tax rate

 

 

32.7

%

 

 

(8.1

)%

 

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 increase in the effective tax rate from the prior nine-month period to the current nine-month period is primarily attributable to (i) an impairment charge in the prior period for which UNIFI does not expect to realize a future benefit, (ii) a higher rate impact of U.S. tax on GILTI in the current nine-month period, and (iii) a benefit for foreign tax credits in the prior nine-month period. This increase is partially offset by a discrete benefit in the current nine-month period for the retroactive GILTI high-tax exclusion for prior periods.

28


 

Net Income (Loss)

Net income for the current nine-month period was $15,654, or $0.83 per share, compared to net loss of $(36,990) or $(2.00) per share, for the prior nine-month period. The prior nine-month period included an impairment charge of $45,194 for the PAL Investment.  Excluding the impairment charge, the improvement in net income was primarily attributable to higher gross profit in the current nine-month period.

Adjusted EBITDA (Non-GAAP Financial Measure)

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

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

Adjusted Net Income and Adjusted EPS increased from the prior nine-month period to the current nine-month period, commensurate with higher gross profit.

Segment Overview

Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for the current nine-month period.

Polyester Segment

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

 

 

 

For the Nine Months Ended

 

 

 

 

 

 

 

March 28, 2021

 

 

March 29, 2020

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

228,440

 

 

 

100.0

 

 

$

261,212

 

 

 

100.0

 

 

 

(12.5

)

Cost of sales

 

 

205,691

 

 

 

90.1

 

 

 

239,725

 

 

 

91.8

 

 

 

(14.2

)

Gross profit

 

 

22,749

 

 

 

9.9

 

 

 

21,487

 

 

 

8.2

 

 

 

5.9

 

Depreciation expense

 

 

13,909

 

 

 

6.1

 

 

 

12,525

 

 

 

4.8

 

 

 

11.0

 

Segment Profit

 

$

36,658

 

 

 

16.0

 

 

$

34,012

 

 

 

13.0

 

 

 

7.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

  consolidated amounts

 

 

47.3

%

 

 

 

 

 

 

50.2

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

  consolidated amounts

 

 

44.2

%

 

 

 

 

 

 

53.2

%

 

 

 

 

 

 

 

 

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

 

Net sales for the prior nine-month period

 

$

261,212

 

Decrease in sales volumes

 

 

(21,353

)

Net change in average selling price and sales mix

 

 

(11,419

)

Net sales for the current nine-month period

 

$

228,440

 

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) the adverse impact of the COVID-19 pandemic on market demand and (ii) lower average selling prices associated with lower polyester raw material costs.

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

 

Segment Profit for the prior nine-month period

 

$

34,012

 

Change in underlying margins and sales mix

 

 

5,428

 

Decrease in sales volumes

 

 

(2,782

)

Segment Profit for the current nine-month period

 

$

36,658

 

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 (i) a better sales mix, (ii) stable conversion margin, and (iii) manufacturing cost improvements, partially offset by lower sales volumes experienced in the September 2020 quarter in connection with the COVID-19 pandemic.

29


 

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 28, 2021

 

 

March 29, 2020

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

130,898

 

 

 

100.0

 

 

$

132,496

 

 

 

100.0

 

 

 

(1.2

)

Cost of sales

 

 

112,639

 

 

 

86.1

 

 

 

118,114

 

 

 

89.1

 

 

 

(4.6

)

Gross profit

 

 

18,259

 

 

 

13.9

 

 

 

14,382

 

 

 

10.9

 

 

 

27.0

 

Depreciation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Profit

 

$

18,259

 

 

 

13.9

 

 

$

14,382

 

 

 

10.9

 

 

 

27.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

  consolidated amounts

 

 

27.1

%

 

 

 

 

 

 

25.5

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

  consolidated amounts

 

 

22.0

%

 

 

 

 

 

 

22.5

%

 

 

 

 

 

 

 

 

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

 

Net sales for the prior nine-month period

 

$

132,496

 

Change in average selling price and sales mix

 

 

(12,851

)

Decrease in sales volumes of Chip and staple fiber

 

 

(4,648

)

Net increase in sales volumes of certain other products

 

 

9,271

 

Favorable foreign currency translation effects

 

 

6,630

 

Net sales for the current nine-month period

 

$

130,898

 

The decrease in net sales for the Asia Segment from the prior nine-month period to the current nine-month period was primarily attributable to overall lower sales volumes during the first half of fiscal 2021, driven by the adverse impacts of the COVID-19 pandemic, partially offset by the continued momentum of REPREVE®-branded products contributing to underlying sales growth.

The RMB weighted average exchange rate was 6.65 RMB/USD and 7.02 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

 

$

14,382

 

Change in underlying margins and sales mix

 

 

3,158

 

Favorable foreign currency translation effects

 

 

749

 

Net change in sales volumes

 

 

(30

)

Segment Profit for the current nine-month period

 

$

18,259

 

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 raw material cost benefits achieved on certain product lines and higher conversion margin.

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 28, 2021

 

 

March 29, 2020

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

72,563

 

 

 

100.0

 

 

$

66,094

 

 

 

100.0

 

 

 

9.8

 

Cost of sales

 

 

49,375

 

 

 

68.0

 

 

 

55,089

 

 

 

83.3

 

 

 

(10.4

)

Gross profit

 

 

23,188

 

 

 

32.0

 

 

 

11,005

 

 

 

16.7

 

 

 

110.7

 

Depreciation expense

 

 

1,050

 

 

 

1.4

 

 

 

1,153

 

 

 

1.7

 

 

 

(8.9

)

Segment Profit

 

$

24,238

 

 

 

33.4

 

 

$

12,158

 

 

 

18.4

 

 

 

99.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

  consolidated amounts

 

 

15.0

%

 

 

 

 

 

 

12.7

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

  consolidated amounts

 

 

29.3

%

 

 

 

 

 

 

19.0

%

 

 

 

 

 

 

 

 

30


 

 

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

Net sales for the prior nine-month period

 

$

66,094

 

Increase in average selling price and change in sales mix

 

 

11,805

 

Increase in sales volumes

 

 

9,969

 

Unfavorable foreign currency translation effects

 

 

(15,305

)

Net sales for the current nine-month period

 

$

72,563

 

 

The increase in net sales for the Brazil Segment from the prior nine-month period to the current nine-month period was primarily attributable to the Brazil Segment’s ability to capture market share from competitors and increase selling prices, partially offset by unfavorable foreign currency translation effects.

The BRL weighted average exchange rate was 5.43 BRL/USD and 4.17 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

 

$

12,158

 

Increase in underlying margins

 

 

13,038

 

Increase in sales volumes

 

 

1,838

 

Unfavorable foreign currency translation effects

 

 

(2,796

)

Segment Profit for the current nine-month period

 

$

24,238

 

The increase in Segment Profit for the Brazil Segment from the prior nine-month period to the current nine-month period was primarily attributable to an improved sales mix and conversion margin combined with higher sales volumes stemming from a temporarily improved competitive position in Brazil, partially offset by unfavorable foreign currency translation effects.

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 28, 2021

 

 

March 29, 2020

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

47,815

 

 

 

100.0

 

 

$

57,853

 

 

 

100.0

 

 

 

(17.4

)

Cost of sales

 

 

46,318

 

 

 

96.9

 

 

 

56,296

 

 

 

97.3

 

 

 

(17.7

)

Gross profit

 

 

1,497

 

 

 

3.1

 

 

 

1,557

 

 

 

2.7

 

 

 

(3.9

)

Depreciation expense

 

 

1,321

 

 

 

2.8

 

 

 

1,465

 

 

 

2.5

 

 

 

(9.8

)

Segment Profit

 

$

2,818

 

 

 

5.9

 

 

$

3,022

 

 

 

5.2

 

 

 

(6.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

  consolidated amounts

 

 

9.9

%

 

 

 

 

 

 

11.1

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

  consolidated amounts

 

 

3.4

%

 

 

 

 

 

 

4.7

%

 

 

 

 

 

 

 

 

 

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

 

Net sales for the prior nine-month period

 

$

57,853

 

Net change in average selling price and sales mix

 

 

(5,931

)

Decrease in sales volumes

 

 

(4,107

)

Net sales for the current nine-month period

 

$

47,815

 

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) demand declines in connection with the COVID-19 pandemic and (ii) a customer shifting certain programs to overseas garment production subsequent to the prior nine-month period, contributing to (iii) a weaker sales mix following declines in hosiery demand.

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

Segment Profit for the prior nine-month period

 

$

3,022

 

Decrease in sales volumes

 

 

(215

)

Net increase in underlying margins

 

 

11

 

Segment Profit for the current nine-month period

 

$

2,818

 

 

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 volumes.

31


 

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 $25,710, and, at March 28, 2021, excess availability under the ABL Revolver was $63,314.

As of March 28, 2021, all of UNIFI’s $89,394 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, while 41% 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 28, 2021 for domestic operations compared to foreign operations:  

 

 

 

Domestic

 

 

Foreign

 

 

Total

 

Cash and cash equivalents

 

$

44,387

 

 

$

31,211

 

 

$

75,598

 

Borrowings available under financing arrangements

 

 

63,314

 

 

 

 

 

 

63,314

 

Liquidity

 

$

107,701

 

 

$

31,211

 

 

$

138,912

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

$

94,748

 

 

$

117,301

 

 

$

212,049

 

Total debt obligations

 

$

89,394

 

 

$

 

 

$

89,394

 

UNIFI’s primary cash requirements, in addition to normal course operating activities (e.g. working capital and payroll), primarily include (i) capital expenditures that generally have commitments of up to 12 months, (ii) contractual obligations that support normal course ongoing operations and production, (iii) operating leases and finance leases, and (iv) debt service.

 

COVID-19 Pandemic Liquidity Considerations

Because global economic activity slowed within a short period of time, the COVID-19 pandemic 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 global demand declines and/or uncertainty that began in March 2020. Accordingly, to minimize the disruption to operations that could result from outbreaks among UNIFI employees, UNIFI has prioritized health and safety measures that include restricting travel and group meetings, enforcing social distancing and healthy habits, increased sanitization, and increased wellness monitoring. Additionally, the following aid in reducing risk and ensuring adequate cash is available to fund ongoing operations and obligations:

 

Managing working capital levels and ensuring higher inventory turns.

 

Participating in the supply chain for personal protective equipment and new customer programs.

 

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

 

Maintaining significant cash reserves from cash flows from operations and the proceeds from the PAL Investment sale in April 2020.

While we currently expect our significant cash balances and available borrowings to provide adequate liquidity during the on-going COVID-19 pandemic, should global demand and economic activity remain subdued beyond the short-term, UNIFI maintains the ability to (i) pursue aid and lending programs from governmental entities, (ii) seek additional credit or financing arrangements or extensions of existing arrangements, and (iii) implement further cost reduction initiatives to preserve cash and secure the longevity of the business and operations.

The following further describe the current strength of UNIFI’s liquidity position and access to capital resources:

 

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

 

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

 

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

 

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

 

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

 

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

Lastly, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) allowed UNIFI to defer certain employer payroll tax payments to future periods, extend utilization of a net operating loss carryback, and attain certain employee retention credits, all of which are not material to our short- and long-term liquidity position. We have not applied for or obtained any other material federal or state assistance.

32


 

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 28, 2021

 

March 28, 2021

 

 

June 28, 2020

 

ABL Revolver

 

December 2023

 

 

0.0

%

 

 

$

 

 

$

 

ABL Term Loan

 

December 2023

 

 

3.3

%

(1)

 

 

80,000

 

 

 

87,500

 

Finance lease obligations

 

(2)

 

 

3.6

%

 

 

 

9,394

 

 

 

11,381

 

Total debt

 

 

 

 

 

 

 

 

 

89,394

 

 

 

98,881

 

Current ABL Term Loan

 

 

 

 

 

 

 

 

 

(10,000

)

 

 

(10,000

)

Current portion of finance lease obligations

 

 

 

 

 

 

 

 

 

(3,726

)

 

 

(3,563

)

Unamortized debt issuance costs

 

 

 

 

 

 

 

 

 

(534

)

 

 

(711

)

Total long-term debt

 

 

 

 

 

 

 

 

$

75,134

 

 

$

84,607

 

 

(1)     Includes the effects of interest rate swaps.

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

As of March 28, 2021:

 

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

 

excess availability under the ABL Revolver was $63,314,

 

the Trigger Level (as defined in the Credit Agreement) was $22,500, and

 

$0 of standby letters of credit were outstanding.

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. Management will continue to monitor the expected termination of LIBOR and the impact on UNIFI’s operations. However, management does not expect (i) significant efforts are necessary to accommodate a termination of LIBOR or (ii) a significant impact to UNIFI’s operations upon a termination of LIBOR.

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

Scheduled Debt Maturities

The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the remainder of fiscal 2021, the following four fiscal years and thereafter:

 

 

Fiscal 2021

 

 

Fiscal 2022

 

 

Fiscal 2023

 

 

Fiscal 2024

 

 

Fiscal 2025

 

 

Thereafter

 

ABL Revolver

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

ABL Term Loan

 

 

2,500

 

 

 

10,000

 

 

 

10,000

 

 

 

57,500

 

 

 

 

 

 

 

Finance lease obligations

 

 

919

 

 

 

3,545

 

 

 

1,257

 

 

 

1,301

 

 

 

1,195

 

 

 

1,177

 

Total

 

$

3,419

 

 

$

13,545

 

 

$

11,257

 

 

$

58,801

 

 

$

1,195

 

 

$

1,177

 

Net Debt (Non-GAAP Financial Measure)

The reconciliations for Net Debt are as follows:

 

 

March 28, 2021

 

 

June 28, 2020

 

Long-term debt

 

$

75,134

 

 

$

84,607

 

Current portion of long-term debt

 

 

13,726

 

 

 

13,563

 

Unamortized debt issuance costs

 

 

534

 

 

 

711

 

Debt principal

 

 

89,394

 

 

 

98,881

 

Less: cash and cash equivalents

 

 

75,598

 

 

 

75,267

 

Net Debt

 

$

13,796

 

 

$

23,614

 

33


 

 

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 28, 2021

 

 

June 28, 2020

 

Cash and cash equivalents

 

$

75,598

 

 

$

75,267

 

Receivables, net

 

 

96,988

 

 

 

53,726

 

Inventories

 

 

122,004

 

 

 

109,704

 

Income taxes receivable

 

 

9,594

 

 

 

4,033

 

Other current assets

 

 

8,475

 

 

 

11,763

 

Accounts payable

 

 

(47,645

)

 

 

(25,610

)

Accrued expenses

 

 

(27,145

)

 

 

(13,689

)

Other current liabilities

 

 

(25,820

)

 

 

(15,695

)

Working capital

 

$

212,049

 

 

$

199,499

 

 

 

 

 

 

 

 

 

 

Less: Cash and cash equivalents

 

 

(75,598

)

 

 

(75,267

)

Less: Income taxes receivable

 

 

(9,594

)

 

 

(4,033

)

Less: Other current liabilities

 

 

25,820

 

 

 

15,695

 

Adjusted Working Capital

 

$

152,677

 

 

$

135,894

 

 

Working capital increased from $199,499 as of June 28, 2020 to $212,049 as of March 28, 2021, while Adjusted Working Capital increased from $135,894 to $152,677.

 

The increase in receivables, net and inventories was primarily attributable to increased sales in the current nine-month period following low sales activity in the June 2020 quarter due to significantly suppressed demand levels caused by the COVID-19 pandemic. The increase in income taxes receivable follows the application of the annualized effective tax rate to pre-tax losses. The decrease in other current assets was primarily due to the amount and timing of contract assets revenue recognition. The increase in accounts payable was consistent with the increase in sales and production activity following business recovery during the current nine-month period. The increase in accrued expenses was primarily attributable to higher incentive compensation accruals in the current nine-month period and an increase in deferred revenue associated with increased sales activity in the Asia Segment. The increase in other current liabilities is primarily attributable to the increase in income taxes payable following the application of the annualized effective tax rate to pre-tax income.

Capital Projects

During the current nine-month period, UNIFI invested approximately $12,000 in capital projects, primarily relating to (i) further improvements in production capabilities and technology enhancements in the Americas, (ii) eAFK Evo texturing machinery, and (iii) 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 2021, we expect to invest up to $12,000 in capital projects for an aggregate annual estimate of up to $24,000, to include (i) making further improvements in production capabilities and technology enhancements in the Americas, (ii) continuing the purchase and installation of new eAFK Evo texturing machines, and (iii) annual maintenance capital expenditures.

The total amount ultimately invested for fiscal 2021 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 primarily by existing cash and cash equivalents.  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 28, 2021, UNIFI repurchased a total of 84 shares during fiscal 2020, at an average price of $23.72 (for a total of $1,994 inclusive of commission costs) pursuant to the 2018 SRP.  Accordingly, $48,008 remains available under the 2018 SRP as of March 28, 2021.

Liquidity Summary

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

34


 

Operating Cash Flows

The significant components of net cash provided by operating activities are summarized below.

 

 

 

For the Nine Months Ended

 

 

 

March 28, 2021

 

 

March 29, 2020

 

Net income (loss)

 

$

15,654

 

 

$

(36,990

)

Equity in earnings of unconsolidated affiliates

 

 

(751

)

 

 

(1,904

)

Depreciation and amortization expense

 

 

19,007

 

 

 

17,685

 

Impairment of investment in unconsolidated affiliate

 

 

 

 

 

45,194

 

Non-cash compensation expense

 

 

2,656

 

 

 

2,510

 

Deferred income taxes

 

 

(1,826

)

 

 

(10,029

)

Subtotal

 

 

34,740

 

 

 

16,466

 

 

 

 

 

 

 

 

 

 

Distributions received from unconsolidated affiliates

 

 

 

 

 

10,437

 

Other changes

 

 

(9,030

)

 

 

5,202

 

Net cash provided by operating activities

 

$

25,710

 

 

$

32,105

 

 

The decrease in net cash provided by operating activities from the prior nine-month period was primarily due to $10,437 of distributions received from PAL in September 2019, while higher Adjusted EBITDA was partially offset by an increase in Adjusted Working Capital in the current nine-month period, both commensurate with business recovery since June 2020.

Investing Cash Flows

Investing activities include (i) approximately $12,000 for capital expenditures, which primarily relate to ongoing maintenance capital expenditures along with production capabilities and technology enhancements in the Americas and (ii) approximately $3,600 for intangible asset purchases in connection with two bolt-on asset acquisitions in an effort to expand our customer portfolios in the U.S.

Financing Cash Flows

Financing activities include scheduled payments against the ABL Term Loan and finance leases during fiscal 2021.

Contractual Obligations

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

There have been no material changes in the scheduled maturities of UNIFI’s contractual obligations as disclosed in the table under the heading “Contractual Obligations” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2020 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 2020 Form 10-K.  There were no material changes to these policies during the current nine-month period.

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rate Risk

UNIFI is exposed to interest rate risk through its borrowing activities.  As of March 28, 2021, UNIFI had borrowings under its ABL Term Loan that totaled $80,000, with approximately $5,000 subject to variable rates of interest because UNIFI hedges a significant portion of 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 28, 2021 would result in an increase in annual interest expense of less than $100.

35


 

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 28, 2021, 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 and quarters, UNIFI was negatively impacted by a devaluation of the BRL.  Also, the RMB experienced fluctuations, 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.” UNIFI does not enter into foreign currency derivatives to hedge its net investment in its foreign operations.

As of March 28, 2021, foreign currency exchange rate risk concepts included the following:

 

 

Approximate

Amount or

Percentage

 

Percentage of total consolidated assets held by UNIFI's subsidiaries outside the U.S. whose functional currency

   is not the USD

 

 

23.5

%

 

 

 

 

 

Cash and cash equivalents held outside the U.S.:

 

 

 

 

   Denominated in USD

 

$

10,277

 

   Denominated in RMB

 

 

7,795

 

   Denominated in BRL

 

 

7,331

 

   Denominated in other foreign currencies

 

 

407

 

Total cash and cash equivalents held outside the U.S.

 

$

25,810

 

Percentage of total cash and cash equivalents held outside the U.S.

 

 

34.1

%

 

 

 

 

 

Cash and cash equivalents held inside the U.S. in USD by foreign subsidiaries

 

$

5,401

 

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

During fiscal 2019 and 2018, UNIFI operated in a predominantly increasing raw material cost environment. UNIFI believes those higher costs were primarily a result of volatility in the crude oil markets, along with periods of supply and demand constraints for certain polyester feedstock.

During fiscal 2020 and the first six months of fiscal 2021, UNIFI experienced a predominantly favorable, declining raw material cost environment.

During the third quarter of fiscal 2021, UNIFI experienced cost increases for raw materials, primarily related to (i) increases in petroleum prices and (ii) supply chain disruptions that occurred in Texas during February 2021 due to abnormally cold weather. Our raw material costs remain subject to the volatility described above and, should raw material costs increase unexpectedly, UNIFI’s results of operations and cash flows are likely to be adversely impacted.

Other Risks

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

36


 

Item 4.

Controls and Procedures

As of March 28, 2021, an evaluation of the effectiveness of UNIFI’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was performed under the supervision and with the participation of UNIFI’s management, including the principal executive officer and principal financial officer. Based on that evaluation, UNIFI’s principal executive officer and principal financial officer concluded that UNIFI’s disclosure controls and procedures are effective to ensure that information required to be disclosed by UNIFI in 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 28, 2021 that have materially affected, or are reasonably likely to materially affect, UNIFI’s internal control over financial reporting.

37


 

PART II—OTHER INFORMATION

Item 1.

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

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

 

Item 6.

Exhibits

 

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.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

 

+

Filed herewith.

++

Furnished herewith.

 

38


 

 

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 5, 2021

 

By:

/s/ CRAIG A. CREATURO

 

 

 

Craig A. Creaturo

 

 

 

Executive Vice President & Chief Financial Officer

 

 

 

(Principal Financial Officer and Principal

Accounting Officer)

 

 

39