Item 5. Market for Registrant’s Common Equity
Item 5. Market for Registrant’s Common Equity, Related Sto ckholder Matters and Issuer Purchases of Equity Securities
UNIFI’s common stock is listed for trading on the New York Stock Exchange (the “NYSE”) under the symbol “UFI.”
As of August 24, 2023, there were 117 record holders of UNIFI’s common stock. A significant number of the outstanding shares of common stock that are beneficially owned by individuals and entities are registered in the name of Cede & Co. Cede & Co. is a nominee of The Depository Trust Company, a securities depository for banks and brokerage firms. UNIFI estimates that there are approximately 4,350 beneficial owners of its common stock.
No dividends were paid in the past two fiscal years, and UNIFI does not intend to pay cash dividends in the foreseeable future. UNIFI’s current debt obligations contain certain restricted payment and restricted investment provisions, including a restriction on the payment of dividends and share repurchases under certain circumstances. Information regarding UNIFI’s debt obligations is provided in Note 12, “Long-Term Debt,” to the accompanying consolidated financial statements.
Purchases of Equity Securities
On October 31, 2018, UNIFI announced that 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 may 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 July 2, 2023, UNIFI had repurchased 701 shares of its common stock at an average price of $15.90 per share, leaving $38,859 available for repurchase under the 2018 SRP. UNIFI will continue to evaluate opportunities to use excess cash flows from operations or existing borrowings to repurchase additional stock, while maintaining sufficient liquidity to support its operational needs and to fund future strategic growth opportunities.
In fiscal 2023, UNIFI withheld 7 shares in satisfaction of tax withholding obligations under net share settle transactions of stock-based compensation awards.
In fiscal 2022, UNIFI repurchased 617 shares of its common stock at an average price of $14.84 per share.
19
PERFORMANCE GRAPH - SHAREHOLDER RETURN ON COMMON STOCK
The below graphic comparison assumes the investment of $100 in each of UNIFI common stock, the S&P SmallCap 600 Index (a benchmark index containing inclusion characteristics closely associated with UNIFI) and the NYSE Composite Index (a broad equity market index), all at June 22, 2018. The resulting cumulative total return assumes that dividends, if any, were reinvested. Past performance is not indicative of future performance.
June 22, 2018
June 28, 2019
June 26, 2020
June 25, 2021
July 1, 2022
June 30, 2023
Unifi, Inc.
$
100.00
$
57.65
$
37.02
$
78.52
$
44.48
$
25.60
S&P 600
100.00
91.61
75.77
132.92
109.53
117.23
NYSE Composite
100.00
106.00
96.67
141.83
127.50
141.81
Item 6. [Re served]
20
Item 7. Management’s Discussion and Analysis o f 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 consolidated financial statements. Management’s discussion and analysis should be read in conjunction with the remainder of this report, with the understanding that forward-looking statements may be present. A reference to a “note” refers to the accompanying notes to consolidated financial statements.
Strategic Priorities
We believe UNIFI’s underlying performance during recent fiscal years reflects the strength of our global initiative to deliver differentiated solutions to customers and brand partners throughout the world. Our supply chain has been developed and enhanced in multiple regions around the globe, allowing us to deliver a diverse range of fibers and polymers to key customers in the markets we serve, especially apparel. These textile products are supported by quality assurance, product development, product and fabric certifications, hangtags, co-marketing, and technical and customer service teams across UNIFI’s operating subsidiaries. We have developed this successful operating platform by improving operational and business processes and deriving value from sustainability-based initiatives, including polyester and nylon recycling.
We believe that further commercial expansion will require a continued stream of new technology and innovation that generates products with meaningful consumer benefits. Along with our recycled platform, UNIFI has significant yarn technologies that provide optimal performance characteristics for today’s marketplace, including moisture management, temperature moderation, stretch, ultra-violet protection, and fire retardation, among others. To achieve further growth, UNIFI remains focused on innovation, bringing to market the next wave of fibers and polymers for tomorrow’s applications. As we invest and grow, sustainability remains at our core. We believe that increasing the awareness for recycled solutions in applications across fibers and polymers and furthering sustainability-based initiatives with like-minded brand partners will be key to our future success. We also believe that our manufacturing processes and our technical knowledge and capabilities will allow us to grow market share and develop new textile programs with new and existing customers. Ultimately, we believe that combining leading-edge innovation with our prominent, high-quality brand and agile regional business model will allow for underlying sales and profitability growth.
Significant Developments and Trends
During the last six fiscal years, several key drivers affected our financial results.
• During fiscal 2018 and 2019, our operations in the U.S. were unfavorably impacted by (i) rising raw material costs and (ii) a surge of imported polyester textured yarn that depressed our pricing, market share, and fixed cost absorption.
• During fiscal 2020, our financial results began to improve following more stable import and raw material cost environments. However, the COVID-19 pandemic had a significant unfavorable impact to product demand and our annual profitability suffered accordingly. Near the end of fiscal 2020, we divested a minority interest investment and significantly improved our liquidity position, supporting business preservation and the ability to capture long-term growth opportunities.
• Throughout fiscal 2021, our businesses experienced sequential improvement alongside global demand and economic recovery, and we capitalized on profitable opportunities that fueled strong consolidated results.
• Throughout fiscal 2022, we experienced adverse pressure from rising input costs and a weakening of labor productivity primarily in our domestic operations.
• Throughout fiscal 2023, we experienced a downturn in global textile demand as brands and retailers began to destock their inventory levels. Looking ahead, we believe our operations remain well-positioned to capture long-term growth opportunities and we are working to mitigate any potential recessionary impacts.
Once global economic pressures subside, we believe incremental revenue for the Americas Segment will be generated from both the polyester textured yarn trade petitions, along with continued demand for innovative and sustainable products. The Asia Segment continues to capture demand for recycled products and serves as a significant component of future growth. The Brazil Segment has returned to more normalized levels of performance and is expected to maintain healthy volumes and margins following the current pressures from low-cost imports. As the Asia market improves, the volume of low-cost Asian imports into Brazil is expected to decrease.
21
The following developments and trends occurred or were occurring in fiscal 2023.
• Demand levels for the majority of our business lines in the Americas and Asia Segments experienced declines during fiscal 2023 as a result of lower global demand in connection with the inventory destocking efforts of major brands and retailers in addition to pandemic-related lockdowns in Asia, partially offset by higher selling prices in response to higher raw material and input costs.
• Our REPREVE family of products continued to gain momentum with brands, retailers, and mill partners who value sustainability and UNIFI’s ability to produce leading-edge products with in-demand technologies.
• The Americas Segment experienced weaker global demand, weak fixed cost absorption in connection with lower production, and overall higher raw material cost levels in beginning inventory, despite a decrease in raw material costs during fiscal 2023.
• The Brazil Segment was able to capture market share from competitors, but incurred selling price pressures from lower cost imports.
• The Asia Segment's sales growth slowed in fiscal 2023 due to a slowdown in global demand; however, there remains healthy demand for REPREVE, generating continued portfolio expansion.
Fluctuations in Raw Material Costs and Foreign Currency Exchange Rates
Raw material costs represent a significant portion of UNIFI’s product costs. The prices for the principal raw materials used by UNIFI continually fluctuate, and it is difficult or impossible to predict trends or upcoming developments.
The first half of fiscal 2021 included stable, lower raw material costs, while economic recovery, weather events, and supply chain challenges generated raw material cost increases during the second half of fiscal 2021 and the first half of fiscal 2022. For the majority of our portfolio, we were able to implement selling price adjustments throughout fiscal 2021 and 2022. However, recycled inputs in the U.S. experienced continued cost increases during fiscal 2022. Despite the responsive selling price increases, we still experienced meaningful gross profit pressure during fiscal 2022 and 2023, primarily from the U.S. labor shortage and speed at which input costs increased.
The continuing volatility in global crude oil prices is likely to impact UNIFI’s polyester and nylon raw material costs. While it is not possible to predict the timing or amount of the impact or whether the recent fluctuations in crude oil prices will stabilize, increase, or decrease, UNIFI monitors these dynamic factors closely. In addition, UNIFI attempts to pass on to its customers increases in raw material costs but due to market pressures, this is not always possible. When price increases can be implemented, there is typically a time lag that adversely affects UNIFI and its margins during one or more quarters. 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 certain raw materials in the prior quarter. Pricing adjustments for other customers must be negotiated independently. In ordinary market conditions in which raw material cost increases have stabilized and sales volumes are consistent with traditional levels, UNIFI has historically been successful in implementing price adjustments within one or two fiscal quarters of the raw material price increase for all of its customers.
UNIFI is also impacted by significant fluctuations in the value of the Brazilian Real (the “BRL”) and the Chinese Renminbi (the “RMB”), the local currencies for our operations in Brazil and China, respectively. Appreciation of the BRL and the RMB improves our net sales and gross profit metrics when the results of our subsidiaries are translated into USDs at comparatively favorable rates. However, such strengthening may cause adverse impacts to the value of USDs held in these foreign jurisdictions. UNIFI expects continued volatility in the value of the BRL and the RMB to impact our key performance metrics and actual financial results, although the magnitude of the impact is dependent upon the significance of the volatility, and it is not possible to predict the timing or amount of the impact.
The BRL to USD weighted average exchange rate was 5.17, 5.21, and 5.38 for fiscal 2023, 2022, and 2021, respectively. The RMB to USD weighted average exchange rate was 6.94, 6.45, and 6.60 for fiscal 2023, 2022, and 2021, respectively.
22
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 (loss) income and (loss) earnings per share ("EPS");
• Segment Profit, which equals segment gross (loss) profit plus segment depreciation expense;
• unit conversion margin, which represents unit net sales price less unit raw material costs, for UNIFI and for each reportable segment;
• working capital, which represents current assets less current liabilities;
• Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), which represents net (loss) income before net interest expense, income tax expense and depreciation and amortization expense;
• Adjusted EBITDA, which represents EBITDA adjusted to exclude, from time to time, certain other adjustments necessary to understand and compare the underlying results of UNIFI;
• Adjusted Net (Loss) Income, which represents net (loss) income calculated under GAAP, adjusted to exclude certain amounts which management believes do not reflect the ongoing operations and performance of UNIFI and/or for which exclusion may be necessary to understand and compare the underlying results of UNIFI;
• Adjusted EPS, which represents Adjusted Net (Loss) 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 other current liabilities; and
• Net Debt, which represents debt principal less cash and cash equivalents.
EBITDA, Adjusted EBITDA, Adjusted Net (Loss) 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 items (a) directly related to our asset base (primarily depreciation and amortization) and/or (b) 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.
Management uses Adjusted Net (Loss) 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.
See “Non-GAAP Reconciliations” below for reconciliations of non-GAAP metrics to the most directly comparable GAAP metric.
23
Review of Results of Operations for Fiscal 2023, 2022 and 2021
UNIFI’s fiscal 2023 and 2021 each consisted of 52 weeks, while its fiscal 2022 consisted of 53 weeks. The additional week in fiscal 2022 included approximately $8,700 of net sales, an insignificant impact to gross profit, and approximately $400 of selling, general and administrative expenses.
Consolidated Overview
The below tables provide:
• the components of net (loss) income and the percentage increase or decrease over the prior fiscal year amounts,
• a reconciliation from net (loss) income to EBITDA and Adjusted EBITDA, and
• a reconciliation from net (loss) income to Adjusted Net (Loss) Income and Adjusted EPS.
Following the tables is a discussion and analysis of the significant components of net (loss) income.
Net (loss) income
Fiscal 2023
% Change
Fiscal 2022
% Change
Fiscal 2021
Net sales
$
623,527
(23.6
)
$
815,758
22.2
$
667,592
Cost of sales
609,286
(17.1
)
735,273
28.1
574,098
Gross profit
14,241
(82.3
)
80,485
(13.9
)
93,494
SG&A
47,345
(9.8
)
52,489
2.2
51,334
Benefit for bad debts
(89
)
(80.0
)
(445
)
(66.2
)
(1,316
)
Other operating expense (income), net
7,856
nm
(158
)
(103.2
)
4,865
Operating (loss) income
(40,871
)
nm
28,599
(25.9
)
38,611
Interest expense, net
5,468
nm
1,561
(42.6
)
2,720
Earnings from unconsolidated affiliates
(896
)
48.1
(605
)
(18.1
)
(739
)
Recovery of non-income taxes, net
—
nm
815
(108.4
)
(9,717
)
(Loss) income before income taxes
(45,443
)
nm
26,828
(42.1
)
46,347
Provision for income taxes
901
(92.3
)
11,657
(32.5
)
17,274
Net (loss) income
$
(46,344
)
nm
$
15,171
(47.8
)
$
29,073
nm – not meaningful
EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
The reconciliations of the amounts reported under GAAP for Net (Loss) Income to EBITDA and Adjusted EBITDA are as follows.
Fiscal 2023
Fiscal 2022
Fiscal 2021
Net (loss) income
$
(46,344
)
$
15,171
$
29,073
Interest expense, net
5,468
1,561
2,720
Provision for income taxes
901
11,657
17,274
Depreciation and amortization expense (1)
27,020
25,986
25,293
EBITDA
(12,955
)
54,375
74,360
Asset abandonment (2)
8,247
—
—
Contract modification costs (3)
623
—
—
Recovery of non-income taxes, net (4)
—
815
(9,717
)
Adjusted EBITDA
$
(4,085
)
$
55,190
$
64,643
(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 consolidated statements of cash flows, amortization of debt issuance costs is reflected in depreciation and amortization expense. In fiscal 2023, interest expense, net includes $273 of loss on debt extinguishment.
(2) In fiscal 2023, UNIFI abandoned certain specialized machinery in the Americas and recorded an impairment charge. The impairment charge was recorded to reflect the lack of future positive cash flows associated with the machinery, following multiple years of investment recovery since its fiscal 2017 installation.
(3) In fiscal 2023, UNIFI amended certain existing contracts related to future purchases of texturing machinery by delaying the scheduled receipt and installation of such equipment for approximately 18 months. UNIFI paid the associated vendor $623 to establish the 18-month delay.
(4) In fiscal 2021, UNIFI recorded a recovery of non-income taxes of $9,717 related to favorable litigation results for its Brazilian operations, generating overpayments that resulted from excess social program taxes paid in prior fiscal years. For fiscal 2022, UNIFI reduced the estimated benefit based on additional clarity and review of the recovery process.
24
Adjusted Net (Loss) Income and Adjusted EPS (Non-GAAP Financial Measures)
The tables below set forth reconciliations of (i) (Loss) Income before income taxes (“Pre-tax (Loss) Income”), Provision for income taxes (“Tax Impact”) and Net (Loss) Income to Adjusted Net (Loss) Income and (ii) Diluted EPS to Adjusted EPS.
Fiscal 2023
Pre-tax Loss
Tax Impact
Net Loss
Diluted EPS
GAAP results
$
(45,443
)
$
(901
)
$
(46,344
)
$
(2.57
)
Asset abandonment (1)
8,247
—
8,247
0.46
Contract modification costs (2)
623
—
623
0.03
Recovery of income taxes (3)
—
(3,799
)
(3,799
)
(0.21
)
Adjusted results
$
(36,573
)
$
(4,700
)
$
(41,273
)
$
(2.29
)
Weighted average common shares outstanding
18,037
Fiscal 2022
Pre-tax Income
Tax Impact
Net Income
Diluted EPS
GAAP results
$
26,828
$
(11,657
)
$
15,171
$
0.80
Recovery of non-income taxes, net (4)
815
(257
)
558
0.03
Recovery of income taxes, net (5)
—
(1,446
)
(1,446
)
(0.07
)
Adjusted results
$
27,643
$
(13,360
)
$
14,283
$
0.76
Weighted average common shares outstanding
18,868
Fiscal 2021
Pre-tax Income
Tax Impact
Net Income
Diluted EPS
GAAP results
$
46,347
$
(17,274
)
$
29,073
$
1.54
Recovery of non-income taxes, net (4)
(9,717
)
3,304
(6,413
)
(0.34
)
Adjusted results
$
36,630
$
(13,970
)
$
22,660
$
1.20
Weighted average common shares outstanding
18,856
(1) In fiscal 2023, UNIFI abandoned certain specialized machinery in the Americas and recorded an impairment charge. The associated tax impact was estimated to be $0 due to a valuation allowance against net operating losses in the U.S.
(2) In fiscal 2023, UNIFI amended certain existing contracts related to future purchases of texturing machinery by delaying the scheduled receipt and installation of such equipment in the U.S. and El Salvador for 18 months. UNIFI paid the associated vendor $623 to establish the 18-month delay. The associated tax impact was estimated to be $0 due to (i) a valuation allowance against net operating losses in the U.S. and (ii) UNIFI's effective tax rate in El Salvador.
(3) In fiscal 2023, UNIFI recorded a recovery of income taxes in connection with filing amended tax returns in Brazil relating to certain income taxes paid in prior fiscal years following favorable legal rulings in fiscal 2023.
(4) In fiscal 2021, UNIFI recorded a recovery of non-income taxes of $9,717 related to favorable litigation results for its Brazilian operations, generating overpayments that resulted from excess social program taxes paid in prior fiscal years. For fiscal 2022, UNIFI reduced the estimated benefit based on additional clarity and review of the recovery process.
(5) In fiscal 2022, UNIFI recorded a recovery of income taxes in Brazil regarding certain income taxes paid in prior fiscal years.
Net Sales
Fiscal 2023 vs. Fiscal 2022
Consolidated net sales for fiscal 2023 decreased by $192,231, or 23.6%, and consolidated sales volumes decreased 25.3%, compared to fiscal 2022. The decreases occurred primarily due to lower volumes in the Americas and Asia Segments as a result of lower global demand in connection with the inventory destocking efforts of major brands and retailers in addition to pandemic-related lockdowns in Asia, partially offset by higher selling prices in response to higher raw material and input costs.
Consolidated weighted average sales prices increased 1.7%, primarily attributable to higher selling prices in response to higher input costs, partially offset by (a) competitive pricing pressures in Brazil and (b) a greater mix of Chip and Flake product sales in the Americas Segment.
REPREVE Fiber products for fiscal 2023 comprised 30%, or $186,161, of consolidated net sales, down from 36%, or $293,080, for fiscal 2022. The lower volumes and net sales in the Asia Segment, which has the highest portion of REPREVE ® Fiber sales as a percentage of segment net sales, was the main driver for the lower REPREVE ® Fiber sales.
Fiscal 2022 vs. Fiscal 2021
Consolidated net sales for fiscal 2022 increased by $148,166, or 22.2%, and consolidated sales volumes increased 2.7%, compared to fiscal 2021. The increases occurred primarily due to (i) higher selling prices in response to increasing raw material costs and (ii) underlying sales growth led by the Asia Segment and REPREVE products.
25
Consolidated weighted average sales prices increased 19.5%, primarily attributable to higher selling prices in response to increasing raw material costs.
REPREVE Fiber products for fiscal 2022 comprised 36%, or $293,080, of consolidated net sales, down from 37%, or $245,832, for fiscal 2021. The decrease was primarily due to the pandemic lockdowns in China during the fourth quarter of fiscal 2022, reducing recycled product sales for the Asia Segment.
Gross Profit
Fiscal 2023 vs. Fiscal 2022
Gross profit for fiscal 2023 decreased by $66,244, or 82.3%, compared to fiscal 2022. Gross profit decreased as a result of the decline in net sales combined with weak fixed cost absorption for the Americas Segment, where utilization and productivity are materially impactful to gross profit. Although raw material costs for the Americas Segment decreased meaningfully in the current fiscal year, the associated benefit was muted by low production levels, weak demand, and higher priced raw material inventory impacting gross margins in the first half of the fiscal year.
• For the Americas Segment, gross profit decreased due to weaker global demand, weak fixed cost absorption in connection with lower production, and overall higher raw material cost levels in beginning inventory, despite a decrease in raw material costs during fiscal 2023.
• For the Brazil Segment, gross profit decreased primarily due to the combination of high priced raw material inventory impacting gross margins in the first half of the fiscal year and decreasing market prices in Brazil due to low-cost import competition.
• For the Asia Segment, gross profit decreased primarily due to lower sales volumes in connection with weaker global demand and pandemic-related lockdowns in Asia.
Fiscal 2022 vs. Fiscal 2021
Gross profit for fiscal 2022 decreased by $13,009, or 13.9%, compared to fiscal 2021. Although we experienced a significant increase in net sales, input cost and labor challenges negatively impacted our Americas gross profit, primarily in the last nine months of fiscal 2022.
• For the Americas Segment, gross profit decreased due to higher-than-expected input costs primarily for raw material, labor, packaging, and supplies, along with weaker labor productivity, offsetting the benefit from the restoration of U.S. demand following the worst months of the COVID-19 pandemic.
• For the Brazil Segment, gross profit decreased primarily due to lower volumes and a more normalized market environment in fiscal 2022 following the exceptional performance of the Brazil Segment in fiscal 2021.
• For the Asia Segment, gross profit increased primarily due to higher sales volumes.
SG&A Expenses
The changes in SG&A expenses were as follows:
SG&A for fiscal 2021
$
51,334
Net increase in marketing expenses
2,007
Other net increases
3,319
Net decrease in incentive and other compensation expenses
(4,171
)
SG&A for fiscal 2022
$
52,489
SG&A for fiscal 2022
$
52,489
Net decrease in incentive expenses
(2,768
)
Net decrease in professional fees
(1,104
)
Net decrease in marketing expenses
(497
)
Other net decreases
(775
)
SG&A for fiscal 2023
$
47,345
Fiscal 2023 vs. Fiscal 2022
SG&A expenses decreased from fiscal 2022, primarily due to (i) lower equity compensation in fiscal 2023 and (ii) lower discretionary expenses, including marketing and advertising.
Fiscal 2022 vs. Fiscal 2021
SG&A expenses increased from fiscal 2021, primarily due to higher discretionary expenses, including marketing, advertising, and travel, partially offset by lower incentive compensation for fiscal 2022.
26
Benefit for Bad Debts
Fiscal 2023 vs. Fiscal 2022
The benefit for bad debts decreased from a benefit of $445 in fiscal 2022 to a benefit of $89 in fiscal 2023. There was no material activity in each fiscal year.
Fiscal 2022 vs. Fiscal 2021
The provision for bad debts decreased from a benefit of $1,316 in fiscal 2021 to a benefit of $445 in fiscal 2022. The provision reflected no material activity in fiscal 2022. Fiscal 2021 reflected lower-than-expected credit losses on outstanding receivables following the adverse effects of the COVID-19 pandemic on customer financial health.
Other Operating Expense (Income), Net
Fiscal 2023 vs. Fiscal 2022
Other operating expense (income), net was income of $158 in fiscal 2022 and expense of $7,856 in fiscal 2023, which includes foreign currency transaction gains in fiscal 2022 and 2023. Fiscal 2023 also includes (i) $8,247 of impairment related to the abandonment of certain machinery constructed in fiscal 2017 and (ii) $623 paid to a vendor to facilitate an 18-month delay for equipment purchases.
Fiscal 2022 vs. Fiscal 2021
Other operating (income) expense, net was expense of $4,865 in fiscal 2021 and income of $158 in fiscal 2022, which primarily reflects (i) foreign currency transaction gains in fiscal 2022 and transaction losses in fiscal 2021 and (ii) a predominantly non-cash loss on disposal of assets of $2,809 recorded in fiscal 2021.
Interest Expense, Net
Fiscal 2023 vs. Fiscal 2022
Interest expense, net increased from fiscal 2022 to fiscal 2023. The increase was attributable to higher debt principal following continued capital investments and higher interest rates in fiscal 2023. Interest expense, net for fiscal 2023 included a $273 loss on debt extinguishment.
Fiscal 2022 vs. Fiscal 2021
Interest expense, net decreased from fiscal 2021 to fiscal 2022. The decrease was attributable to greater interest income in fiscal 2022, primarily generated from foreign cash on deposit.
Earnings from Unconsolidated Affiliates
There was no material activity for fiscal 2023, 2022, or 2021.
Recovery of Non-Income Taxes, Net
Brazilian companies are subject to various taxes on business operations, including turnover taxes used to fund social security and unemployment programs, commonly referred to as PIS/COFINS taxes. UNIFI, along with numerous other companies in Brazil, challenged the constitutionality of certain state taxes historically included in the PIS/COFINS tax base.
On May 13, 2021, Brazil’s Supreme Federal Court (the “SFC”) ruled in favor of taxpayers, and on July 7, 2021, the Brazilian Internal Revenue Service withdrew its existing appeal. Following the SFC decision, the federal government will not issue refunds for these taxes but will instead allow for the overpayments and associated interest to be applied as credits against future PIS/COFINS tax obligations.
There are no limitations or restrictions on UNIFI’s ability to recover the associated overpayment claims as future income is generated. Thus, during fiscal 2021, UNIFI recorded a $9,717 recovery of non-income taxes comprised of an estimate of prior fiscal year PIS/COFINS overpayments of $6,167 and associated interest of $3,550.
During fiscal 2022, UNIFI reduced the estimated recovery by $815 based on additional clarity and the review of the recovery process during the months following the associated SFC decision.
27
Provision for Income Taxes
The change in consolidated income taxes is as follows:
Fiscal 2023
Fiscal 2022
Fiscal 2021
(Loss) income before income taxes
$
(45,443
)
$
26,828
$
46,347
Provision for income taxes
901
11,657
17,274
Effective tax rate
(2.0
)%
43.5
%
37.3
%
The effective tax rate is subject to variation due to a number of factors, including: variability in pre-tax and taxable income; 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.
Fiscal 2023 vs. Fiscal 2022
The decrease in the effective tax rate from fiscal 2022 to fiscal 2023 is primarily attributable to lower income for foreign subsidiaries, in combination with the impact of further losses in the U.S. and the associated valuation allowance for deferred tax assets in the current period. Additionally, a discrete tax benefit was recognized in the second quarter of fiscal 2023 related to the recovery of certain Brazilian income taxes paid in prior years.
Fiscal 2022 vs. Fiscal 2021
The increase in the effective tax rate from fiscal 2021 to fiscal 2022 is primarily attributable to (i) an increase in the valuation allowance in fiscal 2022 and (ii) a discrete benefit in fiscal 2021 for the retroactive GILTI high-tax exclusion. These increases are partially offset by (i) lower U.S. tax on GILTI in in fiscal 2022 and (ii) a discrete benefit in fiscal 2022 related to a favorable SFC ruling in Brazil.
Net (Loss) Income
Fiscal 2023 vs. Fiscal 2022
Net loss for fiscal 2023 was $46,344, or $2.57 per diluted share, compared to net income of $15,171, or $0.80 per diluted share, for fiscal 2022. The decrease was primarily attributable to (i) the decrease in gross profit, (ii) the associated adverse impact of lower U.S. earnings on the effective tax rate in fiscal 2023, and (iii) the charge for asset abandonment of certain machinery in fiscal 2023, partially offset by a discrete tax benefit was recognized in the second quarter of fiscal 2023 related to the recovery of certain Brazilian income taxes paid in prior years.
Fiscal 2022 vs. Fiscal 2021
Net income for fiscal 2022 was $15,171, or $0.80 per diluted share, compared to net income of $29,073, or $1.54 per diluted share, for fiscal 2021. The decrease in net income was primarily attributable to (i) lower gross profit, (ii) a higher effective tax rate in fiscal 2022, and (iii) the favorable impact of the recovery of non-income taxes in fiscal 2021.
Adjusted EBITDA
Adjusted EBITDA decreased from $55,190 for fiscal 2022 to ($4,085) for fiscal 2023, primarily in connection with the decrease in gross profit.
Adjusted EBITDA decreased from $64,643 for fiscal 2021 to $55,190 for fiscal 2022, consistent with the decrease in gross profit.
Adjusted Net (Loss) Income
Adjusted Net (Loss) Income decreased from $14,283 for fiscal 2022 to ($41,273) for fiscal 2023, commensurate with lower gross profit and an unfavorable effective tax rate.
Adjusted Net Income decreased from $22,660 for fiscal 2021 to $14,283 for fiscal 2022, commensurate with lower gross profit and an unfavorable effective tax rate.
28
Segment Overview
Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for fiscal 2023, 2022, and 2021.
Americas 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 Americas Segment are as follows:
Fiscal 2023
% Change
Fiscal 2022
% Change
Fiscal 2021
Net sales
$
389,662
(19.3
)
$
483,085
24.9
$
386,779
Cost of sales
404,321
(11.8
)
458,617
30.9
350,373
Gross (loss) profit
(14,659
)
(159.9
)
24,468
(32.8
)
36,406
Depreciation expense
22,044
4.2
21,153
0.5
21,054
Segment Profit
$
7,385
(83.8
)
$
45,621
(20.6
)
$
57,460
Gross margin
(3.8
)%
5.1
%
9.4
%
Segment margin
1.9
%
9.4
%
14.9
%
Segment net sales as a percentage
of consolidated amount
62.5
%
59.2
%
57.9
%
Segment Profit as a
percentage of consolidated amount
19.3
%
44.2
%
49.6
%
The changes in net sales for the Americas Segment are as follows:
Net sales for fiscal 2021
$
386,779
Net change in average selling price and sales mix
80,337
Increase due to an additional week of sales in fiscal 2022
8,703
Increase in sales volumes
7,266
Net sales for fiscal 2022
$
483,085
Net sales for fiscal 2022
$
483,085
Decrease in sales volumes
(92,593
)
Decrease due to an additional week of sales in fiscal 2022
(8,703
)
Net change in average selling price and sales mix
7,873
Net sales for fiscal 2023
$
389,662
The decrease in net sales for the Americas Segment from fiscal 2022 to fiscal 2023 was primarily attributable to lower sales volumes following weaker global textile demand.
The increase in net sales for the Americas Segment from fiscal 2021 to fiscal 2022 was primarily attributable to (i) higher average selling prices in response to increasing input costs and (ii) an additional week of sales in fiscal 2022.
The changes in Segment Profit for the Americas Segment are as follows:
Segment Profit for fiscal 2021
$
57,460
Change in underlying margins and sales mix
(12,918
)
Increase in sales volumes
1,079
Segment Profit for fiscal 2022
$
45,621
Segment Profit for fiscal 2022
$
45,621
Change in underlying margins and sales mix
(29,492
)
Decrease in sales volumes
(8,744
)
Segment Profit for fiscal 2023
$
7,385
The decrease in Segment Profit for the Americas Segment from fiscal 2022 to fiscal 2023 was primarily attributable to lower production volumes driving weaker fixed cost absorption in connection with lower sales volumes. The difference in fiscal weeks was not meaningful to Segment Profit.
The decrease in Segment Profit for the Americas Segment from fiscal 2021 to fiscal 2022 was primarily attributable to the adverse impacts of higher input costs outpacing selling price adjustments and weaker labor productivity. The difference in fiscal weeks was not meaningful to Segment Profit.
29
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 are as follows:
Fiscal 2023
% Change
Fiscal 2022
% Change
Fiscal 2021
Net sales
$
119,062
(5.6
)
$
126,066
31.4
$
95,976
Cost of sales
106,900
8.1
98,925
53.9
64,281
Gross profit
12,162
(55.2
)
27,141
(14.4
)
31,695
Depreciation expense
2,035
35.7
1,500
14.1
1,315
Segment Profit
$
14,197
(50.4
)
$
28,641
(13.2
)
$
33,010
Gross margin
10.2
%
21.5
%
33.0
%
Segment margin
11.9
%
22.7
%
34.4
%
Segment net sales as a percentage
of consolidated amount
19.1
%
15.5
%
14.4
%
Segment Profit as a percentage
of consolidated amount
37.0
%
27.8
%
28.5
%
The changes in net sales for the Brazil Segment are as follows:
Net sales for fiscal 2021
$
95,976
Increase in average selling price and change in sales mix
26,343
Favorable foreign currency translation effects
2,757
Increase in sales volumes
990
Net sales for fiscal 2022
$
126,066
Net sales for fiscal 2022
$
126,066
Decrease in average selling price and change in sales mix
(19,862
)
Increase in sales volumes
11,373
Favorable foreign currency translation effects
1,485
Net sales for fiscal 2023
$
119,062
The decrease in net sales for the Brazil Segment from fiscal 2022 to fiscal 2023 was primarily attributable to selling price pressures from low-priced imports. The Brazil Segment has undertaken aggressive pricing (i) against low-priced competitive imports and (ii) in the pursuit of greater market share.
The increase in net sales for the Brazil Segment from fiscal 2021 to fiscal 2022 was primarily attributable to higher selling prices associated with higher input costs and favorable foreign currency translation effects.
The changes in Segment Profit for the Brazil Segment are as follows:
Segment Profit for fiscal 2021
$
33,010
Decrease in underlying margins
(5,773
)
Favorable foreign currency translation effects
1,063
Increase in sales volumes
341
Segment Profit for fiscal 2022
$
28,641
Segment Profit for fiscal 2022
$
28,641
Decrease in underlying margins
(17,494
)
Increase in sales volumes
2,594
Favorable foreign currency translation effects
456
Segment Profit for fiscal 2023
$
14,197
The decrease in Segment Profit for the Brazil Segment from fiscal 2022 to fiscal 2023 was primarily attributable to an overall decrease in gross margin mainly due to the decrease in selling prices discussed above and the impact of higher raw material costs in beginning inventory.
The decrease in Segment Profit for the Brazil Segment from fiscal 2021 to fiscal 2022 was primarily attributable to an overall decrease in gross margin following the normalization of the competitive environment in Brazil, which was exceptionally favorable for the Brazil Segment during the fiscal 2021 economic recovery.
30
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 are as follows:
Fiscal 2023
% Change
Fiscal 2022
% Change
Fiscal 2021
Net sales
$
114,803
(44.4
)
$
206,607
11.8
$
184,837
Cost of sales
98,065
(44.8
)
177,731
11.5
159,444
Gross profit
16,738
(42.0
)
28,876
13.7
25,393
Depreciation expense
—
—
—
—
—
Segment Profit
$
16,738
(42.0
)
$
28,876
13.7
$
25,393
Gross margin
14.6
%
14.0
%
13.7
%
Segment margin
14.6
%
14.0
%
13.7
%
Segment net sales as a percentage
of consolidated amount
18.4
%
25.3
%
27.7
%
Segment Profit as a percentage
of consolidated amount
43.7
%
28.0
%
21.9
%
The changes in net sales for the Asia Segment are as follows:
Net sales for fiscal 2021
$
184,837
Change in average selling price and sales mix
9,686
Net increase in sales volumes
8,298
Favorable foreign currency translation effects
3,786
Net sales for fiscal 2022
$
206,607
Net sales for fiscal 2022
$
206,607
Net decrease in sales volumes
(92,535
)
Unfavorable foreign currency translation effects
(13,455
)
Change in average selling price and sales mix
14,186
Net sales for fiscal 2023
$
114,803
The decrease in net sales for the Asia Segment from fiscal 2022 to fiscal 2023 was primarily attributable to weaker global demand and pandemic-related lockdowns driving lower sales volumes, partially offset by a strong sales mix.
The increase in net sales for the Asia Segment from fiscal 2021 to fiscal 2022 was primarily attributable to the continued momentum of REPREVE-branded products contributing to underlying sales growth, partially offset by supply chain and shipping challenges in Asia in connection with pandemic-related lockdowns during the fourth quarter of fiscal 2022.
The changes in Segment Profit for the Asia Segment are as follows:
Segment Profit for fiscal 2021
$
25,393
Change in underlying margins and sales mix
1,824
Increase in sales volumes
1,140
Favorable foreign currency translation effects
519
Segment Profit for fiscal 2022
$
28,876
Segment Profit for fiscal 2022
$
28,876
Decrease in sales volumes
(12,885
)
Unfavorable foreign currency translation effects
(1,981
)
Change in underlying margins and sales mix
2,728
Segment Profit for fiscal 2023
$
16,738
The decrease in Segment Profit for the Asia Segment from fiscal 2022 to fiscal 2023 follows the decline in net sales and sales volumes discussed above, as the comparable gross margin rate for the Asia Segment improved due to a stronger sales mix.
The increase in Segment Profit for the Asia Segment from fiscal 2021 to fiscal 2022 was primarily attributable to higher sales volumes with a stronger sales mix in fiscal 2022.
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 2022 ABL Revolver (as defined below) of its credit facility.
As of July 2, 2023, all of UNIFI’s $140,899 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, and 99% 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 July 2, 2023 for domestic operations compared to foreign operations:
Domestic
Foreign
Total
Cash and cash equivalents
$
292
$
46,668
$
46,960
Borrowings available under financing arrangements
55,735
—
55,735
Liquidity
$
56,027
$
46,668
$
102,695
Working capital
$
89,758
$
132,307
$
222,065
Total debt obligations
$
140,899
$
—
$
140,899
For fiscal 2023, cash generated from operations was $4,740 and, at July 2, 2023, excess availability under the 2022 ABL Revolver was $55,735. Our liquidity position (calculated in the table above) remains elevated and is expected to be adequate to allow UNIFI to manage through the current macro-economic environment and to respond quickly to demand recovery.
UNIFI considers $43,664 of its unremitted foreign earnings to be permanently reinvested to fund working capital requirements and operations abroad, and has therefore not recognized a deferred tax liability for the estimated future taxes that would be incurred upon repatriation. If these earnings were distributed in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, UNIFI could be subject to additional tax liabilities of approximately $11,592.
Liquidity Considerations
Operationally, UNIFI navigated the impact on liquidity of the COVID-19 pandemic by diligently managing the balance sheet and operational spending, in addition to utilizing cash received from a minority interest divestiture in April 2020. Following the COVID-19 pandemic, global demand recovery allowed for strong results and cash generation in fiscal 2021. However, inflationary pressures and demand uncertainty throughout fiscal 2022 and 2023 created risks to liquidity.
Following the establishment of the 2022 Credit Agreement, UNIFI’s cash and liquidity positions are considered sufficient to sustain its operations and meet its growth needs. However, further degradation in the macroeconomic environment could introduce additional liquidity risk and require UNIFI to limit cash outflows for discretionary activities while further utilizing available and additional forms of credit. Since the onset of the COVID-19 pandemic and the date of this report, we have not taken advantage of rent, lease or debt deferrals, forbearance periods, or other concessions; or relied on supply chain financing, structured trade payables, or vendor financing.
Although short-term global demand appears somewhat uncertain, we do not currently anticipate that any adverse events or circumstances will place critical pressure on (i) our liquidity position; or (ii) our ability to fund our operations, capital expenditures, and expected business growth. Should global demand, economic activity, or input availability decline considerably for a prolonged period of time (for example, in connection with the Russia-Ukraine conflict or the macro-economic factors leading to inflation and a potential recession), UNIFI maintains the ability to (i) seek additional credit or financing arrangements and/or (ii) re-implement cost reduction initiatives to preserve cash and secure the longevity of the business and operations.
Additionally, UNIFI considers opportunities to repatriate existing cash to reduce debt and preserve or enhance liquidity. In fiscal 2023, we repatriated approximately $19,000 from our operations in Asia to the U.S. via an existing intercompany note and, after remitting the appropriate withholding taxes, utilized the cash to reduce our outstanding revolver borrowings, thereby increasing the availability. Management regularly evaluates such repatriations and believes that it has the ability to take additional, similar actions from time to time, as circumstances warrant.
Recognizing the continuing weak demand environment, in the third quarter of fiscal 2023, UNIFI negotiated a contract modification with an equipment vendor from which significant capital expenditures had occurred and were planned to continue through September 2024. The contract modification was executed at a cost to UNIFI of $623 and allows UNIFI to delay the associated equipment purchases and installation activities for 18 months, such that approximately $25,000 of capital expenditures originally expected over the March 2023 to September 2024 period are now expected to occur over the September 2024 to March 2026 period. This action allows for (i) improved short- and mid-term liquidity in light of the current subdued levels of sales and facility utilization and (ii) a better matching of future capital expenditures with expected higher levels of future business activity.
During fiscal 2024, we expect the majority of our capital will be deployed to support further working capital needs associated with recovering demand and product sales. Nonetheless, given the current global economic risks, we are prepared to act swiftly and diligently to ensure the vitality of the business.
32
Debt Obligations
The following table presents details for UNIFI’s debt obligations:
Weighted Average
Scheduled
Interest Rate as of
Principal Amounts as of
Maturity Date
July 2, 2023
July 2, 2023
July 3, 2022
ABL Revolver
October 2027
7.1%
$
18,100
$
41,300
ABL Term Loan
October 2027
6.6%
110,400
65,000
Finance lease obligations
(1)
4.8%
10,767
7,261
Construction financing
(2)
6.9%
1,632
729
Total debt
140,899
114,290
Current ABL Term Loan
(9,200
)
(10,000
)
Current portion of finance lease obligations
(2,806
)
(1,726
)
Unamortized debt issuance costs
(289
)
(255
)
Total long-term debt
$
128,604
$
102,309
(1) Scheduled maturity dates for finance lease obligations range from March 2025 to May 2028, as further outlined in Note 4, “Leases.”
(2) Refer to the discussion below under the subheading “ Construction Financing ” for further information.
ABL Facility and Amendments
On October 28, 2022, Unifi, Inc. and certain of its subsidiaries entered into a Second Amended and Restated Credit Agreement (the “2022 Credit Agreement”) with a syndicate of lenders. The 2022 Credit Agreement provides for a $230,000 senior secured credit facility (the “2022 ABL Facility”), including a $115,000 revolving credit facility (the "2022 ABL Revolver") and a term loan (the "2022 ABL Term Loan") that can be reset up to a maximum amount of $115,000, once per fiscal year, if certain conditions are met. The 2022 ABL Facility has a maturity date of October 28, 2027. The 2022 ABL Term Loan requires quarterly principal payments of $2,300 that began on February 1, 2023. Borrowings under the 2022 ABL Facility bear interest at SOFR plus 0.10% plus an applicable margin of 1.25% to 1.75%, or the Base Rate (as defined in the 2022 Credit Agreement) plus an applicable margin of 0.25% to 0.75%, with interest paid most commonly on a monthly basis.
In connection with the 2022 Credit Agreement, UNIFI recorded a $273 loss on debt extinguishment to interest expense in the second quarter of fiscal 2023.
Prior to entering into the 2022 Credit Agreement, Unifi, Inc. and certain of its subsidiaries maintained a similar credit agreement that established a $200,000 senior secured credit facility (the “Prior ABL Facility”), including a $100,000 revolving credit facility (the “Prior ABL Revolver”) and a term loan that could be reset up to a maximum amount of $100,000, once per fiscal year, if certain conditions were met (the “Prior ABL Term Loan”). The Prior ABL Facility had a maturity date of December 18, 2023 and the significant terms and conditions of the 2022 ABL Facility are nearly identical to those of the Prior ABL Facility.
Similar to the Prior ABL Facility, the 2022 ABL Facility is secured by a first-priority perfected security interest in substantially all owned property and assets (together with all proceeds and products) of Unifi, Inc., Unifi Manufacturing, Inc., and a certain subsidiary guarantor (collectively, the “Loan Parties”). It is also secured by a first-priority security interest in all (or 65% in the case of UNIFI’s first-tier controlled foreign subsidiary, as required by the lenders) of the stock of (or other ownership interests in) each of the Loan Parties (other than Unifi, Inc.) and certain subsidiaries of the Loan Parties, together with all proceeds and products thereof.
Similar to the Prior ABL Facility, if excess availability under the 2022 ABL Revolver falls below the Trigger Level (as defined in the 2022 Credit Agreement), a financial covenant requiring the Loan Parties to maintain a fixed charge coverage ratio on a quarterly basis of at least 1.05 to 1.00 becomes effective. The Trigger Level as of July 2, 2023 was $22,540. In addition, the 2022 ABL Facility contains restrictions on particular payments and investments, including certain restrictions on the payment of dividends and share repurchases. Subject to specific provisions, the 2022 ABL Term Loan may be prepaid at par, in whole or in part, at any time before the maturity date, at UNIFI’s discretion.
Similar to the Prior ABL Facility, the applicable margin is based on (i) the excess availability under the 2022 ABL Revolver and (ii) the consolidated leverage ratio, calculated as of the end of each fiscal quarter. UNIFI’s ability to borrow under the 2022 ABL Revolver is limited to a borrowing base equal to specified percentages of eligible accounts receivable and inventories and is subject to certain conditions and limitations. There is also a monthly unused line fee under the 2022 ABL Revolver of 0.25%.
As of July 2, 2023: UNIFI was in compliance with all financial covenants in the Credit Agreement; excess availability under the 2022 ABL Revolver was $55,735 and UNIFI had $0 of standby letters of credit. Management maintains the capability to improve the fixed charge coverage ratio utilizing existing foreign cash and cash equivalents.
UNIFI had maintained three interest rate swaps to fix LIBOR at approximately 1.9% on $75,000 of variable-rate debt. Such swaps terminated in May 2022 and no interest rate swaps were in effect during fiscal 2023.
UNIFI did not incur additional costs or administrative burdens during the transition from LIBOR to SOFR with the establishment of the 2022 Credit Agreement.
33
Finance Lease Obligations
During fiscal 2023, UNIFI entered into finance lease obligations totaling $5,629 for texturing machines. The maturity dates of these obligations occur during fiscal 2028 with interest rates between 4.4% and 6.2%.
During fiscal 2022, UNIFI entered into finance lease obligations totaling $2,493 for texturing machines. The maturity dates of these obligations occur during fiscal 2027 with interest rates between 3.0% and 4.4%.
During fiscal 2021, UNIFI entered into finance lease obligations totaling $740 for certain transportation equipment. The maturity date of these obligations is June 2025 with an interest rate of 3.8%.
Construction Financing
In May 2021, UNIFI entered into an agreement with a third party lender that provides for construction-period financing for certain texturing machinery included in our capital allocation plans. UNIFI records project costs to construction in progress and the corresponding liability to construction financing (within long-term debt). The agreement provides for monthly, interest-only payments during the construction period, at a rate of SOFR plus 1.25%, and contains terms customary for a financing of this type.
Each borrowing under the agreement provides for 60 monthly payments, which will commence upon the completion of the construction period with a fixed interest rate of approximately SOFR plus 1.0% to 1.2%. In connection with this construction financing arrangement, UNIFI has borrowed a total of $9,755 and transitioned $8,123 of completed asset costs to finance lease obligations as of July 2, 2023.
Scheduled Debt Maturities
The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the following five fiscal years and thereafter.
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Fiscal 2028
Thereafter
ABL Revolver
$
—
$
—
$
—
$
—
$
18,100
$
—
ABL Term Loan
9,200
9,200
9,200
9,200
73,600
—
Finance lease obligations
2,806
2,779
2,401
1,902
879
—
Total (1)
$
12,006
$
11,979
$
11,601
$
11,102
$
92,579
$
—
(1) Total reported excludes $1,632 for construction financing, described above.
Further discussion of the terms and conditions of the Credit Agreement and the Company’s existing indebtedness is outlined in Note 12, “Long-Term Debt,” to the accompanying consolidated financial statements.
Net Debt (Non-GAAP Financial Measure)
The reconciliations for Net Debt are as follows:
July 2, 2023
July 3, 2022
Long-term debt
$
128,604
$
102,309
Current portion of long-term debt
12,006
11,726
Unamortized debt issuance costs
289
255
Debt principal
140,899
114,290
Less: cash and cash equivalents
46,960
53,290
Net Debt
$
93,939
$
61,000
34
Working Capital and Adjusted Working Capital (Non-GAAP Financial Measures)
The following table presents the components of working capital and the reconciliation from working capital to Adjusted Working Capital:
July 2, 2023
July 3, 2022
Cash and cash equivalents
$
46,960
$
53,290
Receivables, net
83,725
106,565
Inventories
150,810
173,295
Income taxes receivable
238
160
Other current assets
12,327
18,956
Accounts payable
(44,455
)
(73,544
)
Other current liabilities
(12,932
)
(19,806
)
Income taxes payable
(789
)
(1,526
)
Current operating lease liabilities
(1,813
)
(2,190
)
Current portion of long-term debt
(12,006
)
(11,726
)
Working capital
$
222,065
$
243,474
Less: Cash and cash equivalents
(46,960
)
(53,290
)
Less: Income taxes receivable
(238
)
(160
)
Less: Income taxes payable
789
1,526
Less: Current operating lease liabilities
1,813
2,190
Less: Current portion of long-term debt
12,006
11,726
Adjusted Working Capital
$
189,475
$
205,466
Working capital decreased from $243,474 as of July 3, 2022 to $222,065 as of July 2, 2023, while Adjusted Working Capital decreased from $205,466 to $189,475, both primarily in connection with slower overall economic conditions and higher input costs. Working capital and Adjusted Working Capital are within the range of management’s expectations based on the composition of the underlying business and global structure.
The decrease in cash and cash equivalents was primarily driven by capital expenditures and scheduled debt service. The decrease in receivables, net was primarily due to (i) a decrease in sales following lower global demand and (ii) a decrease in banker’s acceptance notes held by our Asia Segment. The decrease in inventories was primarily attributable to a decline in raw material purchases and costs in fiscal 2023. The decrease in other current assets was primarily due to utilization of the fiscal 2021 recovery of non-income taxes in Brazil and lower vendor deposits. The decrease in accounts payable followed the decrease in inventories and production activity in fiscal 2023. The decrease in other current liabilities primarily reflects lower business activities and the routine timing differences for payroll and other operating expenses. Income taxes receivable and income taxes payable are immaterial to working capital and Adjusted Working Capital. The change in current operating lease liabilities and current portion of long-term debt were insignificant.
Capital Projects
In fiscal 2023, UNIFI invested $36,434 in capital projects, primarily relating to (i) texturing machinery, (ii) further improvements in production capabilities and technological enhancements in the Americas, 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.
In fiscal 2022, UNIFI invested $39,631 in capital projects, primarily relating to (i) texturing machinery, (ii) further improvements in production capabilities and technological enhancements in the Americas, and (iii) routine annual maintenance capital expenditures.
In fiscal 2021, UNIFI invested $21,178 in capital projects, primarily relating to (i) further improvements in production capabilities and technological enhancements in the Americas, (ii) texturing machines, and (iii) routine annual maintenance capital expenditures.
In fiscal 2024, UNIFI expects to invest between $14,000 and $16,000 in capital projects, including making (i) further improvements in production capabilities and technological enhancements in the Americas and (ii) annual maintenance capital expenditures. UNIFI will seek to ensure maintenance capital expenditures are sufficient to allow continued production at high efficiencies.
The total amount ultimately invested for fiscal 2024 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 with cash provided by operating activities and other borrowings. 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.
35
Share Repurchase Program
On October 31, 2018, UNIFI announced that 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 July 2, 2023, UNIFI had repurchased 701 shares of its common stock at an average price of $15.90 per share, leaving $38,859 available for repurchase under the 2018 SRP. UNIFI will continue to evaluate opportunities to use excess cash flows from operations or existing borrowings to repurchase additional stock, while maintaining sufficient liquidity to support its operational needs and to fund future strategic growth opportunities.
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 credit facility will enable UNIFI to meet its foreseeable liquidity requirements. Domestically, UNIFI’s cash balances, cash provided by operating activities, and borrowings available under the 2022 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, cash provided by operating activities, and available foreign financing arrangements will provide the needed liquidity to fund the associated operating activities and investing activities, such as future capital expenditures. UNIFI’s foreign operations in Asia and Brazil are in a position to obtain local country financing arrangements due to the operating results of each subsidiary.
Cash Provided by Operating Activities
The significant components of net cash provided by operating activities are summarized below. UNIFI analyzes net cash provided by operating activities utilizing the major components of the statements of cash flows prepared under the indirect method.
Fiscal 2023
Fiscal 2022
Fiscal 2021
Net (loss) income
$
(46,344
)
$
15,171
$
29,073
Depreciation and amortization expense
27,186
26,207
25,528
Equity in earnings of unconsolidated affiliates
(896
)
(605
)
(739
)
Impairment for asset abandonment
8,247
—
—
Recovery of taxes, net
(3,799
)
815
(9,717
)
Non-cash compensation expense
2,805
3,555
3,462
Deferred income taxes
(2,788
)
(3,119
)
5,087
Subtotal
(15,589
)
42,024
52,694
Distributions received from unconsolidated affiliates
—
750
750
Change in inventories
24,431
(34,749
)
(28,069
)
Other changes in assets and liabilities
(4,102
)
(7,645
)
11,306
Net cash provided by operating activities
$
4,740
$
380
$
36,681
Fiscal 2023 Compared to Fiscal 2022
The increase in operating cash flows was primarily due to reducing working capital associated with a decline in overall business activity in fiscal 2023, which was primarily offset by significantly weaker earnings.
Fiscal 2022 Compared to Fiscal 2021
The decrease in net cash provided by operating activities from fiscal 2021 to fiscal 2022 was primarily due to an increase in working capital associated with (i) higher raw material costs and consolidated sales activity driving higher inventory and accounts receivable balances and (ii) lower other current liabilities resulting from the payment of incentive compensation earned in fiscal 2021.
36
Cash (Used) Provided by Investing Activities and Financing Activities
Fiscal 2023
Significant investing activities included $36,434 for capital expenditures, which primarily relate to texturing machinery along with production capabilities and technological enhancements in the Americas. Significant financing activities included $22,200 of net borrowings against the ABL Facility, along with $2,123 of payments on finance lease obligations during fiscal 2023.
Fiscal 2022
Significant investing activities included $39,631 for capital expenditures, which primarily relate to ongoing maintenance capital expenditures along with production capabilities and technological enhancements in the Americas. Significant financing activities included $28,800 of net borrowings against the ABL Facility, along with $3,707 of payments on finance lease obligations and $9,151 for share repurchases during fiscal 2022.
Fiscal 2021
Significant investing activities included (i) approximately $21,000 for capital expenditures that primarily relate to ongoing maintenance capital expenditures along with production capabilities and technological 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. Significant financing activities included $10,000 of net payments against the ABL Facility, along with $3,646 of payments on finance lease obligations.
Contractual Obligations
In addition to management’s discussion and analysis surrounding our liquidity and capital resources, long-term debt, finance leases, operating leases, and the associated principal and interest components thereof, as of July 2, 2023, UNIFI’s contractual obligations consisted of the following additional concepts and considerations.
1. Capital purchase obligations relate to contracts with vendors for the construction or purchase of assets, primarily for the normal course operations in our manufacturing facilities. Such obligations are approximately $6,000 and $19,000 for fiscal years 2024 and 2025, respectively.
2. Purchase obligations are agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Such obligations, predominantly related to ongoing operations and service contracts in support of normal course business, range from approximately $1,000 to $10,000 per annum and vary based on the renewal timing of specific commitments and the range of services received.
3. Non-capital purchase orders totaled approximately $74,000 at the end of fiscal 2023 and are expected to be settled in fiscal 2024. Such open purchase orders are in the ordinary course of business for the procurement of (i) raw materials used in the production of inventory, (ii) certain consumables and outsourced services used in UNIFI’s manufacturing processes, and (iii) selected finished goods for resale sourced from third-party suppliers.
4. Other balance sheet items are detailed within the notes to the consolidated financial statements, including, but not limited to, post-employment plan liabilities, unpaid invoice and contract amounts, and other balances and charges that primarily relate to normal course operations.
UNIFI does not engage in off-balance sheet arrangements and only enters into material contracts in the ordinary course of business and/or to hedge the associated risks (e.g. interest rate swaps).
Recent Accounting Pronouncements
Issued and Pending Adoption
Upon review of each Accounting Standards Update (“ASU”) issued by the Financial Accounting Standards Board (the “FASB”) through the date of this report, UNIFI identified no newly applicable accounting pronouncements that are expected to have a significant impact on UNIFI’s consolidated financial statements.
Recently Adopted
There have been no newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a significant impact on UNIFI’s consolidated financial statements.
Off-Balance Sheet Arrangements
UNIFI is not a party to any off-balance sheet arrangements that have had, or are reasonably likely to have, a current or future material effect on UNIFI’s financial condition, results of operations, liquidity or capital expenditures.
37
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. The following discussion provides further information about accounting policies critical to UNIFI and should be read in conjunction with Note 2, “Summary of Significant Accounting Policies,” to the accompanying consolidated financial statements.
Inventory Net Realizable Value Adjustment
The inventory net realizable value adjustment is established based on many factors, including: historical recovery rates, inventory age, expected net realizable value of specific products, and current economic conditions. Specific reserves are established based on a determination of the obsolescence of the inventory and whether the inventory cost exceeds net realizable value. Anticipating selling prices and evaluating the condition of the inventories require judgment and estimation, which may impact the resulting inventory valuation and gross margins. UNIFI uses current and historical knowledge to record reasonable estimates of its markdown percentages and expected sales prices. UNIFI believes it is unlikely that differences in actual demand or selling prices from those forecasted by management would have a material impact on UNIFI’s financial condition or results of operations. UNIFI has not made any material changes to the methodology used in establishing its inventory net realizable value adjustment during the past three fiscal years. A plus or minus 10% change in the inventory net realizable value adjustment would not have been material to UNIFI’s consolidated financial statements for the past three fiscal years.
July 2, 2023
July 3, 2022
June 27, 2021
Net realizable value adjustment
$
(5,625
)
$
(3,487
)
$
(2,407
)
Item 7A. Quantitative and Qualitat ive 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 July 2, 2023, UNIFI had borrowings under its 2022 ABL Term Facility totaling $128,500. After considering UNIFI’s outstanding debt obligations with fixed rates of interest, UNIFI’s sensitivity analysis indicates that a 50-basis point increase in SOFR as of July 2, 2023 would result in an increase in annual interest expense of approximately $700.
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 July 2, 2023, UNIFI had no outstanding foreign currency forward contracts.
A significant portion of raw materials purchased by the Brazil Segment are denominated in USDs, requiring UNIFI to exchange BRL for USD. A significant portion of sales and asset balances for the Asia Segment are denominated in USDs. During recent fiscal years, UNIFI has been negatively impacted by fluctuations of the BRL and the RMB. Discussion and analysis surrounding the impact of fluctuations of the BRL and the RMB on UNIFI’s results of operations are included above in “Item 7. 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 July 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
32
%
Cash and cash equivalents held outside the U.S.:
Denominated in USD
$
18,137
Denominated in RMB
18,275
Denominated in BRL
9,441
Denominated in other foreign currencies
224
Total cash and cash equivalents held outside the U.S.
$
46,077
Percentage of total cash and cash equivalents held outside the U.S.
98
%
Cash and cash equivalents held inside the U.S. in USD by foreign subsidiaries
$
591
38
More information regarding UNIFI’s derivative financial instruments as of July 2, 2023 is provided in Note 18, “Fair Value of Financial Instruments and Non-Financial Assets and Liabilities,” to the accompanying consolidated financial statements.
Raw Material and Commodity Cost 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 as management has concluded that the overall cost of hedging petroleum exceeds the potential risk mitigation. The costs of the primary raw materials that UNIFI uses throughout all of its operations are generally based on USD pricing, and such materials are purchased at market or at fixed prices that are established with individual vendors as part of the purchasing process for quantities expected to be consumed in the ordinary course of business. UNIFI manages fluctuations in the cost of raw materials primarily by making corresponding adjustments to the prices charged to its customers. Certain customers are subject to an index-based pricing model in which UNIFI’s prices are adjusted based on the change in the cost of raw materials in the prior quarter. Pricing adjustments for other customers must be negotiated independently. UNIFI attempts to quickly pass on to its customers increases in raw material costs, but due to market conditions, 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 2020 and the first six months of fiscal 2021, UNIFI experienced a predominantly favorable, declining raw material cost environment, especially during calendar 2020 as the COVID-19 pandemic suppressed petroleum prices for several months.
As fiscal 2021 concluded, UNIFI experienced cost increases for raw materials, primarily related to (i) increases in petroleum prices and (ii) supply chain disruptions that occurred in Texas during February 2021 due to abnormally cold weather. Our raw material costs remained elevated in fiscal 2022 and 2023. We have been able to implement responsive selling price adjustments for the majority of our portfolio, however our underlying gross margin has been pressured during fiscal 2022 and 2023. We expect the impact of recent selling price adjustments to improve margins in future periods. Nonetheless, such costs remain subject to the volatility described above and, should raw material costs increase unexpectedly, UNIFI’s results of operations and cash flows are likely to be adversely impacted.
Cash Deposits and Financial Institution Risk
During calendar 2023, 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 believes that it has 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. Likewise, 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.
Item 8. Financial Statemen ts and Supplementary Data
Our consolidated financial statements and the related notes begin on page F-i herein.
Item 9. Changes in and Disagreements With Acco untants on Accounting and Financial Disclosure
None.
39
Item 9A. Control s and Procedures
Evaluation of Disclosure Controls and Procedures
As of July 2, 2023, 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 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.
Management’s Annual Report on Internal Control Over Financial Reporting
Management of UNIFI is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act). UNIFI’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. UNIFI’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of UNIFI; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of UNIFI are being made only in accordance with authorizations of management and directors of UNIFI; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of UNIFI’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, under the supervision and with the participation of the principal executive officer and principal financial officer, assessed the effectiveness of UNIFI’s internal control over financial reporting as of July 2, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management concluded that, as of July 2, 2023, UNIFI’s internal control over financial reporting was effective based on the criteria established in Internal Control – Integrated Framework (2013) .
Attestation Report of the Independent Registered Public Accounting Firm
The effectiveness of UNIFI’s internal control over financial reporting as of July 2, 2023 has been audited by KPMG LLP (“KPMG”), an independent registered public accounting firm. KPMG’s report, which appears in “Item 8. Financial Statements and Supplementary Data,” expresses an unqualified opinion on the effectiveness of UNIFI’s internal control over financial reporting as of July 2, 2023.
Changes in Internal Control Over Financial Reporting
During UNIFI’s fourth quarter of fiscal 2023, there has been no change in UNIFI’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, UNIFI’s internal control over financial reporting.
Item 9B. Othe r Information
Insider Trading Arrangements
During the three months ended July 2, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted , modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
40
PART III
Item 10. Directors, Executive Of ficers and Corporate Governance
UNIFI will file with the SEC a definitive proxy statement for the Company’s 2023 Annual Meeting of Shareholders (the “Proxy Statement”) no later than 120 days after the close of fiscal 2023. The information required with respect to our executive officers appears both in the Proxy Statement and in Part I of this report under the heading “Information about our Executive Officers.” The other information required by this item is furnished by incorporation by reference to the information under the headings “Election of Directors” and “Corporate Governance” in the Proxy Statement.
We have adopted a written Code of Ethics for Senior Financial and Executive Officers (the “Code of Ethics”), which is intended to qualify as a “code of ethics” within the meaning of Item 406 of Regulation S-K of the Exchange Act. The Code of Ethics applies to our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The Code of Ethics is available on our website at www.unifi.com . A copy of the Code of Ethics may also be obtained without charge by any person, upon request, by writing to Unifi, Inc., 7201 West Friendly Avenue, Greensboro, North Carolina 27410, Attention: Corporate Secretary.
We will disclose information pertaining to any amendment to, or waiver from, the provisions of the Code of Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions and that relate to any element of the Code of Ethics enumerated in the SEC rules and regulations by posting this information on our website at www.unifi.com . The information on our website or linked to or from our website is not a part of this report and is not incorporated by reference in this report or any of our other filings with the SEC. Our non-employee directors and their respective principal occupation or employment are as follows: Emma S. Battle (President and Chief Executive Officer, MarketVigor, L.L.C., a business services company focused on strategic consulting and digital and online marketing); Francis S. Blake (Retired Chairman and Chief Executive Officer of The Home Depot, Inc., the world’s largest home improvement retailer); Archibald Cox, Jr. (Chairman, Sextant Group, Inc., a financial advisory and private equity firm); Kenneth G. Langone (President and Chief Executive Officer, Invemed Associates LLC, a private investment portfolio firm); Suzanne M. Present (Principal, Gladwyne Partners, LLC, a private partnership fund manager); Rhonda L. Ramlo (Interim Chief Executive Officer of Atoria Family Baking Company, a privately-held food service company); and Eva T. Zlotnicka (Managing Partner, Inclusive Capital Partners, L.P., a San Francisco-based investment firm)).
Item 11. Executi ve Compensation
The information required by this item is furnished by incorporation by reference to the information under the headings “Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation Tables,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial O wners and Management and Related Stockholder Matters
The information required by this item is furnished by incorporation by reference to the information under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Proxy Statement.
Item 13. Certain Relationships and Relate d Transactions, and Director Independence
The information required by this item is furnished by incorporation by reference to the information under the headings “Corporate Governance—Director Independence,” “Corporate Governance—Policy for Review of Related Person Transactions,” and “Corporate Governance—Related Person Transactions” in the Proxy Statement.
Item 14. Principal Accou ntant Fees and Services
The information required by this item is furnished by incorporation by reference to the information under the heading “Ratification of the Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement.
41
PART IV
Item 15. Exhibits and Fin ancial Statement Schedules
(a) 1. Financial Statements
The financial statements listed in the accompanying Index to Consolidated Financial Statements on page F-i are filed as part of this report.
Report of Independent Registered Public Accounting Firm (PCAOB ID: 185 ).
2. Financial Statement Schedules
Not applicable.
42
3. Exhibits
Exhibit
Number
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)).
4.1
Description of Unifi, Inc. Common Stock (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10‑K for the fiscal year ended June 30, 2019 (File No. 001-10542)).
4.2
Registration Rights Agreement, dated as of January 1, 2007, by and between Unifi, Inc. and Dillon Yarn Corporation (incorporated by reference to Exhibit 7.1 to the Schedule 13D filed January 16, 2007 by Dillon Yarn Corporation (File No. 005-30881)).
4.3
Amended and Restated Credit Agreement, dated as of March 26, 2015, by and among Unifi, Inc. and certain of its domestic subsidiaries, as borrowers, Wells Fargo Bank, National Association, as administrative agent, sole lead arranger and sole book runner, and the lenders party thereto (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed March 31, 2015 (File No. 001-10542)).
4.4
First Amendment to Amended and Restated Credit Agreement, dated as of June 26, 2015, by and among Unifi, Inc. and Unifi Manufacturing, Inc., as borrowers, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed June 30, 2015 (File No. 001-10542)).
4.5
Second Amendment to Amended and Restated Credit Agreement, dated as of November 19, 2015, by and among Unifi, Inc. and Unifi Manufacturing, Inc., as borrowers, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed November 23, 2015 (File No. 001-10542)).
4.6
Third Amendment to Amended and Restated Credit Agreement and Second Amendment to Amended and Restated Guaranty and Security Agreement, dated as of December 18, 2018, by and among Unifi, Inc. and Unifi Manufacturing, Inc., as borrowers, Unifi Sales & Distribution, Inc. and See 4 Process Improvement Solutions, LLC, as guarantors, Wells Fargo Bank, National Association, as agent for the lenders party thereto, and the lenders party thereto (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed December 20, 2018 (File No. 001-10542)).
4.7
Fourth Amendment to Amended and Restated Credit Agreement, dated as of April 29, 2020, by and among Unifi, Inc. and Unifi Manufacturing, Inc., as borrowers, Unifi Sales & Distribution, Inc. and See 4 Process Improvement Solutions, LLC, as guarantors, Wells Fargo Bank, National Association, as agent for the lenders party thereto, and the lenders party thereto (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed April 30, 2020 (File No. 001-10542)).
4.8
Fifth Amendment to Amended and Restated Credit Agreement, dated as of February 5, 2021, by and among Unifi, Inc. and Unifi Manufacturing, Inc., as borrowers, Unifi Sales & Distribution, Inc., as guarantor, Wells Fargo Bank, National Association, as agent for the lenders party thereto, and the lenders party thereto (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed February 11, 2021 (File No. 001-10542)).
4.9
Sixth Amendment to Amended and Restated Credit Agreement, dated as of September 2, 2022, by and among Unifi, Inc. and Unifi Manufacturing, Inc., as borrowers, Unifi Sales & Distribution, Inc., as guarantor, Wells Fargo Bank, National Association, as agent for the lenders party thereto, and the lenders party thereto (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed September 8, 2022 (File No. 001-10542)).
4.10
Amended and Restated Guaranty and Security Agreement, dated as of March 26, 2015, by and among the grantors from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed March 31, 2015 (File No. 001-10542)).
4.11
First Amendment to Amended and Restated Guaranty and Security Agreement, dated as of June 26, 2015, by and among the grantors from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed June 30, 2015 (File No. 001-10542)).
4.12
Second Amended and Restated Credit Agreement, dated as of October 28, 2022, by and among Unifi Manufacturing, Inc. and certain of its domestic affiliates (including, without limitation, Unifi, Inc.), as borrowers, Wells Fargo Bank, National Association, as administrative agent, sole lead arranger and sole book runner, and the lenders party thereto (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed November 3, 2022 (File No. 001-10542)).
43
Exhibit
Number
Description
4.13
Second Amended and Restated Guaranty and Security Agreement, dated as of October 28, 2022, by and among the grantors from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed November 3, 2022 (File No. 001-10542)).
4.14
Trademark Security Agreement, dated as of May 24, 2012, by and among the grantors party thereto and Wells Fargo Bank, N.A., as agent (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed May 25, 2012 (File No. 001-10542)).
4.15
Patent Security Agreement, dated as of May 24, 2012, by and among the grantors party thereto and Wells Fargo Bank, N.A., as agent (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed May 25, 2012 (File No. 001-10542)).
10.1*
2008 Unifi, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 filed December 12, 2008 (File No. 333-156090)).
10.2*
Form of Incentive Stock Option Agreement for Employees for use in connection with the 2008 Unifi, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended December 28, 2008 (File No. 001-10542)).
10.3*
Form of Restricted Stock Unit Agreement for Employees for use in connection with the 2008 Unifi, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended September 25, 2011 (File No. 001-10542)).
10.4*
Form of Restricted Stock Unit Agreement for Non-Employee Directors for use in connection with the 2008 Unifi, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended December 26, 2010 (File No. 001-10542)).
10.5*
Unifi, Inc. 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed October 23, 2013 (File No. 001-10542)).
10.6*
Form of Restricted Stock Unit Agreement for Non-Employee Directors for use in connection with the Unifi, Inc. 2013 Incentive Compensation Plan (used for agreements entered into prior to October 25, 2017) (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed October 23, 2013 (File No. 001-10542)).
10.7*
Form of Restricted Stock Unit Agreement for Non-Employee Directors for use in connection with the Unifi, Inc. 2013 Incentive Compensation Plan (used for agreements entered into on or after October 25, 2017) (incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K for the fiscal year ended June 24, 2018 (File No. 001-10542)).
10.8*
Form of Restricted Stock Unit Agreement for Employees for use in connection with the Unifi, Inc. 2013 Incentive Compensation Plan (used for agreements entered into prior to February 21, 2017) (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended December 29, 2013 (File No. 001-10542)).
10.9*
Form of Restricted Stock Unit Agreement for Employees for use in connection with the Unifi, Inc. 2013 Incentive Compensation Plan (used for agreements entered into on or after February 21, 2017) (incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K for the fiscal year ended June 24, 2018 (File No. 001-10542)).
10.10*
Form of Incentive Stock Option Agreement for Employees for use in connection with the Unifi, Inc. 2013 Incentive Compensation Plan (used for agreements entered into prior to March 26, 2017) (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended December 29, 2013 (File No. 001-10542)).
10.11*
Form of Incentive Stock Option Agreement for Employees for use in connection with the Unifi, Inc. 2013 Incentive Compensation Plan (used for agreements entered into on or after March 26, 2017) (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended March 26, 2017 (File No. 001-10542)).
10.12*
Unifi, Inc. Amended and Restated 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed November 1, 2018 (File No. 001-10542)).
10.13*
Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed November 2, 2020 (File No. 001-10542)).
10.14*
Form of Vested Share Unit Agreement for Non-Employee Directors for use in connection with the Unifi, Inc. Amended and Restated 2013 Incentive Compensation Plan and the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (File No. 001-10542)).
10.15*
Form of Stock Option Agreement for Non-Employee Directors for use in connection with the Unifi, Inc. Amended and Restated 2013 Incentive Compensation Plan and the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarter ended December 30, 2018 (File No. 001-10542)).
44
Exhibit
Number
Description
10.16*
Form of Restricted Stock Unit Agreement for Employees for use in connection with the Unifi, Inc. Amended and Restated 2013 Incentive Compensation Plan and the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (File No. 001-10542)).
10.17*
Form of Cash-Settled Restricted Stock Unit Agreement for Employees for use in connection with the Unifi, Inc. Amended and Restated 2013 Incentive Compensation Plan and the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q for the quarter ended December 30, 2018 (File No. 001-10542)).
10.18*
Form of Incentive Stock Option Agreement for Employees for use in connection with the Unifi, Inc. Amended and Restated 2013 Incentive Compensation Plan and the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (File No. 001-10542)).
10.19*
Form of Unifi, Inc. Performance Share Unit Agreement for Employees for use in connection with the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended September 26, 2021 (File No. 001-10542)).
10.20*
Unifi, Inc. Deferred Compensation Plan (formerly known as the Unifi, Inc. Supplemental Key Employee Retirement Plan) (incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K for the fiscal year ended July 3, 2022 (File No. 001-10542)).
10.21*
Unifi, Inc. Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended December 26, 2010 (File No. 001-10542)).
10.22*
Unifi, Inc. Director Compensation Policy (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended December 29, 2019 (File No. 001-10542)).
10.23*
Letter Agreement by and between Unifi, Inc. and Albert P. Carey, effective as of October 27, 2021 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed October 28, 2021 (File No. 001-10542)).
10.24*
Employment Agreement by and between Unifi, Inc. and Craig A. Creaturo, effective as of August 28, 2019 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed September 3, 2019 (File No. 001-10542)).
10.25*
Employment Agreement by and between Unifi, Inc. and Edmund M. Ingle, effective as of April 16, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed April 21, 2020 (File No. 001-10542)).
10.26*
First Amendment to Employment Agreement by and between Unifi, Inc. and Edmund M. Ingle, effective as of June 9, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K/A filed June 15, 2020 (File No. 001-10542)).
10.27*
Employment Agreement by and between Unifi, Inc. and Hongjun Ning, effective as of July 1, 2020 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed November 2, 2020 (File No. 001-10542)).
10.28*
Employment Agreement by and between Unifi, Inc. and Lucas de Carvalho Rocha, effective as of July 1, 2020 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed November 2, 2020 (File No. 001-10542)).
10.29*
Employment Agreement by and between Unifi, Inc. and Gregory K. Sigmon, effective as of July 4, 2022 (incorporated by reference to Exhibit 10.30 to the Annual Report on Form 10-K for the fiscal year ended July 3, 2022 (File No. 001-10542)).
10.30
Sales and Services Agreement, dated as of January 1, 2007, by and between Unifi Manufacturing, Inc. and Dillon Yarn Corporation (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-3 filed February 9, 2007 (File No. 333-140580)).
10.31
First Amendment to Sales and Services Agreement, effective as of January 1, 2009, by and between Unifi Manufacturing, Inc. and Dillon Yarn Corporation (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed December 3, 2008 (File No. 001-10542)).
10.32
Second Amendment to Sales and Services Agreement, effective as of January 1, 2010, by and between Unifi Manufacturing, Inc. and Dillon Yarn Corporation (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed December 11, 2009 (File No. 001-10542)).
10.33
Third Amendment to Sales and Services Agreement, effective as of January 1, 2011, by and between Unifi Manufacturing, Inc. and Dillon Yarn Corporation (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed December 22, 2010 (File No. 001-10542)).
45
Exhibit
Number
Description
10.34
Fourth Amendment to Sales and Services Agreement, effective as of January 1, 2012, by and between Unifi Manufacturing, Inc. and Dillon Yarn Corporation (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed December 20, 2011 (File No. 001-10542)).
10.35
Deposit Account Control Agreement, dated as of May 24, 2012, by and among Unifi Manufacturing, Inc., Wells Fargo Bank, N.A. and Bank of America, N.A. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed May 25, 2012 (File No. 001-10542)).
21 +
Subsidiaries of Unifi, Inc.
23 +
Consent of KPMG LLP.
24 +
Power of Attorney (included on the signature pages to this report).
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 ++
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 +
The following financial information from Unifi, Inc.’s Annual Report on Form 10-K for the fiscal year ended July 2, 2023, filed August 25, 2023, formatted in Inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive (Loss) Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.
104 +
The cover page from Unifi, Inc.’s Annual Report on Form 10-K for the fiscal year ended July 2, 2023, filed August 25, 2023, formatted in Inline XBRL (included in Exhibit 101).
+ Filed herewith.
++ Furnished herewith.
* Indicates a management contract or compensatory plan or arrangement.
Certain portions of this exhibit have been redacted in accordance with Item 601(b)(10) of Regulation S K.
Item 16. Form 10-K Summary
None.
46
SIGNA TURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: August 25, 2023
By:
/s/ EDMUND M. INGLE
Edmund M. Ingle
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Edmund M. Ingle and Craig A. Creaturo, or either of them, his or her attorney-in-fact, with full power of substitution and resubstitution for such person in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorney-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:
Signature
Title
/s/ EDMUND M. INGLE
Chief Executive Officer and Director
Edmund M. Ingle
(Principal Executive Officer)
/s/ CRAIG A. CREATURO
Executive Vice President & Chief Financial Officer
Craig A. Creaturo
(Principal Financial Officer and Principal Accounting Officer)
/s/ EMMA S. BATTLE
Director
Emma S. Battle
/s/ FRANCIS S. BLAKE
Director
Francis S. Blake
/s/ ALBERT P. CAREY
Executive Chairman
Albert P. Carey
/s/ ARCHIBALD COX, JR.
Lead Independent Director
Archibald Cox, Jr.
/s/ KENNETH G. LANGONE
Director
Kenneth G. Langone
/s/ SUZANNE M. PRESENT
Director
Suzanne M. Present
/s/ RHONDA L. RAMLO
Director
Rhonda L. Ramlo
/s/ EVA T. ZLOTNICKA
Director
Eva T. Zlotnicka
Date: August 25, 2023
47
UNIFI , INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
F- 1
Consolidated Balance Sheets as of July 2, 2023 and July 3, 2022
F- 4
Consolidated Statements of Operations for the fiscal years ended July 2, 2023, July 3, 2022 and June 27, 2021
F- 5
Consolidated Statements of Comprehensive (Loss) Income for the fiscal years ended July 2, 2023, July 3, 2022 and June 27, 2021
F- 6
Consolidated Statements of Shareholders’ Equity for the fiscal years ended July 2, 2023, July 3, 2022 and June 27, 2021
F- 7
Consolidated Statements of Cash Flows for the fiscal years ended July 2, 2023, July 3, 2022 and June 27, 2021
F- 8
Notes to Consolidated Financial Statements
F- 9
F- i
Report of Independent Regist ered Public Accounting Firm
To the Shareholders and Board of Directors
Unifi, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Unifi, Inc. and subsidiaries (the Company) as of July 2, 2023 and July 3, 2022, the related consolidated statements of operations, comprehensive (loss) income, shareholders’ equity, and cash flows for each of the years in the three-year period ended July 2, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of July 2, 2023 and July 3, 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended July 2, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of July 2, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated August 25, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the net realizable value of raw material and finished goods inventories
As discussed in Note 7 to the consolidated financial statements, the Company’s consolidated raw material and finished goods inventories balance as of July 2, 2023 was $138,015 thousand. The Company records adjustments to the cost basis of raw material and finished goods inventories when the expected net realizable value of the inventories is below its cost basis. The Company’s model estimates the net realizable value of its raw material and finished goods inventories based upon factors including historical recovery rates, inventory age, and current economic conditions.
We identified the evaluation of the net realizable value of raw material and finished goods inventories held in the United States as a critical audit matter. Complex auditor judgment was required to evaluate the recovery rates used in the determination of the net realizable value of raw material and finished goods inventories, including the relevance of historical experience.
F- 1
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the evaluation of the net realizable value of raw material and finished goods inventories. This included controls related to the determination of expected recovery rates used in the assessment and whether historical rates are indicative of expected losses on current raw material and finished goods inventories. We assessed whether historical recovery rates are indicative of expected losses by (1) comparing the prior period loss estimate to actual loss experience, and (2) evaluating industry data for trends and conditions that may impact the estimate of net realizable value. We also performed sensitivity analyses over management’s historical recovery rates to assess the impact of changes in recovery rates on management’s determination of net realizable value of raw material and finished goods inventories.
/s/ KPMG LLP
We have served as the Company’s auditor since 2011.
Winston-Salem, North Carolina
August 25, 2023
F- 2
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Unifi, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Unifi, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of July 2, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 2, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of July 2, 2023 and July 3, 2022, the related consolidated statements of operations, comprehensive (loss) income, shareholders’ equity, and cash flows for each of the years in the three-year period ended July 2, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated August 25, 2023 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Winston-Salem, North Carolina
August 25, 2023
F- 3
CONSOLIDATED B ALANCE SHEETS
(In thousands, except share and per share amounts)
July 2, 2023
July 3, 2022
ASSETS
Cash and cash equivalents
$
46,960
$
53,290
Receivables, net
83,725
106,565
Inventories
150,810
173,295
Income taxes receivable
238
160
Other current assets
12,327
18,956
Total current assets
294,060
352,266
Property, plant and equipment, net
218,521
216,338
Operating lease assets
7,791
8,829
Deferred income taxes
3,939
2,497
Other non-current assets
14,508
8,788
Total assets
$
538,819
$
588,718
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable
$
44,455
$
73,544
Income taxes payable
789
1,526
Current operating lease liabilities
1,813
2,190
Current portion of long-term debt
12,006
11,726
Other current liabilities
12,932
19,806
Total current liabilities
71,995
108,792
Long-term debt
128,604
102,309
Non-current operating lease liabilities
6,146
6,736
Deferred income taxes
3,364
4,983
Other long-term liabilities
5,100
4,449
Total liabilities
215,209
227,269
Commitments and contingencies
Common stock, $ 0.10 par value ( 500,000,000 shares authorized; 18,081,538 and
17,979,362 shares issued and outstanding as of July 2, 2023 and July 3, 2022,
respectively)
1,808
1,798
Capital in excess of par value
68,901
66,120
Retained earnings
306,792
353,136
Accumulated other comprehensive loss
( 53,891
)
( 59,605
)
Total shareholders’ equity
323,610
361,449
Total liabilities and shareholders’ equity
$
538,819
$
588,718
See accompanying notes to consolidated financial statements.
F- 4
CONSOLIDATED STAT EMENTS OF OPERATIONS
(In thousands, except per share amounts)
For the Fiscal Year Ended
July 2, 2023
July 3, 2022
June 27, 2021
Net sales
$
623,527
$
815,758
$
667,592
Cost of sales
609,286
735,273
574,098
Gross profit
14,241
80,485
93,494
Selling, general and administrative expenses
47,345
52,489
51,334
Benefit for bad debts
( 89
)
( 445
)
( 1,316
)
Other operating expense (income), net
7,856
( 158
)
4,865
Operating (loss) income
( 40,871
)
28,599
38,611
Interest income
( 2,109
)
( 1,524
)
( 603
)
Interest expense
7,577
3,085
3,323
Equity in earnings of unconsolidated affiliates
( 896
)
( 605
)
( 739
)
Recovery of non-income taxes, net
—
815
( 9,717
)
(Loss) income before income taxes
( 45,443
)
26,828
46,347
Provision for income taxes
901
11,657
17,274
Net (loss) income
$
( 46,344
)
$
15,171
$
29,073
Net (loss) income per common share:
Basic
$
( 2.57
)
$
0.82
$
1.57
Diluted
$
( 2.57
)
$
0.80
$
1.54
See accompanying notes to consolidated financial statements.
F- 5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
For the Fiscal Year Ended
July 2, 2023
July 3, 2022
June 27, 2021
Net (loss) income
$
( 46,344
)
$
15,171
$
29,073
Other comprehensive income (loss):
Foreign currency translation adjustments
5,714
( 7,125
)
9,368
Changes in interest rate swaps, net of tax of nil , $ 282 and $ 310 ,
respectively
—
952
1,006
Other comprehensive income (loss), net
5,714
( 6,173
)
10,374
Comprehensive (loss) income
$
( 40,630
)
$
8,998
$
39,447
See accompanying notes to consolidated financial statements.
F- 6
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
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
—
—
—
—
—
Stock-based compensation
4
1
3,137
—
—
3,138
Conversion of equity units
45
4
( 4
)
—
—
—
Common stock withheld in satisfaction of tax
withholding obligations under net share settle
transactions
( 6
)
( 1
)
( 320
)
—
—
( 321
)
Other comprehensive income, net of tax
—
—
—
—
10,374
10,374
Net income
—
—
—
29,073
—
29,073
Balance at June 27, 2021
18,490
$
1,849
$
65,205
$
344,797
$
( 53,432
)
$
358,419
Options exercised
16
1
27
—
—
28
Stock-based compensation
5
1
3,290
—
—
3,291
Conversion of equity units
107
11
( 11
)
—
—
—
Common stock repurchased and retired under
publicly announced programs
( 617
)
( 62
)
( 2,257
)
( 6,832
)
—
( 9,151
)
Common stock withheld in satisfaction of tax
withholding obligations under net share settle
transactions
( 22
)
( 2
)
( 134
)
—
—
( 136
)
Other comprehensive loss, net of tax
—
—
—
—
( 6,173
)
( 6,173
)
Net income
—
—
—
15,171
—
15,171
Balance at July 3, 2022
17,979
$
1,798
$
66,120
$
353,136
$
( 59,605
)
$
361,449
Options exercised
7
1
55
—
—
56
Stock-based compensation
11
1
2,803
—
—
2,804
Conversion of equity units
91
9
( 9
)
—
—
—
Common stock withheld in satisfaction of tax
withholding obligations under net share settle
transactions
( 7
)
( 1
)
( 68
)
—
—
( 69
)
Other comprehensive income, net of tax
—
—
—
—
5,714
5,714
Net loss
—
—
—
( 46,344
)
—
( 46,344
)
Balance at July 2, 2023
18,081
$
1,808
$
68,901
$
306,792
$
( 53,891
)
$
323,610
See accompanying notes to consolidated financial statements.
F- 7
CONSOLIDATED STATEM ENTS OF CASH FLOWS
(In thousands)
For the Fiscal Year Ended
July 2, 2023
July 3, 2022
June 27, 2021
Cash and cash equivalents at beginning of year
$
53,290
$
78,253
$
75,267
Operating activities:
Net (loss) income
( 46,344
)
15,171
29,073
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Equity in earnings of unconsolidated affiliates
( 896
)
( 605
)
( 739
)
Distributions received from unconsolidated affiliates
—
750
750
Depreciation and amortization expense
27,186
26,207
25,528
Non-cash compensation expense
2,805
3,555
3,462
Deferred income taxes
( 2,788
)
( 3,119
)
5,087
Loss on disposal of assets
278
48
2,809
Impairment for asset abandonment
8,247
—
—
Recovery of taxes, net
( 3,799
)
815
( 9,717
)
Other, net
48
( 99
)
( 495
)
Changes in assets and liabilities:
Receivables, net
23,138
( 13,533
)
( 40,059
)
Inventories
24,431
( 34,749
)
( 28,069
)
Other current assets
8,002
( 2,860
)
2,409
Income taxes
( 751
)
2,193
2,978
Accounts payable and other current liabilities
( 35,701
)
8,937
40,909
Other non-current assets
( 471
)
360
139
Other non-current liabilities
1,355
( 2,691
)
2,616
Net cash provided by operating activities
4,740
380
36,681
Investing activities:
Capital expenditures
( 36,434
)
( 39,631
)
( 21,178
)
Purchases of intangible assets
—
—
( 3,605
)
Other, net
209
( 2,103
)
162
Net cash used by investing activities
( 36,225
)
( 41,734
)
( 24,621
)
Financing activities:
Proceeds from ABL Revolver
194,700
158,000
—
Payments on ABL Revolver
( 165,400
)
( 116,700
)
—
Payments on ABL Term Loan
( 7,100
)
( 12,500
)
( 10,000
)
Proceeds from construction financing
6,533
2,340
882
Payments on finance lease obligations
( 2,123
)
( 3,707
)
( 3,646
)
Common stock repurchased and retired under publicly announced program
—
( 9,151
)
—
Common stock withheld in satisfaction of tax withholding obligations under
net share settle transactions
( 69
)
( 345
)
( 111
)
Other
( 603
)
28
—
Net cash provided (used) by financing activities
25,938
17,965
( 12,875
)
Effect of exchange rate changes on cash and cash equivalents
( 783
)
( 1,574
)
3,801
Net (decrease) increase in cash and cash equivalents
( 6,330
)
( 24,963
)
2,986
Cash and cash equivalents at end of year
$
46,960
$
53,290
$
78,253
See accompanying notes to consolidated financial statements.
F- 8
Unifi, Inc.
Notes to Consolidated Financial Statements
1. Background
Overview
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, medical, and other end-use markets (UNIFI’s “indirect customers”). We sometimes refer to these indirect customers as “brand partners.” Polyester products include partially oriented yarn (“POY”) and textured, solution and package dyed, twisted, beamed, and draw wound yarns, and each is available in virgin or recycled varieties. Recycled solutions, made from both pre-consumer and post-consumer waste, include plastic bottle flake (“Flake”), polyester polymer beads (“Chip”), and staple fiber. Nylon products include virgin or recycled textured, solution dyed, and spandex covered yarns.
UNIFI maintains one of the textile industry’s most comprehensive product offerings that include a range of specialized, value-added and commodity solutions, with principal geographic markets in North America, Central America, South America, Asia, and Europe. UNIFI has direct manufacturing operations in four countries and participates in joint ventures with operations in Israel and the United States (the “U.S.”).
Fiscal Year
The fiscal year for Unifi, Inc., its domestic subsidiaries, and its subsidiary in El Salvador ends on the Sunday in June or July nearest to June 30 of each year. Unifi, Inc.’s fiscal 2023, 2022, and 2021 ended on July 2, 2023, July 3, 2022, and June 27, 2021, respectively. Unifi, Inc.’s remaining material operating subsidiaries’ fiscal years end on June 30. There have been no significant transactions or events that occurred between Unifi, Inc.’s fiscal year end and such wholly owned subsidiaries’ fiscal year ends. Unifi, Inc.’s fiscal 2023 and 2021 each consisted of 52 weeks, while its fiscal 2022 consisted of 53 weeks.
2. Summary of Significant Accounting Policies
UNIFI follows U.S. generally accepted accounting principles (“GAAP”). The significant accounting policies described below, together with the other notes to the accompanying consolidated financial statements that follow, are an integral part of the consolidated financial statements. UNIFI evaluated GAAP requirements for the consideration of forecasted financial information, including, but not limited to, the carrying value of long-lived assets in context with the information reasonably available to UNIFI and the unknown future impacts of the economic environment as of July 2, 2023 and through the date of this filing.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Unifi, Inc. and its subsidiaries in which it maintains a controlling financial interest. All account balances and transactions between Unifi, Inc. and the subsidiaries which it controls have been eliminated. For transactions with entities accounted for under the equity method, any intercompany profits on amounts still remaining within inventory are eliminated. Amounts originating from any deferral of intercompany profits are recorded within the account balance to which the transaction specifically relates (e.g., inventory). Only upon settlement of the intercompany transaction with a third party is the deferral of the intercompany profit recognized by UNIFI.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts of assets and liabilities, certain financial statement disclosures at the date of the financial statements, and the reported amounts of revenues and expenses during the period. UNIFI’s consolidated financial statements include amounts that are based on management’s best estimates and judgments. Actual results may vary from these estimates.
Cash and Cash Equivalents
Cash equivalents are defined as highly liquid, short-term investments having an original maturity of three months or less. Book overdrafts, for which the bank has not advanced cash, if any, are reclassified to accounts payable and reflected as an offset thereto within the accompanying consolidated statements of cash flows.
Receivables
Receivables are stated net of expected lifetime credit losses. Allowances are provided for known and potential losses arising from quality claims and for amounts owed by customers. Reserves for quality claims have not been material and are based on historical claim experience and known pending claims and are recorded as a reduction of net sales. The allowance for uncollectible accounts is recorded against operating income and reflects UNIFI’s best estimate of probable losses inherent in its accounts receivable portfolio determined on the basis of historical write off experience, aging of trade receivables, specific allowances for known troubled accounts, and other currently available information. Customer accounts are written off against the allowance for uncollectible accounts when they are no longer deemed to be collectible.
F- 9
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Inventories
UNIFI’s inventories are valued at the lower of cost or net realizable value, with the cost for the majority of its inventory determined using the first-in, first-out method. Certain foreign inventories and limited categories of supplies are valued using the average cost method. UNIFI’s estimates for net realizable value related to obsolete, slow-moving, or excess inventories are based upon many factors, including historical recovery rates, inventory age, the expected net realizable value of specific products, and current economic conditions.
Debt Issuance Costs
Debt issuance costs for revolving credit arrangements are recorded to other non-current assets. All other debt issuance costs are recorded against long-term debt and amortized as additional interest expense using the effective interest method. In the event of any prepayment of its debt obligations, UNIFI accelerates the recognition of a pro-rata amount of issuance costs.
Property, Plant and Equipment
Property, plant, and equipment (“PP&E”) are stated at historical cost less accumulated depreciation. Plant and equipment under finance leases are stated at the present value of minimum lease payments less accumulated amortization. Additions or improvements that substantially extend the useful life of a particular asset are capitalized. Depreciation is calculated primarily utilizing the straight-line method over the following useful lives:
Asset categories
Useful lives in years
Land improvements
5 to 20
Buildings and improvements
7 to 40
Machinery and equipment
2 to 25
Computer, software and office equipment
3 to 7
Internal software development costs
3
Transportation equipment
3 to 15
Leasehold improvements are depreciated over the lesser of their estimated useful lives or the remaining term of the lease.
Assets under finance leases are amortized in a manner consistent with UNIFI’s normal depreciation policy if ownership is transferred by the end of the lease or if there is a bargain purchase option. If such ownership criteria are not met, amortization occurs over the shorter of the lease term or the asset’s useful life.
UNIFI capitalizes eligible costs of developing internal software when the software is used as an integral part of its manufacturing or business processes. Internal software costs are amortized over a period of three years and, in accordance with the nature of the project, charged to cost of sales or selling, general, and administrative (“SG&A”) expenses.
Fully depreciated assets are retained in cost and accumulated depreciation accounts until they are disposed. In the case of disposals, asset costs and related accumulated depreciation amounts are removed from the accounts, and the net amounts, less proceeds from disposal, are included in the determination of net (loss) income and presented within other operating expense (income), net.
Repair and maintenance costs related to PP&E, which do not significantly increase the useful life of an existing asset or do not significantly alter, modify or change the capabilities or production capacity of an existing asset, are expensed as incurred.
Interest is capitalized for capital projects requiring a construction period.
PP&E and other long-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. UNIFI periodically evaluates the reasonableness of the useful lives of these assets. Long-lived assets to be disposed of by sale within one year are classified as held for sale and are reported at the lower of their carrying amount or fair value less cost to sell. Depreciation ceases for all assets classified as held for sale. Long-lived assets to be disposed of other than by sale are classified as held for use until they are disposed of and these assets, along with assets subject to abandonment, are reported at the lower of their carrying amount or estimated fair value.
Intangible Assets
Finite-lived intangible assets, such as customer lists, non-compete agreements, and trademarks are amortized over their estimated useful lives. UNIFI periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets (asset groups) are reviewed for impairment or obsolescence whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. UNIFI has no intangible assets with indefinite lives.
F- 10
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Investments in Unconsolidated Affiliates
UNIFI evaluates its investments in unconsolidated affiliates for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Fair Value Measurements
The accounting guidance for fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market, or, if none exists, the most advantageous market, for the specific asset or liability at the measurement date (the exit price). Fair value is based on assumptions that market participants would use when pricing the asset or liability. The hierarchy gives the highest priority to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs. UNIFI uses the following to measure fair value for its assets and liabilities.
• Level 1 – Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
• Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either indirectly or directly.
• Level 3 – Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety. There were no transfers into or out of the levels of the fair value hierarchy for any years presented.
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.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recorded to recognize the expected future tax benefits or costs of events that have been, or will be, reported in different tax years for financial statement purposes than for tax purposes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which these items are expected to reverse. UNIFI reviews deferred tax assets to determine if it is more-likely-than-not they will be realized. If UNIFI determines it is not more-likely-than-not that a deferred tax asset will be realized, it records a valuation allowance to reverse the previously recognized benefit. Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested.
UNIFI recognizes tax benefits related to uncertain tax positions if it believes it is more-likely-than-not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. UNIFI accrues for other tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. Penalties and interest related to income tax expense, if incurred, are included in provision for income taxes.
Stock-Based Compensation
Compensation expense for stock awards is based on the grant date fair value and expensed over the applicable vesting period. UNIFI has a policy of issuing new shares to satisfy award exercises and conversions. For awards with a service condition and a graded vesting schedule, UNIFI has elected an accounting policy of recognizing compensation cost on a straight-line basis over the requisite service period for each separate vesting portion of the award as if the award was, in-substance, multiple awards.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries whose functional currency is other than the U.S. Dollar (“USD”) are translated at exchange rates existing at the respective balance sheet dates. Translation gains and losses are not included in determining net (loss) income but are presented in a separate component of accumulated other comprehensive loss. UNIFI translates the results of its foreign operations at the average exchange rates during the respective periods. Transaction gains and losses are included within other operating expense (income), net.
F- 11
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Revenue Recognition
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied, which primarily occurs at a point in time, upon either shipment or delivery to the customer. Revenue is recognized over time for contracts in which the associated inventory produced has no alternative use and for which an enforceable right to payment exists or the associated services have been rendered. Revenue is measured as the amount of consideration UNIFI expects to receive in exchange for completing its performance obligations (i.e., transferring goods or providing services), which includes estimates for variable consideration. Variable consideration includes volume-based incentives and product claims, which are offered within certain contracts between UNIFI and its customers and is not material. Sales taxes and value added taxes assessed by governmental entities are excluded from the measurement of consideration expected to be received. Shipping and handling costs incurred after a customer has taken control of our goods are treated as a fulfillment cost and are not considered a separate performance obligation.
Cost of Sales
The major components of cost of sales are: (i) materials and supplies, (ii) labor and fringe benefits, (iii) utility and overhead costs associated with manufactured products, (iv) shipping, handling and warehousing costs, (v) depreciation expense, and (vi) all other costs related to production or service activities.
Shipping, Handling, and Warehousing Costs
Shipping, handling, and warehousing costs include costs to store goods prior to shipment, prepare goods for shipment and physically move goods to customers.
Research and Development Costs
Research and development costs include employee costs, production costs related to customer samples, operating supplies, consulting fees and other miscellaneous costs. The cost of research and development is charged to cost of sales as incurred. Research and development costs were as follows :
Fiscal 2023
Fiscal 2022
Fiscal 2021
Research and development costs
$
10,871
$
12,103
$
11,483
Selling, General, and Administrative Expenses
The major components of SG&A expenses are: (i) costs of UNIFI’s sales organization, marketing and advertising efforts, and external commissions; (ii) costs of maintaining UNIFI’s general and administrative support functions including executive management, information technology, human resources, legal, and finance; (iii) amortization of intangible assets, and (iv) all other costs required to be classified as SG&A expenses.
Advertising Costs
Advertising costs are expensed as incurred and included in SG&A expenses. UNIFI’s advertising costs include spending for items such as consumer marketing and branding initiatives, promotional items, trade shows, sponsorships, and other programs. Advertising costs were as follows :
Fiscal 2023
Fiscal 2022
Fiscal 2021
Advertising costs
$
4,003
$
4,673
$
2,919
Self-Insurance
UNIFI self-insures certain risks such as employee healthcare claims and maintains stop-loss coverage. Reserves for incurred but not reported healthcare claims are estimated using historical data, the timeliness of claims processing, medical trends, inflation, and any changes, if applicable, in the nature or type of the plan.
Contingencies
At any point in time, UNIFI may be a party to various pending legal proceedings, claims or environmental actions. Accruals for estimated losses are recorded at the time information becomes available indicating that losses are probable and estimable. Any amounts accrued are not discounted. Legal costs such as outside counsel fees and expenses are charged to expense as incurred.
F- 12
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
3. Recent Accounting Pronouncements
Issued and Pending Adoption
There have been no newly issued accounting pronouncements that are expected to have a significant impact on UNIFI’s consolidated financial statements.
Recently Adopted
There have been no accounting pronouncements adopted after fiscal 2021 that had a material impact to UNIFI's consolidated financial statements.
4. Leases
UNIFI has adopted the following post-implementation practical expedients related to its accounting for leases:
• short-term lease accounting policy election allowing lessees to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less and to recognize lease payments on a straight-line basis over the lease term and variable payments in the period the obligation is incurred; and
• the option not to separate lease and non-lease components for the transportation equipment asset class.
UNIFI leases sales and administrative office space, warehousing and distribution centers, manufacturing space, transportation equipment, manufacturing equipment, and other information technology and office equipment from third parties. The lease terms range from 1 to 15 years with various options for renewal. There are no residual value guarantees, restrictions, covenants, or sub-leases related to these leases. Variable lease payments are determined as the amounts included in the lease payment that are based on the change in index or usage. Disclosures related to the amount, timing and uncertainty of cash flows arising from leases are included below.
The following table sets forth the balance sheet location and values of the Company’s lease assets and lease liabilities:
Classification
Balance Sheet Location
July 2, 2023
July 3, 2022
Lease Assets
Operating lease assets
Operating lease assets
$
7,791
$
8,829
Finance lease assets
Property, plant & equipment, net
10,947
7,017
Total lease assets
$
18,738
$
15,846
Lease Liabilities
Current operating lease liabilities
Current operating lease liabilities
$
1,813
$
2,190
Current finance lease liabilities
Current portion of long-term debt
2,806
1,726
Total current lease liabilities
$
4,619
$
3,916
Non-current operating lease liabilities
Non-current operating lease liabilities
$
6,146
$
6,736
Non-current finance lease liabilities
Long-term debt
7,961
5,535
Total non-current lease liabilities
$
14,107
$
12,271
Total lease liabilities
$
18,726
$
16,187
The following table sets forth the components of UNIFI’s total lease cost for fiscal 2023 and 2022:
Lease Cost
Fiscal 2023
Fiscal 2022
Operating lease cost
$
2,686
$
2,766
Variable lease cost
545
502
Finance lease cost:
Amortization of lease assets
1,546
1,981
Interest on lease liabilities
344
258
Short-term lease cost
1,013
967
Total lease cost
$
6,134
$
6,474
The following table presents supplemental information related to leases:
Other Information
Fiscal 2023
Fiscal 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used by operating leases
$
2,686
$
2,766
Financing cash flows used by finance leases
$
2,123
$
3,707
Non-cash activities:
Leased assets obtained in exchange for new operating lease liabilities
$
2,733
$
1,662
Leased assets obtained in exchange for new finance lease liabilities
$
5,629
$
2,493
F- 13
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
UNIFI calculates its operating lease liabilities and finance lease liabilities based upon UNIFI’s incremental borrowing rate (the “IBR”). When determining the IBR, we consider our centralized treasury function and our current credit profile. UNIFI makes adjustments to this rate for securitization, the length of the lease term (tenure), and leases denominated in foreign currencies. Generally, the IBR for each jurisdiction approximates the specific risk-free rate for the respective jurisdiction incremented for UNIFI’s corporate credit risk and adjusted for tenure.
The following table sets forth UNIFI's weighted average remaining lease term in years and discount rate percentage used in the calculation of its outstanding lease liabilities:
Weighted Average Remaining Lease Term and Discount Rate
July 2, 2023
July 3, 2022
Weighted average remaining lease term (years):
Operating leases
6.0
4.1
Finance leases
3.9
4.2
Weighted average discount rate (percentage):
Operating leases
3.0
%
5.0
%
Finance leases
4.8
%
3.6
%
Lease Maturity Analysis
Future minimum finance lease payments and future minimum payments under non-cancelable operating leases with initial lease terms in excess of one year as of July 2, 2023 by fiscal year were:
Maturity of Lease Liabilities
Finance Leases
Operating Leases
Fiscal 2024
$
3,339
$
2,181
Fiscal 2025
3,183
1,677
Fiscal 2026
2,688
1,384
Fiscal 2027
2,082
1,155
Fiscal 2028
949
1,040
Fiscal years thereafter
—
2,241
Total minimum lease payments
$
12,241
$
9,678
Less estimated executory costs
( 338
)
—
Less imputed interest
( 1,136
)
( 1,719
)
Present value of net minimum lease payments
10,767
7,959
Less current portion of lease obligations
( 2,806
)
( 1,813
)
Long-term portion of lease obligations
$
7,961
$
6,146
5. Revenue Recognition
The following tables present net sales disaggregated by (i) classification of customer type and (ii) REPREVE Fiber sales:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Third-party manufacturer
$
618,391
$
808,655
$
656,763
Service
5,136
7,103
10,829
Net sales
$
623,527
$
815,758
$
667,592
Fiscal 2023
Fiscal 2022
Fiscal 2021
REPREVE ® Fiber
$
186,161
$
293,080
$
245,832
All other products and services
437,366
522,678
421,760
Net sales
$
623,527
$
815,758
$
667,592
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.
F- 14
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
REPREVE Fiber
REPREVE Fiber represents our collection of fiber products on our recycled platform, with or without added technologies.
Variable Consideration
For all variable consideration, where appropriate, UNIFI estimates the amount using the expected value method, which takes into consideration historical experience, current contractual requirements, specific known market events and forecasted customer buying and payment patterns. Overall, these reserves reflect UNIFI’s best estimates of the amount of consideration to which the customer is entitled based on the terms of the contracts. Variable consideration has been immaterial to UNIFI’s financial statements for all years presented.
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.
6. Receivables, Net
Receivables, net consists of the following:
July 2, 2023
July 3, 2022
Customer receivables
$
79,174
$
99,963
Allowance for uncollectible accounts
( 1,362
)
( 1,498
)
Reserves for quality claims
( 682
)
( 860
)
Net customer receivables
77,130
97,605
Banker's acceptance notes
5,870
7,849
Other receivables
725
1,111
Total receivables, net
$
83,725
$
106,565
Banker’s acceptance notes (“BANs”), denominated in RMB, relate to 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.
The changes in UNIFI’s allowance for uncollectible accounts and reserves for quality claims were as follows:
Allowance for
Uncollectible
Accounts
Reserves for
Quality Claims
Balance at June 28, 2020
$
( 3,796
)
$
( 928
)
Credited (charged) to costs and expenses
1,316
( 1,085
)
Translation activity
( 89
)
( 36
)
Deductions
44
1,346
Balance at June 27, 2021
$
( 2,525
)
$
( 703
)
Credited (charged) to costs and expenses
445
( 1,065
)
Translation activity
40
12
Deductions
542
896
Balance at July 3, 2022
$
( 1,498
)
$
( 860
)
Credited (charged) to costs and expenses
89
( 1,397
)
Translation activity
( 86
)
7
Deductions
133
1,568
Balance at July 2, 2023
$
( 1,362
)
$
( 682
)
Amounts credited (charged) to costs and expenses for the allowance for uncollectible accounts are reflected in the benefit for bad debts and deductions represent amounts written off which were deemed to not be collectible, net of any recoveries. Amounts charged to costs and expenses for the reserves for quality claims are primarily reflected as a reduction of net sales and deductions represent adjustments to either increase or decrease claims based on negotiated amounts or actual versus estimated claim differences.
F- 15
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
7. Inventories
Inventories consists of the following:
July 2, 2023
July 3, 2022
Raw materials
$
59,983
$
69,994
Supplies
11,787
11,953
Work in process
6,633
10,358
Finished goods
78,032
84,477
Gross inventories
156,435
176,782
Net realizable value adjustment
( 5,625
)
( 3,487
)
Total inventories
$
150,810
$
173,295
The cost for the majority of UNIFI’s inventories is determined using the first-in, first-out method. Certain foreign inventories and limited categories of supplies of $ 58,490 and $ 53,793 as of July 2, 2023 and July 3, 2022, respectively, were valued under the average cost method.
8. Other Current Assets
Other current assets consists of the following:
July 2, 2023
July 3, 2022
Vendor deposits
$
3,863
$
6,910
Value-added taxes receivable
3,398
1,987
Prepaid expenses and other
2,584
3,004
Recovery of non-income taxes, net
1,933
6,770
Contract assets
549
285
Total other current assets
$
12,327
$
18,956
Vendor deposits primarily relates to down payments made toward the purchase of inventory. Prepaid expenses consists of advance payments for routine operating expenses. Value-added taxes receivable relates to recoverable taxes associated with the sales and purchase activities of UNIFI’s foreign operations. Contract assets represents the estimated revenue attributable to UNIFI in connection with completed performance obligations under contracts with customers for which revenue is recognized over time. The contract assets are classified to receivables when the right to payment becomes unconditional.
Recovery of Non-Income Taxes, Net
Brazilian companies are subject to various taxes on business operations, including turnover taxes used to fund social security and unemployment programs, commonly referred to as PIS/COFINS taxes. UNIFI, along with numerous other companies in Brazil, challenged the constitutionality of certain state taxes historically included in the PIS/COFINS tax base.
On May 13, 2021, Brazil’s Supreme Federal Court (“SFC”) ruled in favor of taxpayers, and on July 7, 2021, the Brazilian Internal Revenue Service withdrew its existing appeal. Following the SFC decision, the federal government will not issue refunds for these taxes but will instead allow for the overpayments and associated interest to be applied as credits against future PIS/COFINS tax obligations. In fiscal 2021, UNIFI recorded $ 11,519 to reflect the current and non-current recovery of PIS/COFINS taxes and associated interest, with $ 942 of recoveries relating to fiscal 2021 included within net sales and $ 10,577 of recoveries relating to fiscal years prior to 2021, which is reduced by fees related to the recovery efforts to comprise $ 9,717 for recovery of non-income taxes. During fiscal 2022, UNIFI reduced the estimated recovery by $ 815 , based on additional clarity and review of the recovery process during the months following the associated SFC decision.
There are no limitations or restrictions on UNIFI’s ability to recover the associated overpayment claims as future income is generated and the Company has been utilizing these amounts to offset its current tax obligations under PIC/COFINS. The Company expects to apply the remaining balance to obligations within the next twelve months.
F- 16
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
9. Property, Plant and Equipment, Net
PP&E, net consists of the following:
July 2, 2023
July 3, 2022
Land
$
2,512
$
3,160
Land improvements
16,443
16,443
Buildings and improvements
167,589
164,252
Assets under finance leases
16,397
10,921
Machinery and equipment
656,431
635,699
Computers, software and office equipment
26,654
25,348
Transportation equipment
10,710
10,591
Construction in progress
10,003
20,397
Gross PP&E
906,739
886,811
Less: accumulated depreciation
( 682,768
)
( 666,569
)
Less: accumulated amortization – finance leases
( 5,450
)
( 3,904
)
Total PP&E, net
$
218,521
$
216,338
Assets under finance leases consists of the following:
July 2, 2023
July 3, 2022
Transportation equipment
$
8,276
$
8,276
Machinery and equipment
8,121
2,645
Gross assets under finance leases
$
16,397
$
10,921
Depreciation and amortization expense and repair and maintenance expenses were as follows:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Depreciation and amortization expense
$
25,729
$
24,509
$
24,215
Repair and maintenance expenses
17,999
20,076
18,118
In fiscal 2017, UNIFI constructed specialized bi-component spinning machinery in the Americas with a 15-year useful life to accommodate tolling demand and development efforts of a specific U.S. customer. After multiple years of operating the machinery, recovering the capital investment, and generating profitable sales, the contract terminated in accordance with its provisions, and additional development and commercialization efforts ceased in fiscal 2023, primarily due to the specialized nature and generally higher operating costs of the machinery. As a result of the lack of potential future demand, the machinery was considered to have zero future sales potential and negative future cash flows and was abandoned by the Company. Accordingly, UNIFI recorded an impairment of $ 8,247 to Other operating expense (income), net during the fourth quarter of fiscal 2023. Prior to the abandonment, the asset's net book value was $ 8,247 . The new book value of $ 0 reflects the lack of positive future cash flows, scrap or salvage value, following the income method for the Level 3 measurement.
10. Other Non-Current Assets
Other non-current assets consists of the following:
July 2, 2023
July 3, 2022
Recovery of taxes
$
5,957
$
1,463
Investments in unconsolidated affiliates
2,997
2,072
Grantor trust
2,496
2,196
Intangible assets, net
1,210
2,500
Other
1,848
557
Total other non-current assets
$
14,508
$
8,788
Recovery of Taxes
In fiscal 2023, UNIFI recorded a recovery of income taxes in connection with filing amended tax returns in Brazil relating to certain income taxes paid in prior fiscal years, following favorable legal rulings in fiscal 2023. The balance at July 3, 2022 relates to the recovery of PIS/COFINS (non-income) taxes, as further described in Note 8, "Other Current Assets."
F- 17
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Grantor Trust
During fiscal 2022, UNIFI established a grantor (or “rabbi”) trust to facilitate the payment of obligations under the Unifi, Inc. Deferred Compensation Plan (the “DCP”), which was also established in fiscal 2022. In addition to providing certain key employees with the ability to defer earned cash incentive compensation into the DCP, participants can generally choose the form and timing of deferred amounts. The DCP assumed the participants, obligations, and major terms of the Unifi, Inc. Supplemental Key Employee Retirement Plan (together with amendments, the “SERP”), an unfunded plan established in 2006 for purposes of generating supplemental retirement income for key employees of UNIFI. The amounts credited to participant accounts are reflected in selling, general, and administrative expenses. The assets of the trust are subject to the claims of UNIFI’s creditors in the event of insolvency. Investments held for the DCP consist of mutual funds and are recorded based on market values. A change in the value of the trust assets would substantially be offset by a change in the liability to the participants, resulting in an immaterial net impact to the consolidated financial statements.
The fair value of the investment assets held by the trust were approximately $ 2,496 and $ 2,196 as of July 2, 2023 and July 3, 2022, respectively, and are classified as trading securities within Other non-current assets. Trading gains and losses associated with these investments are recorded to Other operating expense (income), net. The associated DCP liability is recorded within Other current liabilities and Other long-term liabilities based on expected payment timing, and any increase or decrease in the liability is reflected as compensation in SG&A expenses. During fiscal 20 23 and 2022, we recorded (gains) or losses on investments held by the trust of $( 154 ) and $ 48 , respectively.
Intangible Assets
Intangible assets, net consists of the following:
July 2, 2023
July 3, 2022
Customer lists
$
3,605
$
5,220
Non-compete agreement
—
1,875
Trademarks
24
104
Total intangible assets, gross
3,629
7,199
Accumulated amortization – customer lists
( 2,398
)
( 3,056
)
Accumulated amortization – non-compete agreement
—
( 1,563
)
Accumulated amortization – trademarks
( 21
)
( 80
)
Total accumulated amortization
( 2,419
)
( 4,699
)
Total intangible assets, net
$
1,210
$
2,500
Amortization expense for intangible assets consists of the following:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Customer lists
$
957
$
1,007
$
556
Non-compete agreement
312
375
375
Trademarks
21
96
147
Total amortization expense
$
1,290
$
1,478
$
1,078
The following table presents the expected intangible asset amortization for the next five fiscal years:
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Fiscal 2028
Thereafter
Expected amortization
$
528
$
108
$
108
$
108
$
111
$
247
F- 18
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Investments in Unconsolidated Affiliates
U.N.F. Industries, Ltd.
In September 2000, UNIFI and Nilit Ltd. ("Nilit") formed a 50/50 joint venture, U.N.F. Industries Ltd. (“UNF”), for the purpose of operating nylon extrusion assets to manufacture nylon POY. Raw material and production services for UNF are provided by Nilit 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
In October 2009, UNIFI and Nilit America Inc. (“Nilit America”) formed a 50 /50 joint venture, UNF America LLC (“UNFA”), for the purpose of operating a nylon extrusion facility which manufactures nylon POY. Raw material and production services for UNFA are provided by Nilit America under separate supply and services agreements. UNFA’s fiscal year end is December 31 and it is a limited liability company located in Ridgeway, Virginia. UNFA is treated as a partnership for its income tax reporting.
In conjunction with the formation of UNFA, UNIFI entered into a supply agreement with UNF and UNFA (collectively, “UNFs”) 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 agreement has no stated minimum purchase quantities, and pricing is negotiated every six months based on market rates. As of July 2, 2023, UNIFI’s open purchase orders related to this agreement were $ 762 .
UNIFI’s raw material purchases under this supply agreement consist of the following:
Fiscal 2023
Fiscal 2022
Fiscal 2021
UNFA
$
26,683
$
29,637
$
18,932
UNF
31
1,175
548
Total
$
26,714
$
30,812
$
19,480
As of July 2, 2023 and July 3, 2022, UNIFI had combined accounts payable due to UNF and UNFA of $ 3,440 and $ 5,565 , respectively.
UNIFI has determined that UNF and UNFA are variable interest entities and has also determined that UNIFI is the primary beneficiary of these entities, based on the terms of the supply agreement. 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 and all intercompany sales would be eliminated in consolidation, (ii) the two entities’ balance sheets constitute 5 % or less of UNIFI’s current assets and total assets, 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 and instead is accounting for these entities as equity investments. As of July 2, 2023 and July 3, 2022, UNIFI’s combined investments in UNF and UNFA were $ 2,997 and $ 2,072 , respectively. 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.
July 2, 2023
July 3, 2022
Current assets
$
10,608
$
10,705
Non-current assets
494
605
Current liabilities
7,304
8,056
Non-current liabilities
—
—
Shareholders’ equity and capital accounts
3,798
3,254
UNIFI’s portion of undistributed earnings
2,938
2,013
Fiscal 2023
Fiscal 2022
Fiscal 2021
Net sales
$
29,123
$
31,745
$
19,649
Gross profit
2,337
1,928
3,423
Income from operations
604
148
1,777
Net income
544
127
1,782
Depreciation and amortization
111
121
151
Distributions received
—
750
750
F- 19
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
11. Other Current Liabilities
Other current liabilities consists of the following:
July 2, 2023
July 3, 2022
Payroll and fringe benefits
$
6,981
$
9,414
Utilities
1,634
2,287
Deferred revenue
1,441
1,694
Incentive compensation
298
3,916
Property taxes and other
2,578
2,495
Total other current liabilities
$
12,932
$
19,806
12. Long-Term Debt
Debt Obligations
The following table presents the details for UNIFI’s debt obligations:
Weighted Average
Scheduled
Interest Rate as of
Principal Amounts as of
Maturity Date
July 2, 2023
July 2, 2023
July 3, 2022
ABL Revolver
October 2027
7.1 %
$
18,100
$
41,300
ABL Term Loan
October 2027
6.6 %
110,400
65,000
Finance lease obligations
(1)
4.8 %
10,767
7,261
Construction financing
(2)
6.9 %
1,632
729
Total debt
140,899
114,290
Current ABL Term Loan
( 9,200
)
( 10,000
)
Current portion of finance lease obligations
( 2,806
)
( 1,726
)
Unamortized debt issuance costs
( 289
)
( 255
)
Total long-term debt
$
128,604
$
102,309
(1) Scheduled maturity dates for finance lease obligations range from March 2025 to May 2028 .
(2) Refer to the discussion below under the subheading “ Construction Financing ” for further information.
ABL Facility and Amendments
On October 28, 2022, Unifi, Inc. and certain of its subsidiaries entered into a Second Amended and Restated Credit Agreement (the “2022 Credit Agreement”) with a syndicate of lenders. The 2022 Credit Agreement provides for a $ 230,000 senior secured credit facility (the “2022 ABL Facility”), including a $ 115,000 revolving credit facility (the "2022 ABL Revolver") and a term loan (the "2022 ABL Term Loan") that can be reset up to a maximum amount of $ 115,000 , once per fiscal year, if certain conditions are met. The 2022 ABL Facility has a maturity date of October 28, 2027 . The 2022 ABL Term Loan requires quarterly principal payments of $ 2,300 that began on February 1, 2023. Borrowings under the 2022 ABL Facility bear interest at SOFR plus 0.10% plus an applicable margin of 1.25 % to 1.75 %, or the Base Rate (as defined in the 2022 Credit Agreement) plus an applicable margin of 0.25 % to 0.75 %, with interest paid most commonly on a monthly basis. In connection with the 2022 Credit Agreement, UNIFI recorded a $ 273 loss on debt extinguishment to interest expense in the second quarter of fiscal 2023.
Prior to entering the into 2022 Credit Agreement, Unifi, Inc. and certain of its subsidiaries maintained a similar credit agreement that established a $ 200,000 senior secured credit facility (the “Prior ABL Facility”), including a $ 100,000 revolving credit facility (the “Prior ABL Revolver”) and a term loan that could be reset up to a maximum amount of $ 100,000 , once per fiscal year, if certain conditions were met (the “Prior ABL Term Loan”). The Prior ABL Facility had a maturity date of December 18, 2023 and the significant terms and conditions of the 2022 ABL Facility are nearly identical to those of the Prior ABL Facility.
Similar to the Prior ABL Facility, the 2022 ABL Facility is secured by a first-priority perfected security interest in substantially all owned property and assets (together with all proceeds and products) of Unifi, Inc., Unifi Manufacturing, Inc., and a certain subsidiary guarantor (collectively, the “Loan Parties”). It is also secured by a first-priority security interest in all (or 65 % in the case of UNIFI’s first-tier controlled foreign subsidiary, as required by the lenders) of the stock of (or other ownership interests in) each of the Loan Parties (other than Unifi, Inc.) and certain subsidiaries of the Loan Parties, together with all proceeds and products thereof.
Similar to the Prior ABL Facility, if excess availability under the 2022 ABL Revolver falls below the Trigger Level (as defined in the 2022 Credit Agreement), a financial covenant requiring the Loan Parties to maintain a fixed charge coverage ratio on a quarterly basis of at least 1.05 to 1.00 becomes effective. The Trigger Level as of July 2, 2023 was $ 22,540 . In addition, the 2022 ABL Facility contains restrictions on particular payments and investments, including certain restrictions on the payment of dividends and share repurchases. Subject to specific provisions, the 2022 ABL Term Loan may be prepaid at par, in whole or in part, at any time before the maturity date, at UNIFI’s discretion.
F- 20
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Similar to the Prior ABL Facility, t he applicable margin is based on (i) the excess availability under the 2022 ABL Revolver and (ii) the consolidated leverage ratio, calculated as of the end of each fiscal quarter. UNIFI’s ability to borrow under the 2022 ABL Revolver is limited to a borrowing base equal to specified percentages of eligible accounts receivable and inventories and is subject to certain conditions and limitations. There is also a monthly unused line fee under the 2022 ABL Revolver of 0.25 %.
UNIFI did not incur additional costs or administrative burden during the transition from LIBOR to SOFR with the establishment of the 2022 Credit Agreement.
Finance Lease Obligations
During fiscal 2023, UNIFI entered into finance lease obligations totaling $ 5,629 for texturing machines. The maturity dates of these obligations occur during fiscal 2028 with interest rates between 4.4 % and 6.2 %.
During fiscal 2022, UNIFI entered into finance lease obligations totaling $ 2,493 for texturing machines. The maturity dates of these obligations occur during fiscal 2027 with interest rates between 3.0 % and 4.4 %.
Construction Financing
In May 2021, UNIFI entered into an agreement with a third party lender that provides for construction-period financing for certain texturing machinery included in our capital allocation plans. UNIFI records project costs to construction in progress and the corresponding liability to construction financing (within long-term debt). The agreement provides for monthly, interest-only payments during the construction period, at a rate of SOFR plus 1.25 %, and contains terms customary for a financing of this type.
Each borrowing under the agreement provides for 60 monthly payments, which will commence upon the completion of the construction period with a fixed interest rate of approximately SOFR plus 1.0 % to 1.2 %. In connection with this construction financing arrangement, UNIFI has borrowed a total of $ 9,755 and transitioned $ 8,123 of completed asset costs to finance lease obligations as of July 2, 2023.
Scheduled Debt Maturities
The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the following five fiscal years and thereafter.
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Fiscal 2028
Thereafter
ABL Revolver
$
—
$
—
$
—
$
—
$
18,100
$
—
ABL Term Loan
9,200
9,200
9,200
9,200
73,600
—
Finance lease obligations
2,806
2,779
2,401
1,902
879
—
Total (1)
$
12,006
$
11,979
$
11,601
$
11,102
$
92,579
$
—
(1) Total reported exclude s $ 1,632 for construction financing, described above.
13. Other Long-Term Liabilities
Other long-term liabilities consists of the following:
July 2, 2023
July 3, 2022
Nonqualified deferred compensation plan obligation
$
2,659
$
1,982
Uncertain tax positions
1,973
1,575
Other
468
892
Total other long-term liabilities
$
5,100
$
4,449
As further described in Note 10, “Other Non-Current Assets,” UNIFI maintains a nonqualified deferred compensation plan for certain key employees and reflects a long-term obligation for amounts due beyond twelve months.
Other primarily includes certain retiree and post-employment medical and disability liabilities.
F- 21
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
14. Income Taxes
Components of (Loss) Income Before Income Taxes
The components of (loss) income before income taxes consist of the following:
Fiscal 2023
Fiscal 2022
Fiscal 2021
U.S.
$
( 63,773
)
$
( 18,364
)
$
( 12,463
)
Foreign
18,330
45,192
58,810
(Loss) income before income taxes
$
( 45,443
)
$
26,828
$
46,347
Components of Provision for Income Taxes
Provision for income taxes consists of the following:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Current:
Federal
$
309
$
( 1,163
)
$
( 577
)
State
( 7
)
2
25
Foreign
3,385
15,935
12,739
Total current tax expense
3,687
14,774
12,187
Deferred:
Federal
41
( 630
)
( 1,564
)
State
71
33
131
Foreign
( 2,898
)
( 2,520
)
6,520
Total deferred tax expense
( 2,786
)
( 3,117
)
5,087
Provision for income taxes
$
901
$
11,657
$
17,274
On December 22, 2017, the U.S. government enacted comprehensive tax legislation H.R. 1, formerly known as the Tax Cuts and Jobs Act. The Global Intangible Low-Taxed Income (“GILTI”) provisions included in H.R. 1 require that certain income earned by foreign subsidiaries must be currently included in the gross income of the U.S. shareholder. UNIFI has elected to recognize GILTI as a current-period expense. Under this policy, UNIFI has not provided deferred taxes related to temporary differences that, upon their reversal, will affect the amount of income subject to GILTI in the period.
On July 20, 2020, the U.S. Treasury issued and enacted final regulations related to 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. Fiscal 2021 includes a tax benefit of $ 4,816 related to the retroactive election.
Utilization of Net Operating Loss Carryforwards
Domestic deferred tax expense includes the utilization of federal net operating loss (“NOL”) carryforwards of $ 200 , $ 110 , and $ 5,312 for fiscal 2023, 2022, and 2021, respectively. Foreign deferred tax expense includes the utilization of NOL carryforwards of $ 166 , $ 32 , and $ 441 for fiscal 2023, 2022, and 2021, respectively. State deferred tax expense includes the utilization of NOL carryforwards of $ 109 , $ 25 , and $ 167 for fiscal 2023, 2022, and 2021, respectively.
F- 22
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Effective Tax Rate
Reconciliation from the federal statutory tax rate to the effective tax rate is as follows:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Federal statutory tax rate
21.0
%
21.0
%
21.0
%
Change in valuation allowance
( 30.8
)
12.6
5.0
Repatriation of foreign earnings and withholding taxes
( 7.4
)
3.9
1.8
Change in uncertain tax positions
( 4.1
)
2.4
0.5
Foreign income taxed at different rates
( 1.9
)
10.7
9.0
U.S. tax on GILTI
( 1.5
)
0.2
3.9
Nondeductible compensation
( 0.8
)
2.1
1.4
Recovery of income taxes in Brazil
9.2
—
—
Research and other business credits
3.6
( 4.0
)
( 3.7
)
State income taxes, net of federal tax benefit
3.2
( 1.3
)
( 0.2
)
Tax expense on unremitted foreign earnings
3.0
5.5
7.0
Nontaxable income
2.5
( 10.2
)
( 2.4
)
Foreign tax credits
2.3
( 0.5
)
( 5.4
)
Deemed repatriation of foreign earnings under Subpart F
—
—
1.5
Domestic production activities deduction
—
—
0.6
Rate benefit of U.S. federal NOL carryback
—
—
( 2.8
)
Nondeductible expenses and other
( 0.3
)
1.1
0.1
Effective tax rate
( 2.0
)%
43.5
%
37.3
%
Deferred Income Taxes
The significant components of UNIFI’s deferred tax assets and liabilities consist of the following:
July 2, 2023
July 3, 2022
Deferred tax assets:
Capital loss carryforwards
$
16,390
$
16,318
NOL carryforwards
16,235
6,603
Tax credits
11,634
12,079
Research and development costs
9,137
7,409
Accrued compensation
1,396
2,106
Other items
5,614
4,877
Total gross deferred tax assets
60,406
49,392
Valuation allowance
( 43,910
)
( 31,667
)
Total deferred tax assets
16,496
17,725
Deferred tax liabilities:
PP&E
( 11,901
)
( 14,952
)
Unremitted earnings
( 3,872
)
( 5,253
)
Recovery of non-income taxes
—
132
Other
( 148
)
( 138
)
Total deferred tax liabilities
( 15,921
)
( 20,211
)
Net deferred tax assets (liabilities)
$
575
$
( 2,486
)
Deferred Income Taxes – Valuation Allowance
In assessing its ability to realize deferred tax assets, UNIFI considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. UNIFI considers the scheduled reversal of taxable temporary differences, taxable income in carryback years, cumulative losses in recent 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. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of its deferred income tax asset balances to warrant the application of a full valuation allowance against the deferred tax assets of its U.S. consolidated group and certain foreign subsidiaries as of July 2, 2023.
Components of UNIFI’s deferred tax valuation allowance are as follows:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Capital loss carryforwards
$
( 16,390
)
$
( 16,318
)
$
( 17,429
)
NOL carryforwards
( 16,235
)
( 4,570
)
( 2,336
)
Tax credits
( 10,800
)
( 10,779
)
( 17,215
)
Other deferred tax assets
( 485
)
—
—
Total deferred tax valuation allowance
$
( 43,910
)
$
( 31,667
)
$
( 36,980
)
F- 23
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
During fiscal 2023, UNIFI’s valuation allowance increased by $ 12,243 . The increase was primarily driven by a by an increase in the valuation allowance on federal net operating loss and research credits carryforwards. The increase was partially offset by a decrease in the valuation allowance on foreign tax credits.
During fiscal 2022, UNIFI’s valuation allowance decreased by $ 5,313 . The decrease was primarily driven by a decrease in the valuation allowance on foreign tax credits and capital loss carryforwards, offset by an increase in the valuation allowance on federal net operating loss and research credits carryforwards.
During fiscal 2021, UNIFI’s valuation allowance decreased by $ 459 . The decrease was primarily driven by a decrease in the valuation allowance on investments in unconsolidated affiliates and foreign tax credits, offset by an increase in the valuation allowance on research credits and capital loss carryforwards.
Unrecognized Tax Benefits
A reconciliation of beginning and ending gross amounts of unrecognized tax benefits is as follows:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Balance at beginning of year
$
2,909
$
2,590
$
1,218
Gross increases (decreases) related to tax positions in prior periods
1,436
( 89
)
1,396
Gross increases (decreases) related to current period tax positions
8
408
( 24
)
Gross decreases related to settlements with tax authorities
—
—
—
Gross decreases related to lapse of applicable statute of limitations
—
—
—
Balance at end of year
$
4,353
$
2,909
$
2,590
Unrecognized tax benefits would generate a favorable impact of $ 4,368 on UNIFI’s effective tax rate if recognized. Expense for interest and penalties recognized by UNIFI within the provision for income taxes was $ 400 , $ 287 , and $ 141 for fiscal 2023, 2022, and 2021, respectively. UNIFI had $ 959 , $ 559 , and $ 273 accrued for interest and/or penalties related to uncertain tax positions as of July 2, 2023, July 3, 2022 and June 27, 2021, respectively.
It is reasonably possible that the balance of unrecognized tax benefits could change within the next twelve months due to settlements with tax authorities or expiration of statute of limitations on returns filed. However, audit outcomes and the timing of audit settlements are subject to significant uncertainty. Therefore, UNIFI is unable to estimate the range of possible adjustments to the balance of unrecognized tax benefits.
Expiration of Net Operating Loss Carryforwards and Tax Credit Carryforwards
As of July 2, 2023, UNIFI had U.S. federal capital loss carryforwards of $ 16,390 , U.S. federal NOL carryforwards of $ 9,271 , U.S. state NOL carryforwards of $ 3,162 and foreign NOL carryforwards of $ 2,253 . The NOL carryforwards begin expiring in varying amounts in fiscal 2024 . As of July 2, 2023, UNIFI had the following carryforward attributes held outside of the U.S. consolidated tax filing group: U.S. federal NOL carryforwards of $ 292 and U.S. state NOL carryforwards of $ 513 . The NOL carryforwards held outside of the U.S. consolidated tax filing group begin expiring in fiscal 2024 . As of July 2, 2023, UNIFI had U.S. federal foreign tax credit carryforwards of $ 855 and foreign tax credit carryforwards in foreign jurisdictions of $ 3,404 . The foreign tax credit carryforwards begin expiring in varying amounts in fiscal 2028 . As of July 2, 2023, UNIFI had U.S. federal and state research and other business tax credit carryforwards of $ 7,375 , which begin expiring in fiscal 2024 . As of July 2, 2023, UNIFI had U.S. federal disallowed interest deduction carryforwards of $ 1,692 .
Tax Years Subject to Examination
Unifi, Inc. and its domestic subsidiaries file a consolidated federal income tax return, as well as income tax returns in multiple state and foreign jurisdictions. The tax years subject to examination vary by jurisdiction. UNIFI regularly assesses the outcomes of both completed and ongoing examinations to ensure that UNIFI’s provision for income taxes is sufficient.
In fiscal 2019, the Internal Revenue Service (the “IRS”) initiated an audit of UNIFI’s domestic operations for fiscal years 2016 and 2017. In fiscal 2020, the IRS expanded the audit to include fiscal 2018. In fiscal 2021, the IRS expanded the audit to include fiscal 2019. Fiscal years 2009 through 2014 remain open for certain foreign tax credit amendments and net operating loss and general business credit carrybacks.
Statutes related to material foreign jurisdictions are open from filing dates of their 2018 tax year and material US state jurisdictions from filing dates of state tax returns ended on June 30, 2019 . Certain carryforward tax attributes generated in years prior remain subject to examination and could change in subsequent tax years.
F- 24
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Indefinite Reinvestment Assertion
UNIFI considers $ 43,664 of its unremitted foreign earnings to be permanently reinvested to fund working capital requirements and operations abroad and has therefore not recognized a deferred tax liability for the estimated future taxes that would be incurred upon repatriation. If these earnings were distributed in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, UNIFI could be subject to additional tax liabilities of approximately $ 11,592 .
15. Shareholders’ Equity
On October 31, 2018, the Board approved a share repurchase program (the “2018 SRP”) under which UNIFI is authorized to acquire up to $ 50,000 of its common stock. Under the 2018 SRP, purchases may be made from time to time in the open market at prevailing market prices 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. Repurchases, if any, are expected to be financed through cash generated from operations and borrowings, and are subject to applicable limitations and restrictions as set forth in the 2022 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
—
$
—
$
50,000
Fiscal 2020
84
$
23.72
$
48,008
Fiscal 2021
—
$
—
$
48,008
Fiscal 2022
617
$
14.84
$
38,859
Fiscal 2023
—
$
—
$
38,859
Total
701
$
15.90
$
38,859
As of July 2, 2023, $ 38,859 remained available for repurchase under the 2018 SRP.
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.
No dividends were paid in the three most recent fiscal years.
16. Stock-Based Compensation
On October 23, 2013, UNIFI’s shareholders approved the Unifi, Inc. 2013 Incentive Compensation Plan (the “2013 Plan”). The 2013 Plan replaced the 2008 Unifi, Inc. Long-Term Incentive Plan (the “2008 LTIP”). No additional awards can be granted under the 2008 LTIP; however, prior awards outstanding under the 2008 LTIP remain subject to that plan’s provisions. The 2013 Plan authorized the issuance of 1,000 shares of common stock, subject to certain increases in the event outstanding awards under the 2008 LTIP expired, were forfeited or otherwise terminated unexercised.
The 2013 Plan expired in accordance with its terms on October 24, 2018 , and the Unifi, Inc. Amended and Restated 2013 Incentive Compensation Plan (the “Amended 2013 Plan”) became effective on that same day, upon approval by shareholders at UNIFI’s annual meeting of shareholders held on October 31, 2018. The Amended 2013 Plan increased the number of shares available for future issuance pursuant to awards granted under the Amended 2013 Plan to 1,250 and removed provisions no longer applicable due to the recent changes to Section 162(m) of the Internal Revenue Code of 1986, as amended. The material terms and provisions of the Amended 2013 Plan are otherwise similar to those of the 2013 Plan.
F- 25
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
On October 29, 2020 , UNIFI’s shareholders approved the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (the “2020 Plan”). The 2020 Plan set the number of shares available for future issuance pursuant to awards granted under the 2020 Plan to 850. No additional awards can be granted under prior plans; however, awards outstanding under a respective prior plan remain subject to that plan’s provisions.
The following table provides information as of July 2, 2023 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
4
Less: Awards granted to employees
( 544
)
Less: Awards granted to non-employee directors
( 114
)
Available for issuance under the 2020 Plan
196
Stock Options
A summary of UNIFI’s stock options granted to key employees and valued under the Black-Scholes model is as follows:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Quantity
—
—
155
Service period (years)
—
—
3.0
Weighted average exercise price
$
—
$
—
$
15.64
Weighted average grant date fair value
$
—
$
—
$
6.75
The Black-Scholes model used the following weighted average assumptions for the above awards:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Expected term (years)
—
—
5.5
Risk-free interest rate
—
—
0.4
%
Volatility
—
—
49.0
%
Dividend yield
—
—
—
UNIFI uses historical data to estimate the expected term and volatility. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for periods corresponding with the expected term of the stock options.
A summary of stock option activity for fiscal 2023 is as follows:
Stock Options
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
(Years)
Aggregate
Intrinsic
Value
Outstanding at July 3, 2022
982
$
15.81
Granted
—
$
—
Exercised
( 6
)
$
11.08
Cancelled or forfeited
( 30
)
$
25.86
Expired
( 5
)
$
11.09
Outstanding at July 2, 2023
941
$
15.55
6.4
$
—
Vested and expected to vest as of July 2, 2023
941
$
15.55
6.4
$
—
Exercisable at July 2, 2023
535
$
17.92
5.9
$
—
At July 2, 2023, the remaining unrecognized compensation cost related to the unvested stock options was $ 308 , which is expected to be recognized over a weighted average period of 1.4 years.
For fiscal 2023, 2022, and 2021, the total intrinsic value of stock options exercised was $ 15 , $ 60 , and $ 85 , respectively. The amount of cash received from the exercise of stock options was $ 0 , $ 28 , and $ 0 for fiscal 2023, 2022, and 2021, respectively. The tax benefit realized from stock options exercised was $ 3 , $ 8 , and $ 11 for fiscal 2023, 2022, and 2021, respectively.
F- 26
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Stock Units and Share Units
During fiscal 2023, 2022, and 2021, UNIFI granted 186 , 80 , and 73 restricted stock units (“RSUs”), respectively, to certain key employees. The employee RSUs are subject to a vesting restriction and convey no rights of ownership in shares of Company common stock until such employee RSUs have vested and been distributed to the grantee in the form of Company common stock. The employee RSUs vest over a three-year period and will be converted into an equivalent number of shares of Company common stock (for distribution to the grantee) on each vesting date, unless the grantee has elected to defer the receipt of the shares of stock until separation from service. UNIFI estimated the weighted average fair value of each employee RSU granted during fiscal 2023, 2022, and 2021 to be $ 8.58 , $ 23.45 , and $ 15.65 , respectively.
During fiscal 2023, 2022, and 2021, UNIFI granted 61 vested share units (“VSUs”), 32 VSUs, and 37 RSUs (collectively, the “units”), respectively, to UNIFI’s non-employee directors. The units became fully vested on the grant date but convey no rights of ownership in shares of Company common stock until such units have been distributed to the grantee in the form of Company common stock. If a grantee defers his or her distribution, the units are converted into an equivalent number of shares of Company common stock and distributed to the grantee following the grantee’s termination of service as a member of the Board. UNIFI estimated the fair value of each unit granted during fiscal 2023, 2022, and 2021 to be $ 9.51 , $ 22.03 , and $ 15.91 , respectively.
During fiscal 2023 and 2022, UNIFI granted 150 and 53 performance share units (“PSUs”), respectively, to certain key employees. The employee PSUs are subject to a performance-based vesting restriction and convey no rights of ownership in shares of Company common stock until such employee PSUs have vested and been distributed to the grantee in the form of Company common stock. Consistent with the vesting provisions of each PSU, between 50 % and 3 00 % of the PSUs become vested, if at all, on the date that the associated performance metric is achieved, and will be converted into shares of stock (for distribution to the grantee) on each vesting date, unless the grantee has elected to defer the receipt of the shares of stock until separation from service. The percentage of PSUs that vest is based on the metric achieved on the vesting date compared to the targeted metric defined in the award agreement. UNIFI estimated the weighted average fair value of each unit granted during fiscal 2023 to be $ 8.43 .
UNIFI estimates the fair value of RSUs, VSUs and PSUs based on the market price of UNIFI’s common stock at the award grant date. A summary of RSU, VSU and PSU activity for fiscal 2023 is as follows:
Non-vested
Weighted
Average
Grant Date
Fair Value
Vested
Total
Weighted
Average
Grant Date
Fair Value
Outstanding at July 3, 2022
234
$
20.38
245
479
$
21.80
Granted
396
$
8.67
—
396
$
8.67
Vested
( 145
)
$
14.69
145
—
$
—
Converted
—
$
—
( 90
)
( 90
)
$
19.31
Cancelled or forfeited
( 5
)
$
21.22
—
( 5
)
$
21.22
Outstanding at July 2, 2023
480
$
12.42
300
780
$
15.42
As of July 2, 2023, no outstanding PSUs are expected to vest and, accordingly, the associated compensation expense was $ 0 . At July 2, 2023, the number of RSUs and VSUs vested and expected to vest was 578 , with an aggregate intrinsic value of $ 4,730 . The aggregate intrinsic value of the 299 vested RSUs and VSUs at July 2, 2023 was $ 2,453 .
The unrecognized compensation cost related to the unvested RSUs at July 2, 2023 was $ 1,601 , which is expected to be recognized over a weighted average period of 1.6 years.
For fiscal 2023, 2022, and 2021, the total intrinsic value of RSUs and VSUs converted was $ 882 , $ 1,715 , and $ 1,216 , respectively. The tax benefit realized from the conversion of RSUs was $ 165 , $ 260 , and $ 159 for fiscal 2023, 2022, and 2021, respectively.
Employee Stock Purchase Plan
On October 27, 2021, Unifi, Inc.’s shareholders approved the Unifi, Inc. Employee Stock Purchase Plan (the “ESPP”), under which an aggregate of 100 shares of Company common stock have been authorized and reserved for issuance pursuant to the ESPP. The ESPP permits employees to purchase common stock through payroll deductions at 85 percent of the fair market value of Company common stock on a quarterly basis. For fiscal 2023, 6 shares of common stock were purchased under the ESPP. As of July 2, 2023, 94 shares were available for purchase under the ESPP.
Stock-based compensation expense associated with options granted under the ESPP is measured at the grant date based on the fair value of the award, which is equal to the purchase discount, and is recognized over the service period (generally the vesting period) on a straight-line basis.
F- 27
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Summary
The total cost related to all stock-based compensation was as follows:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Stock options
$
575
$
928
$
1,047
RSUs and VSUs
2,120
2,253
2,015
ESPP
11
—
—
Total compensation cost
$
2,706
$
3,181
$
3,062
In each of fiscal 2023, 2022, and 2021, UNIFI issued 12 , 5 , and 4 shares of common stock for $ 110 , $ 110 , and $ 75 of expense, respectively, in connection with Board compensation.
The total income tax benefit recognized for stock-based compensation was $ 377 , $ 386 , and $ 297 for fiscal 2023, 2022, and 2021, respectively.
As of July 2, 2023, total unrecognized compensation costs related to all unvested stock-based compensation arrangements were $ 1,909 . The weighted average period over which these costs are expected to be recognized is 1.5 years.
17. Defined Contribution Plans
401(k) Plan
UNIFI matches employee contributions made to the Unifi, Inc. Retirement Savings Plan (the “401(k) Plan”), a 401(k) defined contribution plan, which covers eligible U.S. salary and hourly employees. Under the terms of the 401(k) Plan, UNIFI matches 100 % of the first 3 % of eligible employee contributions and 50 % of the next 2 % of eligible contributions.
The following table presents the employer matching contribution expense related to the 401(k) Plan:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Matching contribution expense
$
2,967
$
3,215
$
2,578
Non-qualified Deferred Compensation Plan
The UNIFI, Inc. Deferred Compensation Plan (the “DCP”), established in fiscal 2022, is an unfunded non-qualified deferred compensation plan in which certain key employees are eligible to participate. Under the DCP, participants may elect to defer all or a portion of their annual cash incentive compensation to their account. The deferred amounts are paid in accordance with each participant’s elections. In addition to elective deferrals, the DCP assumed the obligations of the Unifi, Inc. Supplemental Key Employee Retirement Plan (the “SERP”), which includes amounts credited to eligible employees’ accounts based on a percentage of their annual base compensation. Amounts due within the next operating cycle are reflected in Other current liabilities and the remaining DCP obligation is reflected in Other long-term liabilities. The total DCP obligation as of July 2, 2023 and July 3, 2022 was $ 2,669 and $ 2,359 , respectively.
18. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities
Financial Instruments
Grantor Trust
The fair value of the investment assets held by the grantor trust established in connection with the DCP (as previously described in the preceding Notes) were approximately $ 2,496 and $ 2,196 as of July 2, 2023 and July 3, 2022, respectively, and are classified as trading securities within Other non-current assets. The grantor trust assets have readily-available market values and are classified as Level 1 trading securities in the fair value hierarchy. Trading gains and losses associated with these investments are recorded to Other operating expense, net. The associated DCP liability is recorded within Other long-term liabilities, and any increase or decrease in the liability is also recorded in Other operating expense (income), net. During fiscal 2023 and 2022, we recorded (gains) losses on investments held by the trust of $( 154 ) and $ 48 , respectively.
Interest Rate Swaps
In 2017, UNIFI entered into three swaps to fix LIBOR at approximately 1.9 % for $ 75,000 of variable rate borrowings which expired on May 24, 2022. The designated hedges increased interest expense for fiscal 2022 and 2021 by $ 1,190 and $ 1,347 , respectively. There were no interest rate swaps in effect during fiscal 2023.
Non-Financial Assets and Liabilities
Asset abandonment detail is described in Note 9. "Property, Plant and Equipment, Net."
F- 28
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
19. 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, net of tax
9,368
1,006
10,374
Balance at June 27, 2021
$
( 52,480
)
$
( 952
)
$
( 53,432
)
Other comprehensive (loss) income, net of tax
( 7,125
)
952
( 6,173
)
Balance at July 3, 2022
$
( 59,605
)
$
—
$
( 59,605
)
Other comprehensive income, net of tax
5,714
—
5,714
Balance at July 2, 2023
$
( 53,891
)
$
—
$
( 53,891
)
A summary of other comprehensive income (loss) for fiscal 2023, 2022, and 2021 is provided as follows:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Pre-tax
Tax
After-tax
Pre-tax
Tax
After-tax
Pre-tax
Tax
After-tax
Other comprehensive income
(loss):
Foreign currency translation
adjustments
$
5,714
$
—
$
5,714
$
( 7,125
)
$
—
$
( 7,125
)
$
9,368
$
—
$
9,368
Changes in interest rate
swaps, net of reclassification
adjustments
—
—
—
1,234
( 282
)
952
1,316
( 310
)
1,006
Other comprehensive income
(loss), net
$
5,714
$
—
$
5,714
$
( 5,891
)
$
( 282
)
$
( 6,173
)
$
10,684
$
( 310
)
$
10,374
20. Computation of Earnings Per Share
The computation of basic and diluted earnings per share (“EPS”) is as follows:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Basic EPS
Net (loss) income
$
( 46,344
)
$
15,171
$
29,073
Weighted average common shares outstanding
18,037
18,429
18,472
Basic EPS
$
( 2.57
)
$
0.82
$
1.57
Diluted EPS
Net (loss) income
$
( 46,344
)
$
15,171
$
29,073
Weighted average common shares outstanding
18,037
18,429
18,472
Net potential common share equivalents
—
439
384
Adjusted weighted average common shares outstanding
18,037
18,868
18,856
Diluted EPS
$
( 2.57
)
$
0.80
$
1.54
Excluded from the calculation of common share equivalents:
Anti-dilutive common share equivalents
—
225
497
Excluded from the calculation of diluted shares:
Unvested stock options that vest upon achievement of certain
market conditions
333
333
333
The calculation of earnings per common share is based on the weighted average number of UNIFI’s common shares outstanding for the applicable period. The calculation of diluted earnings per common share 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.
F- 29
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
21. Other Operating Expense (Income), Net
Other operating expense (income), net primarily consists of the following:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Impairment for asset abandonment (1)
$
8,247
$
—
$
—
Contract modification costs (2)
623
—
—
Net loss on sale or disposal of assets
278
48
2,809
Foreign currency transaction (gains) losses
( 1,104
)
( 468
)
526
Other, net
( 188
)
262
1,530
Other operating expense (income), net
$
7,856
$
( 158
)
$
4,865
(1) In fiscal 2023, UNIFI abandoned certain specialized machinery in the Americas and recorded an impairment charge.
(2) In fiscal 2023, UNIFI amended certain existing contracts related to future purchases of texturing machinery by delaying the scheduled receipt and installation of such equipment for approximately 18 months. UNIFI paid the associated vendor $ 623 to establish the 18-month delay.
22. 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 (“Kinston”) from Invista S.a.r.l. (“INVISTA”). The land for the Kinston site was leased pursuant to a 99 -year ground lease (the “Ground Lease”) with E.I. DuPont de Nemours (“DuPont”). Since 1993, DuPont has been investigating and cleaning up the Kinston site under the supervision of the U.S. Environmental Protection Agency and the North Carolina Department of Environmental Quality (the “DEQ”) pursuant to the Resource Conservation and Recovery Act Corrective Action program. The program requires DuPont to identify all potential areas of environmental concern (“AOCs”), assess the extent of containment at the identified AOCs and remediate the AOCs to comply with applicable regulatory standards. Effective March 20, 2008, UK entered into a lease termination agreement associated with conveyance of certain assets at the Kinston site to DuPont. This agreement terminated the Ground Lease and relieved UK of any future responsibility for environmental remediation, other than participation with DuPont, if so called upon, with regard to UK’s period of operation of the Kinston site, which was from 2004 to 2008. At this time, UNIFI has no basis to determine if or when it will have any responsibility or obligation with respect to the AOCs or the extent of any potential liability for the same. UK continues to own property (the “Kentec site”) acquired in the 2004 transaction with INVISTA that has contamination from DuPont’s prior operations and is monitored by DEQ. The Kentec site has been remediated by DuPont, and DuPont has received authority from DEQ to discontinue further remediation, other than natural attenuation. Prior to transfer of responsibility to UK, DuPont and UK had a duty to monitor and report the environmental status of the Kentec site to DEQ. Effective April 10, 2019, UK assumed sole remediator responsibility of the Kentec site pursuant to its contractual obligations with INVISTA and received $ 180 of net monitoring and reporting costs due from DuPont. In connection with monitoring, UK expects to sample and report to DEQ annually. 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.
Unconditional Obligations
UNIFI is a party to unconditional obligations for certain utility and other purchase or service commitments. These commitments are non-cancelable, have remaining terms in excess of one year and qualify as normal purchases.
On a fiscal year basis, the minimum payments expected to be made as part of such commitments are as follows:
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Fiscal 2028
Thereafter
Unconditional purchase obligations
$
6,850
$
5,563
$
2,684
$
2,684
$
—
$
—
Unconditional service obligations
2,655
1,178
1,010
954
788
617
Total unconditional obligations
$
9,505
$
6,741
$
3,694
$
3,638
$
788
$
617
For fiscal 2023, 2022, and 2021 total costs incurred under these commitments consist of the following:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Costs for unconditional purchase obligations
$
23,567
$
24,236
$
22,689
Costs for unconditional service obligations
1,158
912
967
Total
$
24,725
$
25,148
$
23,656
F- 30
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
23. Related Party Transactions
Related party balances and transactions are not material to the consolidated financial statements and, accordingly, are not presented separately from other financial statement captions.
There were no related party receivables as of July 2, 2023 and July 3, 2022, and there were no revenues derived from related parties in the current and prior two fiscal years.
Mr. Kenneth G. Langone, a member of the Board, is a director, shareholder and non-executive Chairman of the Board of Salem Holding Company. UNIFI leases tractors and trailers from Salem Leasing Corporation, a wholly owned subsidiary of Salem Holding Company. In addition to the monthly lease payments, UNIFI also incurs expenses for routine repair and maintenance, fuel, and other expenses. These leases do not contain renewal options, purchase options or escalation clauses with respect to the minimum lease charges.
Related party payables for Salem Leasing Corporation consist of the following:
July 2, 2023
July 3, 2022
Accounts payable
$
457
$
432
Operating lease obligations
502
811
Finance lease obligations
3,677
4,933
Total related party payables
$
4,636
$
6,176
Related party transactions for the current and prior two fiscal years consist of the matters in the table below:
Affiliated Entity
Transaction Type
Fiscal 2023
Fiscal 2022
Fiscal 2021
Salem Leasing Corporation
Payments for transportation
equipment costs and finance
lease debt service
$
4,568
$
4,343
$
4,122
24. 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.
In the fourth quarter of fiscal 2022, UNIFI realigned its operating and reportable segments to correspond with changes to its operating model, management structure, and organizational responsibilities, reflecting the manner in which business performance is evaluated, resources are allocated, and financial statement users can best understand the results of operations. Accordingly, UNIFI reports the Americas Segment, Brazil Segment, and Asia Segment. The Americas Segment represents the combination of the previously reported Polyester Segment, Nylon Segment, and All Other category. There are no changes to the composition of the historical Brazil Segment and Asia Segment. Comparative prior period disclosures have been updated to conform to the new presentation.
UNIFI's three reportable segments are organized as follows:
• The operations within the Americas Segment exhibit similar long-term economic characteristics and primarily sell into an economic trading zone covered by the USMCA and CAFTA-DR to similar customers utilizing similar methods of distribution. These operations derive revenues primarily from manufacturing synthetic and recycled textile products with sales primarily to yarn manufacturers, knitters, and weavers that produce yarn and/or fabric for the apparel, hosiery, automotive, home furnishings, industrial, medical, and other end-use markets principally in North and Central America. The Americas Segment consists of sales and manufacturing operations in the U.S., El Salvador, and Colombia.
• The Brazil Segment primarily manufactures and sells polyester-based products to knitters and weavers that produce fabric for the apparel, automotive, home furnishings, industrial, and other end-use markets principally in Brazil. The Brazil Segment includes a manufacturing location and sales offices in Brazil.
• The operations within the Asia Segment exhibit similar long-term economic characteristics and sell to similar customers utilizing similar methods of distribution primarily in Asia and Europe. The Asia Segment primarily sources synthetic and recycled textile products from third-party suppliers and sells to yarn manufacturers, knitters, and weavers that produce fabric for the apparel, automotive, home furnishings, industrial, and other end-use markets principally in Asia. The Asia Segment includes sales offices in China, Turkey, and Hong Kong.
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.
F- 31
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
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. However, an intersegment technologies expense charged from the Americas Segment to the Asia Segment is not eliminated from segment results. The technologies expense (i) reflects the sharing of certain manufacturing know-how, processes, and product technical information and design and (ii) is included in the segment evaluations performed by the CODM.
Selected financial information is presented below:
Fiscal 2023
Americas
Brazil
Asia
Total
Net sales
$
389,662
$
119,062
$
114,803
$
623,527
Cost of sales
404,321
106,900
98,065
609,286
Gross (loss) profit
( 14,659
)
12,162
16,738
14,241
Segment depreciation expense
22,044
2,035
—
24,079
Segment Profit
$
7,385
$
14,197
$
16,738
$
38,320
Fiscal 2022
Americas
Brazil
Asia
Total
Net sales
$
483,085
$
126,066
$
206,607
$
815,758
Cost of sales
458,617
98,925
177,731
735,273
Gross profit
24,468
27,141
28,876
80,485
Segment depreciation expense
21,153
1,500
—
22,653
Segment Profit
$
45,621
$
28,641
$
28,876
$
103,138
Fiscal 2021
Americas
Brazil
Asia
Total
Net sales
$
386,779
$
95,976
$
184,837
$
667,592
Cost of sales
350,373
64,281
159,444
574,098
Gross profit
36,406
31,695
25,393
93,494
Segment depreciation expense
21,054
1,315
—
22,369
Segment Profit
$
57,460
$
33,010
$
25,393
$
115,863
The reconciliations of segment gross profit to consolidated (loss) income before income taxes are as follows:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Americas
$
( 14,659
)
$
24,468
$
36,406
Brazil
12,162
27,141
31,695
Asia
16,738
28,876
25,393
Segment gross profit
14,241
80,485
93,494
SG&A
47,345
52,489
51,334
Benefit for bad debts
( 89
)
( 445
)
( 1,316
)
Other operating expenses (income), net
7,856
( 158
)
4,865
Operating (loss) income
( 40,871
)
28,599
38,611
Interest income
( 2,109
)
( 1,524
)
( 603
)
Interest expense
7,577
3,085
3,323
Equity in earnings of unconsolidated affiliates
( 896
)
( 605
)
( 739
)
Recovery of non-income taxes, net
—
815
( 9,717
)
(Loss) income before income taxes
$
( 45,443
)
$
26,828
$
46,347
The reconciliations of segment depreciation and amortization expense to consolidated depreciation and amortization expense are as follows:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Americas
$
22,044
$
21,153
$
21,054
Brazil
2,035
1,500
1,315
Asia
—
—
—
Segment depreciation expense
24,079
22,653
22,369
Other depreciation and amortization expense
3,107
3,554
3,159
Depreciation and amortization expense
$
27,186
$
26,207
$
25,528
F- 32
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
The reconciliations of segment capital expenditures to consolidated capital expenditures are as follows:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Americas
$
25,943
$
29,841
$
16,053
Brazil
10,244
9,253
3,461
Asia
41
236
666
Segment capital expenditures
36,228
39,330
20,180
Other capital expenditures
206
301
998
Capital expenditures
$
36,434
$
39,631
$
21,178
The reconciliations of segment total assets to consolidated total assets are as follows:
July 2, 2023
July 3, 2022
Americas
$
334,303
$
379,898
Brazil
115,676
98,731
Asia
60,752
81,322
Segment total assets
510,731
559,951
Other current assets
5,179
5,145
Other PP&E
15,034
17,809
Other operating lease assets
504
756
Other non-current assets
4,374
2,985
Investments in unconsolidated affiliates
2,997
2,072
Total assets
$
538,819
$
588,718
Geographic Data
Net Sales
Fiscal 2023
Fiscal 2022
Fiscal 2021
U.S.
$
355,197
$
430,381
$
341,897
China
100,183
185,558
171,261
Brazil
119,061
126,066
95,976
Remaining Foreign Countries
49,086
73,753
58,458
Total
$
623,527
$
815,758
$
667,592
Export sales from UNIFI’s U.S. operations to external customers
$
52,051
$
74,589
$
59,055
The net sales amounts are based on the operating locations from where the items were produced or distributed.
Long-Lived Assets
July 2, 2023
July 3, 2022
U.S.
$
184,249
$
196,885
Brazil
36,945
21,927
China
968
2,211
Remaining Foreign Countries
18,658
12,932
Total
$
240,820
$
233,955
Long-lived assets are comprised of PP&E, net; operating lease assets; intangible assets, net; investments in unconsolidated affiliates; and other non-current assets.
F- 33
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
25. Quarterly Results (Unaudited)
Quarterly financial data and selected highlights are as follows:
For the Fiscal Quarter Ended
October 2, 2022
January 1, 2023
April 2, 2023
July 2, 2023
Net sales (1)
$
179,519
$
136,212
$
156,738
$
151,058
Gross profit (loss) (2)
6,563
( 8,000
)
9,653
6,025
Net (loss) income (3)
( 7,834
)
( 18,037
)
( 5,184
)
( 15,289
)
Net (loss) income per common share:
Basic (4)
$
( 0.44
)
$
( 1.00
)
$
( 0.29
)
$
( 0.85
)
Diluted (4)
$
( 0.44
)
$
( 1.00
)
$
( 0.29
)
$
( 0.85
)
For the Fiscal Quarter Ended
September 26, 2021
December 26, 2021
March 27, 2022
July 3, 2022
Net sales (5)
$
195,992
$
201,410
$
200,780
$
217,576
Gross profit (6)
26,097
16,890
19,144
18,354
Net income (7)
8,680
929
2,066
3,496
Net income per common share:
Basic (4)
$
0.47
$
0.05
$
0.11
$
0.19
Diluted (4)
$
0.46
$
0.05
$
0.11
$
0.19
(1) Net sales for all fiscal quarters of fiscal 2023 includes adverse demand pressures in the Americas and Asia Segments.
(2) Gross profit for our domestic operations for all fiscal quarters of fiscal 2023 was impacted by lower production volumes driving weaker fixed cost absorption in connection with lower sales volumes.
(3) Net loss for our domestic operations for all fiscal quarters of fiscal 2023 includes the adverse pressures on gross profit. Net loss for the fourth quarter of fiscal 2023 includes an impairment further described in Note 9, "Property, Plant and Equipment, Net."
(4) Income per share is computed independently for each of the periods presented. The sum of the income per share amounts for the fiscal quarters may not equal the total for the fiscal year.
(5) The fiscal quarter ending July 3, 2022 included an additional week of sales of approximately $ 8,700 .
(6) Gross profit for our domestic operations for all fiscal quarters of fiscal 2022 includes adverse pressures from (i) higher raw material costs, (ii) rising input costs, and (iii) the weakening of labor productivity.
(7) Net income for our domestic operations for all fiscal quarters of fiscal 2022 includes the adverse pressures on gross profit.
26. Supplemental Cash Flow Information
Cash payments for interest and taxes consist of the following:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Interest, net of capitalized interest of $ 530 , $ 396 and $ 229 , respectively
$
5,820
$
2,921
$
3,158
Income taxes, net of refunds
6,069
13,045
8,239
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. Fiscal 2022 includes an income tax payment of $ 3,749 related to the recovery of non-income taxes described in Note 8, “Other Current Assets.”
Non-Cash Investing and Financing Activities
As of July 2, 2023, July 3, 2022, and June 27, 2021, $ 1,137 , $ 2,456 , and $ 2,080 , respectively, were included in accounts payable for unpaid capital expenditures.
During fiscal years ended July 2, 2023, July 3, 2022, and June 27, 2021, UNIFI recorded non-cash activity relating to finance leases of $ 5,629 , $ 2,493 , and $ 740 , respectively.
In connection with the commencement of the 2022 Credit Agreement in October 2022, $ 52,500 of borrowings outstanding on the revolving credit facility were transferred to the term loan, such that revolver borrowings were reduced by $ 52,500 and term loan borrowings were increased by $ 52,500 with no flow of cash.
F- 34
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.