UNIFI INC 10-Q

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 April 2, 2023, UNIFI had borrowings under its ABL Facility that totaled $122,900. UNIFI’s sensitivity analysis indicates that a 50-basis point interest rate increase as of April 2, 2023 would result in an increase in annual interest expense of approximately $640. Foreign Currency Exchange Rate Risk A complete discussion of foreign currency exchange rate risk is included in the 2022 Form 10-K and is supplemented by the following disclosures. As of April 2, 2023, UNIFI had no outstanding foreign currency forward contracts. As of April 2, 2023, 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 30.6 % Cash and cash equivalents held outside the U.S.: Denominated in USD $ 13,193 Denominated in RMB 28,320 Denominated in BRL 7,104 Denominated in other foreign currencies 363 Total cash and cash equivalents held outside the U.S. $ 48,980 Percentage of total cash and cash equivalents held outside the U.S. 98.5 % Cash and cash equivalents held inside the U.S. in USD by foreign subsidiaries $ 709 Raw Material and Commodity Cost Risks A complete discussion of raw material and commodity cost risks is included in the 2022 Form 10-K and is supplemented by the following disclosures. As fiscal 2022 concluded, UNIFI experienced cost increases for raw materials related to inflationary pressures and competing alternatives to U.S. polyester production. Following the recent global demand deterioration, raw material costs have declined in fiscal 2023. We have been able to implement responsive selling price adjustments for the majority of our portfolio throughout fiscal 2022 and 2023. While our underlying gross margin is predominantly pressured by lower textile demand, we expect the impact of recent selling price adjustments to aid margin improvement throughout the remainder of fiscal 2023. Nonetheless, input costs remain subject to volatility, and, should input costs increase unexpectedly or should textile demand worsen, UNIFI’s results of operations and cash flows are likely to be adversely impacted. Cash Deposits and Financial Institution Risk During the current period, certain regional bank crises and failures generated additional uncertainty and volatility in the financial and credit markets. UNIFI currently holds the vast majority of its cash deposits with large foreign banks in our associated operating regions, and management maintains the ability to repatriate cash to the U.S. relatively quickly. Accordingly, UNIFI has not modified its mix of financial institutions holding cash deposits, but UNIFI will continue to monitor the environment and current events to ensure any increase in concentration or credit risk is appropriately and timely addressed. If any of the financial institutions within our 2022 Credit Agreement or construction financing arrangement (“lending counterparties”) are unable to perform on their commitments, our liquidity could be impacted. We actively monitor all lending counterparties, and none have indicated that they may be unable to perform on their commitments. In addition, we periodically review our lending counterparties, considering the stability of the institutions and other aspects of the relationships. Based on our monitoring activities, we currently believe our lending counterparties will be able to perform their commitments. 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. 29