What changed in this filing

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Item 1. Financial Statements

2024-02-07 compared with 2023-11-08 · 225 added, 484 removed, 286 unchanged (71% of the section changed)

2 unchanged sentences

(In thousands, except share and per share amounts)

October 1, 2023

December 31, 2023

Cash and cash equivalents

7 unchanged sentences

Other non-current assets

LIABILITIES AND SHAREHOLDERS’

LIABILITIES AND SHAREHOLDERS’ EQUITY

Accounts payable

12 unchanged sentences

18,150,602 and 18,081,538

shares issued and outstanding as of October 1, 2023 and July 2, 2023, respectively)

shares issued and outstanding as of December 31, 2023 and July 2, 2023, respectively)

Capital in excess of par value

1 unchanged sentence

Accumulated other comprehensive loss

Total shareholders’

Total liabilities and shareholders’

Total shareholders’ equity

Total liabilities and shareholders’ equity

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

For the Three Months Ended

October 1, 2023

October 2, 2022

For the Six Months Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

Cost of sales

Gross (loss) profit

Gross profit (loss)

Selling, general and administrative expenses

(Benefit) provision for bad debts

Provision (benefit) for bad debts

Restructuring costs

Other operating expense (income), net

4 unchanged sentences

Loss before income taxes

(Benefit) provision for income taxes

Provision (benefit) for income taxes

Net loss per common share:

1 unchanged sentence

For the Three Months Ended

October 1, 2023

October 2, 2022

Other comprehensive loss:

For the Six Months Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

Other comprehensive income (loss):

Foreign currency translation adjustments

Other comprehensive loss, net

Other comprehensive income (loss), net

Comprehensive loss

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEM ENTS OF SHAREHOLDERS’

CONDENSED CONSOLIDATED STATEM ENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

2 unchanged sentences

Accumulated Other Comprehensive Loss

Total Shareholders’

Total Shareholders’ Equity

Balance at October 1, 2023

Options exercised

Conversion of equity units

Stock-based compensation

Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions

Other comprehensive income, net of tax

Balance at December 31, 2023

Capital in Excess of Par Value

Retained Earnings

Accumulated Other Comprehensive Loss

Total Shareholders’ Equity

Balance at July 2, 2023

4 unchanged sentences

Other comprehensive loss, net of tax

Balance at December 31, 2023

Capital in Excess of Par Value

Retained Earnings

Accumulated Other Comprehensive Loss

Total Shareholders’ Equity

Balance at October 2, 2022

Options exercised

Conversion of equity units

Stock-based compensation

Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions

Other comprehensive income, net of tax

Balance at January 1, 2023

Capital in Excess of Par Value

1 unchanged sentence

Accumulated Other Comprehensive Loss

Total Shareholders’

Total Shareholders’ Equity

Balance at July 3, 2022

4 unchanged sentences

Other comprehensive loss, net of tax

Balance at October 2, 2022

Balance at January 1, 2023

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

(In thousands)

For the Three Months Ended

October 1, 2023

October 2, 2022

For the Six Months Ended

December 31, 2023

January 1, 2023

Cash and cash equivalents at beginning of period

Operating activities:

Adjustments to reconcile net loss to net cash provided (used) by operating activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

Equity in earnings of unconsolidated affiliates

1 unchanged sentence

Non-cash compensation expense

Recovery of income taxes

Deferred income taxes

3 unchanged sentences

Accounts payable and other current liabilities

Net cash provided (used) by operating activities

Net cash provided by operating activities

Investing activities:

7 unchanged sentences

Payments on finance lease obligations

Net cash provided by financing activities

Payments of debt financing fees

Net cash (used) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at end of period

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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.

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 includes 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.”).

During the quarter ended December 31, 2023, UNIFI terminated the joint venture with operations in Israel.

Basis of Presentation;

1 unchanged sentence

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) for interim financial information.

As contemplated by the instructions of the SEC to Form 10-Q, the following notes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements.

Reference should be made to UNIFI’s year-end audited consolidated financial statements and related notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended July 2, 2023 (the “2023 Form 10-K”).

The financial information included in this report has been prepared by UNIFI, without audit.

4 unchanged sentences

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

The fiscal quarter for each of Unifi, Inc., its primary domestic operating subsidiaries and its subsidiary in El Salvador ended on October 1, 2023.

Unifi, Inc.’s remaining material operating subsidiaries’

fiscal quarter ended on September 30, 2023.

There were no significant transactions or events that occurred between Unifi, Inc.’s fiscal quarter end and such wholly owned subsidiaries’

fiscal quarter end.

The three-month periods ended October 1, 2023 and October 2, 2022 both consisted of 13 weeks.

The fiscal quarter for each of Unifi, Inc., its primary domestic operating subsidiaries and its subsidiary in El Salvador ended on December 31, 2023.

Unifi, Inc.’s remaining material operating subsidiaries’ fiscal quarter ended on December 31, 2023.

The three-month periods ended December 31, 2023 and January 1, 2023 both consisted of 13 weeks.

The six-month periods ended December 31, 2023 and January 1, 2023 both consisted of 26 weeks.

Recent Accounting Pronouncements

Based on UNIFI’s review of Accounting Standards Updates issued since the filing of the 2023 Form 10-K, there have been no newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a material impact on UNIFI’s consolidated financial statements.

Issued and Pending Adoption

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

2023-07 expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

The ASU is effective for UNIFI’s fiscal year 2025 for annual reporting and in the first quarter of fiscal 2026 for interim reporting, with early adoption permitted.

UNIFI has not and does not expect to early adopt this standard.

UNIFI does not expect this standard will have a material impact on its consolidated financial position, results of operations or cash flows.

Based on UNIFI’s review of ASUs issued since the filing of the 2023 Form 10-K, there have been no other newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a material impact on UNIFI’s consolidated financial statements.

Notes to Condensed Consolidated Financial Statements (Continued)

2 unchanged sentences

For the Three Months Ended

October 1, 2023

October 2, 2022

For the Six Months Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

Third-party manufacturer

For the Three Months Ended

October 1, 2023

October 2, 2022

For the Six Months Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

REPREVE ® Fiber

1 unchanged sentence

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.

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.

REPREVE ® Fiber

2 unchanged sentences

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 periods presented.

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 periods presented.

Long-Term Debt

Debt Obligations

The following table and narrative presents the detail of UNIFI’s debt obl igations.

Capitalized terms not otherwise defined within this Note shall have the meanings attributed to them in the Second Amended and Restated Credit Agreement, dated as of October 28, 2022 (the "2022 Credit Agreement").

3 unchanged sentences

Maturity Date

October 1, 2023

December 31, 2023

ABL Term Loan

6 unchanged sentences

(1) Scheduled maturity dates for finance lease obligations range from Marc h 2025 to September 2028 .

(2) Refer to the discussion below under “

Construction Financing ”

for further information.

(2) Refer to the discussion below under “ Construction Financing ” for further information.

ABL Facility and Amendments

1 unchanged sentence

Construction Financing

In connection with the construction financing arrangement, UNIFI has borrowed a total of $ 9,755 and transitioned $ 9,755 of completed asset costs to finance lease obligations as of October 1, 2023.

In connection with the construction financing arrangement, UNIFI has borrow ed a total of $ 9,755 and transitioned $ 9,755 of comple ted asset costs to finance lease obligations as of December 31, 2023.

There were no borrowings outstanding on this financing arrangement as of December 31, 2023.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

For the Three Months Ended

October 1, 2023

October 2, 2022

(Benefit) provision for income taxes

For the Six Months Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

Provision (benefit) for income taxes

Effective tax rate

Income Tax Expense

UNIFI’s (benefit) provision for income taxes for the three months ended October 1, 2023 and October 2, 2022 was calculated by applying the estimated annual effective tax rate to year-to-date pre-tax book income and adjusting for discrete items that occurred during the period.

The effective tax rate for the three months ended October 1, 2023 varied from the U.S.

federal statutory rate primarily due to the U.S.-generated losses for which UNIFI does not expect to realize a future tax benefit.

During the three months ended October 1, 2023, the Internal Revenue Service (the “IRS”) audit of fiscal years 2014 through 2019 was concluded with a net refund of $ 1,248 which is yet to be received.

The impact from the audit adjustments to the prior periods was insignificant.

The effective tax rate for the three months ended October 2, 2022 was lower than the U.S.

federal statutory rate primarily due to an increase in the valuation allowance for deferred tax assets and current U.S.

tax on global intangible low-tax income (“GILTI”).

UNIFI’s provision (benefit) for income taxes for the six months ended December 31, 2023 and January 1, 2023 was calculated by applying the estimated annual effective tax rate to year-to-date pre-tax book income and adjusting for discrete items that occurred during the period.

The effective tax rate for the three and six months ended December 31, 2023 varied from the U.S.

federal statutory rate primarily due to the U.S.

generated losses for which UNIFI does not expect to realize a future tax benefit.

During the six months ended December 31, 2023, the Internal Revenue Service (“IRS”) audit of fiscal years 2014 through 2019 was concluded with a refund of $ 1,275 , which has been received along with $ 457 of interest on the overpayments.

The impact from the IRS audit adjustments to the prior periods was insignificant.

The effective tax rates for the three and six months ended January 1, 2023 varied from the U.S.

federal statutory rate primarily due to losses for which UNIFI does not expect to realize a future benefit and a discrete tax benefit related to the recovery of certain Brazilian income taxes paid in prior years.

Unrecognized Tax Benefits

UNIFI regularly assesses the outcomes of both completed and ongoing examinations to ensure that its provision for income taxes is sufficient.

Certain returns that remain open to examination have utilized carryforward tax attributes generated in prior tax years, including net operating losses, which could potentially be revised upon examination.

Following the conclusion of the IRS audit, UNIFI adjusted the uncertain tax positions for fiscal years 2014 through 2019 that were effectively settled.

The impact from releasing the netted uncertain tax position liabilities was insignificant.

Shareholders’

On October 31, 2018, UNIFI announced that the Company's Board of Directors (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.

During the three months ended December 31, 2023, UNIFI released $ 853 accrued for interest and penalties after receiving the final assessment from the IRS.

Shareholders’ Equity

The share repurchase authorization is discretionary and has no expiration date.

1 unchanged sentence

Stock-Based Compensation

On October 31, 2023 , UNIFI’s shareholders approved a First Amendment (the "First Amendment") to the Unifi, Inc.

Second Amended and Restated 2013 Incentive Compensation Plan (the “2020 Plan”).

On October 31, 2023 , UNIFI’s shareholders approved a First Amendment (the "First Amendment") to the Unifi, Inc.

Second Amended and Restated 2013 Incentive Compensation Plan (the “2020 Plan”).

The 2020 Plan set the initial number of shares available for future issuance ("share reserve") pursuant to awards granted under the 2020 Plan to 850 .

1 unchanged sentence

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 December 31, 2023 with respect to the number of securities remaining available for future issuance under the 2020 Plan:

Authorized under the 2020 Plan

Share reserve increase from First Amendment

Awards expired, forfeited or otherwise terminated unexercised

Awards granted to employees

Awards granted to non-employee directors

Available for issuance under the 2020 Plan

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

Financial Instruments

For the three months ended October 1, 2023 and October 2, 2022, there were no significant changes to UNIFI’s assets and liabilities measured at fair value, and there were no transfers into or out of the levels of the fair value hierarchy.

For the six months ended December 31, 2023 and January 1, 2023, there were no significant changes to UNIFI’s assets and liabilities measured at fair value, and there were no transfers into or out of the levels of the fair value hierarchy.

UNIFI believes that there have been no significant changes to its credit risk profile or the interest rates available to UNIFI for debt issuances with similar terms and average maturities, and UNIFI estimates that the fair values of its debt obligations approximate the carrying amounts.

Other financial instruments include cash and cash equivalents, receivables, accounts payable, and accrued expenses.

The financial statement carrying amounts of these items approximate the fair values due to their short-term nature.

Other financial instruments

Notes to Condensed Consolidated Financial Statements (Continued)

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.

Grantor Trust

The UNIFI, Inc.

Deferred Compensation Plan (the “DCP”), established in fiscal 2022, is an unfunded non-qualified deferred compensation plan in which certain key emplo yees are eligible to participate.

The fair values of the investment assets held by the grantor trust established in connection with the DCP were approximately $ 2,463 and $ 2,496 as of October 1, 2023 and July 2, 2023, respectively, and are classified as trading securities within Other non-current assets.

Deferred Compensation Plan (the “DCP”), established in fiscal 2022, is an unfunded non-qualified deferred compensation plan in which certain key emplo yees are eligible to participate.

The fair values of the investment assets held by the grantor trust established in connection with the DCP were approximately $ 2,618 and $ 2,496 as of December 31, 2023 and July 2, 2023, 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 (income) expense, net.

Trading gains and losses associated with these investments are recorded to Other operating expense (income), 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 the three months ended October 1, 2023 and October 2, 2022, we rec orded net losses on investments held by the trust of $ 33 and $ 49 , respectively.

During the six months ended December 31, 2023 and January 1, 2023, we rec orded net gains on investments held by the trust of $ 122 and $ 11 , respectively.

Earnings Per Share

The components of the calculation of earnings per share (“EPS”) are as follows:

For the Three Months Ended

October 1, 2023

October 2, 2022

For the Six Months Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

Basic weighted average shares

5 unchanged sentences

Unvested stock options that vest upon achievement of certain market conditions

The calculation of EPS is based on the weighted average number of Unifi, Inc.’s common shares outstanding for the applicable period.

The calculation of diluted EPS presents the effect of all potential dilutive common shares that were outstanding during the respective period, unless the effect of doing so is anti-dilutive.

1 unchanged sentence

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.

Related Party Transactions

Related party balances and transactions are not material to the condensed consolidated financial statements and, accordingly, are not presented separately from other financial statement captions.

There were no related party receivables as of October 1, 2023 or July 2, 2023.

There were no related party receivables as of December 31, 2023 and July 2, 2023.

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

October 1, 2023

December 31, 2023

Accounts payable

2 unchanged sentences

Total related party payables

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

For the Three Months Ended

For the Six Months Ended

Affiliated Entity

Transaction Type

October 1, 2023

October 2, 2022

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

Salem Leasing Corporation

2 unchanged sentences

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.

10 unchanged sentences

This measurement of segment profit or loss best aligns segment reporting with the current assessments and evaluations performed by, and information provided to, the CODM.

The accounting policies for the segments are consistent with UNIFI’s accounting policies.

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

The accounting policies for the segments are consistent with UNIFI’s accounting policies.

Selected financial information is presented below:

For the Three Months Ended October 1, 2023

For the Three Months Ended December 31, 2023

Cost of sales

2 unchanged sentences

Segment (Loss) Profit

For the Three Months Ended October 2, 2022

For the Three Months Ended January 1, 2023

Cost of sales

1 unchanged sentence

Segment depreciation expense

Segment Profit

The reconciliations of segment gross (loss) profit to consolidated loss before income taxes are as follows:

Segment (Loss) Profit

For the Six Months Ended December 31, 2023

Cost of sales

Gross (loss) profit

Segment depreciation expense

Segment (Loss) Profit

For the Six Months Ended January 1, 2023

Cost of sales

Gross (loss) profit

Segment depreciation expense

Segment (Loss) Profit

Notes to Condensed Consolidated Financial Statements (Continued)

The reconciliations of segment gross profit (loss) to consolidated loss before income taxes are as follows:

For the Three Months Ended

October 1, 2023

October 2, 2022

Segment gross (loss) profit

For the Six Months Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

Segment gross profit (loss)

Selling, general and administrative expenses

(Benefit) provision for bad debts

Provision (benefit) for bad debts

Restructuring costs

Other operating expense (income), net

5 unchanged sentences

There have been no material changes in segment assets during fiscal 2024.

Notes to Condensed Consolidated Financial Statements (Continued)

Investments in Unconsolidated Affiliates

Included within Other non-current assets are UNIFI’s investments in unconsolidated affiliates:

Industries, Ltd.

(“UNF”) and UNF America LLC (“UNFA”) (collectively “UNFs”).

(“UNF”) and UNF America LLC (“UNFA”).

Industries, Ltd.

Raw material and production services for UNF are provided by Nilit Ltd.

under separate supply and services agreements.

UNF’s fiscal year end is December 31, and it is a registered Israeli private company located in Migdal Ha-Emek, Israel.

In December 2023, UNIFI dissolved its interest in UNF under an agreement whereby UNIFI agreed to pay the former joint venture partner $ 2,750 and recorded it as an associated contract termination cost within Restructuring costs on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

UNIFI made a payment to the former joint venture partner of $ 1,200 in the second quarter of fiscal 2024 and the remaining $ 1,550 is included in Other current liabilities, expected to be paid in the third quarter of fiscal 2024.

Accordingly, the balance sheet information presented below as of December 31, 2023 does not include any amounts related to UNF.

UNF America LLC

1 unchanged sentence

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.

1 unchanged sentence

The supply agreement has no stated minimum purchase quantities and pricing is typically negotiated every six months, based on market rates.

As of October 1, 2023, UNIFI’s open purchase orders related to this supply agreement w ere $ 2,265 .

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

As of December 31, 2023, UNIFI’s open purchase orders related to this supply agreement, all with UNFA, were $ 571 .

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

For the Three Months Ended

October 1, 2023

October 2, 2022

As of October 1, 2023 and July 2, 2023, UNIFI had combined accounts payable due to UNF and UNFA of $ 2,238 and $ 3,440 , 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 October 1, 2023, UNIFI’s combined investments in UNF and UNFA were $ 3,213 .

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 accountin g and with intercompany profits eliminated in accordance with UNIFI’s accounting policy.

Other than the supply agreement discussed above, UNIFI does not provide any other commitments or guarantees related to either UNF or UNFA.

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

October 1, 2023

For the Six Months Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

As of December 31, 2023, UNIFI had accounts payable due to UNFA of $ 2,020 , and as of July 2, 2023, UNIFI had combined accounts payable due to UNF and UNFA of $ 3,440 .

UNIFI previously determined that UNF and UNFA were variable interest entities and 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 these entities and all intercompany sales would be eliminated in consolidation, (ii) the 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.

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 UNFA.

As of December 31, 2023, UNIFI’s investment in UNFA was $ 3,101 .

Notes to Condensed Consolidated Financial Statements (Continued)

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

December 31, 2023

Current assets

2 unchanged sentences

Non-current liabilities

Shareholders’

equity and capital accounts

UNIFI’s portion of undistributed earnings

Shareholders’ equity and capital accounts

UNIFI’s portion of undistributed earnings

For the Three Months Ended

October 1, 2023

October 2, 2022

Income from operations

For the Six Months Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

(Loss) income from operations

Net (loss) income

Depreciation and amortization

2 unchanged sentences

Cash payments for interest and taxes consist of the following:

For the Three Months Ended

October 1, 2023

October 2, 2022

For the Six Months Ended

December 31, 2023

January 1, 2023

Interest, net of capitalized interest of $ 104 and $ 239 , respectively

Income tax payments, net

Notes to Condensed Consolidated Financial Statements (Continued)

Cash payments for taxes shown above consist primarily of income and withholding tax payments made by UNIFI in both U.S.

1 unchanged sentence

Non-Cash Investing and Financing Activities

As of October 1, 2023 and Jul y 2, 2023, $ 1,084 and $ 1,137 , r espectively, were included in accounts payable for unpaid capital expenditures.

As of October 2, 2022 and July 3, 2022, $ 1,449 and $ 2,456 , respectively, were included in accounts payable for unpaid capital expenditures.

During the three months ended October 1, 2023 and October 2, 2022, UNIFI recorded non-cash activity relating to finance leases of $ 1,633 and $ 729 respectively.

As of December 31, 2023 and July 2, 2023, $ 621 and $ 1,137 , respectively, were included in accounts payable for unpaid capital expenditures.

As of January 1, 2023 and July 3, 2022, $ 1,594 and $ 2,456 , respectively, were included in accounts payable for unpaid capital expenditures.

During the six months ended December 31, 2023 and January 1, 2023, UNIFI recorded non-cash activity relating to finance lease s of $ 1,633 a nd $ 729, 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.

Notes to Condensed Consolidated Financial Statements (Continued)

1 unchanged sentence

Select balance sheet information is presented in the following table.

October 1, 2023

December 31, 2023

Receivables, net:

13 unchanged sentences

Other current assets:

Prepaid expenses and other

Vendor deposits

Prepaid expenses and other

Value-added taxes receivable

Recovery of non-income taxes, net

Contract assets

Recovery of non-income taxes, net

Total other current assets

9 unchanged sentences

accumulated depreciation

accumulated amortization –

finance leases

accumulated amortization – finance leases

Total property, plant and equipment, net

7 unchanged sentences

Payroll and fringe benefits

Deferred revenue

Severance (1)

Incentive compensation

Property taxes and other

Dissolution of joint venture

Deferred revenue

Property taxes, interest and other

Total other current liabilities

3 unchanged sentences

Total other long-term liabilities

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

The following is management’s discussion and analysis of certain significant factors that have affected UNIFI’s operations, along with material changes in financial condition, during the periods included in the accompanying condensed consolidated financial statements.

A reference to a “note”

in this section refers to the accompanying notes to condensed consolidated financial statements.

A reference to the “current period”

refers to the three-month period ended October 1, 2023, while a reference to the “prior period”

refers to the three-month period ended October 2, 2022.

Such references may be accompanied by certain phrases for added clarity.

The current period and the prior period each consisted of 13 weeks.

Our discussions in this Item 2 focus on our results during, or as of, the three months ended October 1, 2023 and October 2, 2022, and, to the extent applicable, any material changes from the information discussed in the 2023 Form 10-K or other important intervening developments or information.

These discussions should be read in conjunction with the 2023 Form 10-K for more detailed and background information about our business, operations, and financial condition.

Discussion of foreign currency translation is primarily associated with changes in the Brazilian Real (“BRL”) and changes in the Chinese Renminbi (“RMB”) versus the U.S.

Dollar (“USD”).

Weighted average exchange rates were as follows:

For the Three Months Ended

October 1, 2023

October 2, 2022

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

Overview and Significant General Matters

UNIFI focuses on delivering products and solutions to direct customers and brand partners throughout the world, leveraging our internal manufacturing capabilities and an enhanced global supply chain that delivers a diverse range of synthetic and recycled fibers and polymers.

Our strategic initiatives include (i) leveraging our competitive advantages to grow market share in each of the major geographies we serve, (ii) expanding our presence in non-apparel markets with additional REPREVE ® products, (iii) advancing the development and commercialization of innovative and sustainable solutions, and (iv) increasing brand awareness for REPREVE ® .

Due to the recent volatility of the apparel market, we have increased our focus on sales opportunities beyond traditional apparel customers, and we continue to drive innovation throughout our portfolio to further diversify the business and enhance gross profit.

We believe our strategic initiatives will increase revenue and profitability and generate improved cash flows from operations.

Current Economic Environment

The current economic environment and significant decrease in textile product demand adversely impacted our consolidated sales and profitability in fiscal 2023 and the first quarter of fiscal 2024.

In addition to the current unfavorable economic environment and the inventory destocking measures taken by brands and retailers, the following pressures have been present:

(i) the impact of inflation on consumer spending, (ii) rising interest rates for consumers and customers, including the impact on the carrying costs of customer inventories, (iii) the Russia-Ukraine conflict, (iv) the recent conflict in the Middle East and the potential impacts to petroleum pricing and geopolitics, and (v) supply chain volatility.

UNIFI will continue to monitor these and other aspects of the current economic environment and work closely with stakeholders to ensure business continuity and liquidity.

We recognize the disruption to global markets and supply chains caused by (i) Russia’s invasion of Ukraine and (ii) the recent conflict in the Middle East.

While we currently have a raw material supplier based in Israel for which the recent supply levels have been insignificant, we have not been directly impacted by either conflict.

Indirectly, we recognize that additional or prolonged impacts to the petroleum or other global markets could cause further inflationary pressures to our raw material costs or unforeseen adverse impacts.

Input Costs and Global Production Volatility

Despite lowered input and freight costs and a marginally more stable labor pool during fiscal 2023 and 2024, the global demand volatility and uncertainty that existed in fiscal 2023 continued into fiscal 2024.

The threat of recession and global tensions continue to create uncertainty.

Such existing challenges and future uncertainty, particularly for rising input costs, labor productivity, and global demand, could worsen and/or continue for prolonged periods, materially impacting our consolidated sales and gross profit.

Also, the need for future selling price adjustments in connection with inflationary costs could impact our ability to retain current customer programs and compete successfully for new programs in certain regions.

Cash Deposits and Financial Institution Risk

During fiscal 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 maintains the ability to repatriate cash to the U.S.

relatively quickly.

Accordingly, UNIFI has not modified its mix of financial institutions holding cash deposits, but UNIFI will continue to monitor the environment and current events to ensure any increase in concentration or credit risk is appropriately and timely addressed.

If any of our 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.

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 (loss) profit and gross margin for UNIFI and for each reportable segment;

net loss and diluted EPS;

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

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

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

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

EBITDA, Adjusted EBITDA, Adjusted Net Loss, Adjusted EPS, Adjusted Working Capital, and Net Debt (collectively, the “non-GAAP financial measures”) are not determined in accordance with GAAP and should not be considered a substitute for performance measures determined in accordance with GAAP.

The calculations of the non-GAAP financial measures are subjective, based on management’s belief as to which items should be included or excluded in order to provide the most reasonable and comparable view of the underlying operating performance of the business.

We may, from time to time, modify the amounts used to determine our non-GAAP financial measures.

When applicable, management’s discussion and analysis includes specific consideration for items that comprise the reconciliations of its non-GAAP financial measures.

We believe that these non-GAAP financial measures better reflect UNIFI’s underlying operations and performance and that their use, as operating performance measures, provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets, among otherwise comparable companies.

Management uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of 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 and Adjusted EPS (i) as measurements of net operating performance because they assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to occur as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not expect to occur as a part of our underlying taxable operations;

(ii) for planning purposes, including the preparation of our annual operating budget;

and (iii) as measures in determining the value of other acquisitions and dispositions.

Management uses Adjusted Working Capital as an indicator of UNIFI’s production efficiency and ability to manage inventories and receivables.

Management uses Net Debt as a liquidity and leverage metric to determine how much debt would remain if all cash and cash equivalents were used to pay down debt principal.

Review of Results of Operations

Three Months Ended October 1, 2023 Compared to Three Months Ended October 2, 2022

Consolidated Overview

The below tables provide:

the components of net loss and the percentage increase or decrease over the prior period amounts,

a reconciliation from net loss to EBITDA and Adjusted EBITDA, and

following the tables is a discussion and analysis of the significant components of net loss.

For the Three Months Ended

October 1, 2023

October 2, 2022

Cost of sales

Gross (loss) profit

(Benefit) provision for bad debts

Other operating expense (income), net

Operating loss

Interest expense, net

Equity in earnings of unconsolidated affiliates

Loss before income taxes

(Benefit) provision for income taxes

nm = not meaningful

EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)

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

For the Three Months Ended

October 1, 2023

October 2, 2022

Interest expense, net

(Benefit) provision for income taxes

Depreciation and amortization expense (1)

Other adjustments (2)

Adjusted EBITDA

(1) Within this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are reflected in interest expense, net.

Within the accompanying condensed consolidated statements of cash flows, amortization of debt issuance costs is reflected in depreciation and amortization expense.

(2) For the periods presented, there were no other adjustments necessary to reconcile Net loss to Adjusted EBITDA.

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

For the current and the prior period, there were no adjustments necessary to reconcile Net loss to Adjusted Net Loss or Adjusted EPS.

Consolidated net sales for the current period decreased by $40,675, or 22.7%, and consolidated sales volumes decreased 5.2%, compared to the prior period.

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 apparel demand weakness and inventory destocking efforts of major brands and retailers.

Consolidated weighted average sales prices decreased 17.5%, primarily attributable to lower selling prices in response to lower input costs, along with (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 the current period comprised 31%, or $42,461, of consolidated net sales, compared to 27%, or $49,179, for the prior period.

Gross (Loss) Profit

Gross (loss) profit for the current period worsened by $7,138, or 108.8%, compared to the prior period.

Gross (loss) 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 were stable in fiscal 2024, low production levels and weak demand were significantly adverse.

For the Americas Segment, gross loss increased due to weaker global demand and weak fixed cost absorption in connection with lower production.

For the Brazil Segment, gross profit decreased primarily due to 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.

SG&A did not change meaningfully from the prior period to the current period, nor did the change include any significant offsetting impacts.

(Benefit) Provision for Bad Debts

The current period and prior period bad debt changes reflect no material activity.

Other Operating Expense (Income), Net

The current period and prior period include foreign currency transaction gains of $33 and $725, respectively, with no other meaningful activity.

Interest Expense, Net

Interest expense, net increased in connection with higher debt principal and higher interest rates.

Equity in Earnings of Unconsolidated Affiliates

There was no material activity for the current period or the prior period.

(Benefit) provision for income taxes and the effective tax rate were as follows:

For the Three Months Ended

October 1, 2023

October 2, 2022

(Benefit) provision for income taxes

Effective tax rate

The effective tax rate is subject to variation due to a number of factors, including:

variability in pre-tax book 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 more pronounced when income (loss) before income taxes is lower.

The increase in the effective tax rate from the prior period to the current period is primarily attributable to an increase in valuation allowance for deferred tax assets generated in the current period.

The increase in the effective tax rate is then offset by a decrease in valuation allowance on deferred tax asset balances adjusted by the IRS audit of tax years 2014 through 2019, which was concluded during the current period.

The increase in net loss was primarily attributable to lower gross profit.

Adjusted EBITDA (Non-GAAP Financial Measure)

Adjusted EBITDA decreased primarily in connection with lower gross profit.

Segment Overview

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

Americas Segment

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

For the Three Months Ended

October 1, 2023

October 2, 2022

Cost of sales

Depreciation expense

Segment (Loss) Profit

Segment net sales as a percentage of

consolidated amounts

Segment (Loss) Profit as a percentage of

consolidated amounts

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

Net sales for the prior period

Net change in average selling price and sales mix

Decrease in sales volumes

Net sales for the current period

The change in net sales for the Americas Segment from the prior period to the current period was primarily attributable to (i) the net change in average selling price and sales mix that reflects both (a) lower input costs and (b) a larger proportion of lower-priced Flake and Chip sales in the current period and (ii) lower fiber sales volumes following weaker global textile demand.

The change in Segment (Loss) Profit for the Americas Segment was as follows:

Segment Profit for the prior period

Net decrease in underlying margins

Decrease in sales volumes

Segment Loss for the current period

The decrease in Segment (Loss) Profit for the Americas Segment from the prior period to the current period was primarily attributable to lower production volumes of fiber products in connection with the lower fiber sales volumes described above.

As fiber products carry a higher selling price and allocation of production costs versus Flake and Chip, lower fiber production drives weaker fixed cost absorption and adversely impacts gross profit and gross margin.

Brazil Segment

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

For the Three Months Ended

October 1, 2023

October 2, 2022

Cost of sales

Depreciation expense

Segment Profit

Segment net sales as a percentage of

consolidated amounts

Segment Profit as a percentage of

consolidated amounts

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

Net sales for the prior period

Decrease in average selling price

Decrease in sales volumes

Favorable foreign currency translation effects

Net sales for the current period

The decrease in net sales for the Brazil Segment from the prior period to the current period was primarily attributable to selling price pressures from low-priced imports, partially offset by favorable foreign currency translation effects.

The Brazil Segment has undertaken aggressive pricing (i) against low-priced competitive imports and (ii) in the pursuit of greater market share.

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

Segment Profit for the prior period

Decrease in underlying unit margins

Decrease in sales volumes

Favorable foreign currency translation effects

Segment Profit for the current period

The decrease in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to an overall decrease in gross margin mainly due to pressure on selling prices from low-priced import competition.

We continue to prioritize innovation and differentiation to improve our portfolio and competitive position in Brazil.

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

For the Three Months Ended

October 1, 2023

October 2, 2022

Cost of sales

Depreciation expense

Segment Profit

Segment net sales as a percentage of

consolidated amounts

Segment Profit as a percentage of

consolidated amounts

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

Net sales for the prior period

Net decrease in sales volumes

Unfavorable foreign currency translation effects

Change in average selling price and sales mix

Net sales for the current period

The decrease in net sales for the Asia Segment from the prior period to the current period was primarily attributable to (i) weak global demand and inventory destocking by brands and retailers, particularly for apparel, and (ii) unfavorable foreign currency translation effects due to the weakening of the RMB versus the USD.

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

Segment Profit for the prior period

Decrease in sales volumes

Unfavorable foreign currency translation effects

Change in underlying margins and sales mix

Segment Profit for the current period

The nominal change in Segment Profit for the Asia Segment from the prior period to the current period is attributable to the decline in net sales and sales volumes discussed above along with unfavorable foreign currency translation effects, offset by an improved gross margin rate associated with a strong sales mix of REPREVE products.

Liquidity and Capital Resources

Note 5, “Long-Term Debt”

to the condensed consolidated financial statements includes the detail of UNIFI’s debt obligations and terms and conditions thereof.

Further discussion and analysis of liquidity and capital resources follow.

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, borrowings available under the 2022 Credit Agreement, and asset financing arrangements.

For the current period, cash provided by operations was $7,119, and, at October 1, 2023, availability under the ABL Revolver was $44,164.

As of October 1, 2023, all of UNIFI’s $141,487 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, while nearly all of UNIFI’s cash and cash equivalents were held by its foreign subsidiaries.

Cash and cash equivalents held by foreign subsidiaries may not be presently available to fund UNIFI’s domestic capital requirements, including its domestic debt obligations.

UNIFI employs a variety of strategies to ensure that its worldwide cash is available in the locations where it is needed.

The following table presents a summary of cash and cash equivalents, borrowings available under financing arrangements, liquidity, working capital, and total debt obligations as of October 1, 2023 for domestic operations compared to foreign operations:

Cash and cash equivalents

Borrowings available under financing arrangements

Working capital

Total debt obligations

UNIFI’s primary cash requirements, in addition to normal course operating activities (e.g.

working capital and payroll), primarily include (i) capital expenditures that generally have commitments of up to 12 months, (ii) contractual obligations that support normal course ongoing operations and production, (iii) operating leases and finance leases, (iv) debt service, and (v) share repurchases.

Liquidity Considerations

Following the establishment of the 2022 Credit Agreement, UNIFI’s global cash and liquidity positions are 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.

We do not currently anticipate that any adverse events or circumstances will place critical pressure on our liquidity position or our ability to fund our operations and expected business growth.

Should global demand, economic activity, or input availability decline considerably for an even longer period of time, 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.

Management continues to (i) explore cost savings opportunities and (ii) prioritize repayment of debt in the current operating environment.

When business levels increase, we expect to use cash in support of working capital needs.

The following outlines the attributes relating to our credit facility as of October 1, 2023:

UNIFI was in compliance with all applicable financial covenants in the 2022 Credit Agreement;

excess availability under the ABL Revolver was $21,854;

the Trigger Level (as defined in the 2022 Credit Agreement) was $22,310;

$0 of standby letters of credit were outstanding.

In addition to making payments in accordance with the scheduled maturities of debt required under its existing debt obligations, UNIFI may, from time to time, elect to repay additional amounts borrowed under the ABL Facility.

Funds to make such repayments may come from the operating cash flows of the business or other sources and will depend upon UNIFI’s strategy, prevailing market conditions, liquidity requirements, contractual restrictions, and other factors.

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 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 financing arrangements will provide the needed liquidity to fund the associated operating activities and investing activities, such as future capital expenditures.

UNIFI’s operations in Asia and Brazil are in a position to obtain local country financing arrangements due to the operating results of each subsidiary.

Net Debt (Non-GAAP Financial Measure)

The reconciliations for Net Debt are as follows:

October 1, 2023

Long-term debt

Current portion of long-term debt

Unamortized debt issuance costs

Debt principal

cash and cash equivalents

The decrease in Net Debt primarily reflects the generation of operating cash flows during fiscal 2024, aided by reduced levels of capital expenditures.

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

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

October 1, 2023

Cash and cash equivalents

Receivables, net

Income taxes receivable

Other current assets

Accounts payable

Other current liabilities

Income taxes payable

Current operating lease liabilities

Current portion of long-term debt

Working capital

Cash and cash equivalents

Income taxes receivable

Income taxes payable

Current operating lease liabilities

Current portion of long-term debt

Adjusted Working Capital

Adjusted Working Capital decreased $18,765 from July 2, 2023 to October 1, 2023.

The decrease in receivables, net was primarily due to a decrease in sales and the timing of cash receipts.

The decrease in inventories was primarily attributable to lower weighted average costs in the current period and lower units on hand.

The decrease in other current assets was primarily due to lower vendor deposits, lower value-added taxes receivable, and the utilization of the fiscal 2021 recovery of non-income taxes in Brazil.

The decrease in accounts payable followed the decrease in inventories and production activity in the current period.

The increase in other current liabilities primarily reflects the routine timing differences for payroll and other operating expenses.

The change in income taxes receivable reflects the conclusion of an IRS audit.

The changes in current operating lease liabilities, current portion of long-term debt, and income taxes payable were insignificant.

Operating Cash Flows

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

For the Three Months Ended

October 1, 2023

October 2, 2022

Equity in earnings of unconsolidated affiliates

Depreciation and amortization expense

Non-cash compensation expense

Deferred income taxes

Receivables, net

Accounts payable and other current liabilities

Other changes

Net cash provided (used) by operating activities

The increase in operating cash flows was primarily due to reduced working capital associated with a decline in overall business activity in the current period, primarily offset by weaker earnings.

Investing Cash Flows

Investing activities primarily includes $2,937 for capital expenditures.

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.

Financing Cash Flows

Financing activities primarily include net proceeds from the ABL Revolver.

Share Repurchase Program

As described in Note 7, “Shareholders’

Equity,”

no share repurchases have been completed in fiscal 2024.

Contractual Obligations

UNIFI incurs various financial obligations and commitments in the ordinary course of business.

Financial obligations are considered to represent known future cash payments that UNIFI is required to make under existing contractual arrangements, such as debt and lease agreements.

There have been no material changes in the scheduled maturities of UNIFI’s contractual obligations as disclosed under the heading “Contractual Obligations”

in “Item 7.

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

in the 2023 Form 10-K.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

UNIFI’s critical accounting policies are discussed in the 2023 Form 10-K.

There have been no changes to UNIFI’s critical accounting policies in fiscal 2024.

(1) During the second quarter of fiscal 2024, UNIFI recorded $ 2,351 of severance expenses related to a cost reduction plan intended to lower operating expenses for both production and administrative activities, included in Restructuring costs on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Most of the restructuring expenses incurred impact the Americas Segment and UNIFI does not anticipate any additional, material restructuring costs at this time.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements