Item 1. Financial Statements
Item 1. Financial Statements
CONDENSED CONSOLIDATED BA LANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
December 31, 2023
July 2, 2023
ASSETS
Cash and cash equivalents
$
35,979
$
46,960
Receivables, net
69,583
83,725
Inventories
135,676
150,810
Income taxes receivable
2,421
238
Other current assets
12,290
12,327
Total current assets
255,949
294,060
Property, plant and equipment, net
209,435
218,521
Operating lease assets
7,094
7,791
Deferred income taxes
4,812
3,939
Other non-current assets
14,839
14,508
Total assets
$
492,129
$
538,819
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable
$
34,709
$
44,455
Income taxes payable
2,263
789
Current operating lease liabilities
1,733
1,813
Current portion of long-term debt
12,357
12,006
Other current liabilities
17,409
12,932
Total current liabilities
68,471
71,995
Long-term debt
120,144
128,604
Non-current operating lease liabilities
5,515
6,146
Deferred income taxes
2,526
3,364
Other long-term liabilities
4,133
5,100
Total liabilities
200,789
215,209
Commitments and contingencies
Common stock, $ 0.10 par value ( 500,000,000 shares authorized; 18,150,602 and 18,081,538
shares issued and outstanding as of December 31, 2023 and July 2, 2023, respectively)
1,815
1,808
Capital in excess of par value
70,254
68,901
Retained earnings
273,676
306,792
Accumulated other comprehensive loss
( 54,405
)
( 53,891
)
Total shareholders’ equity
291,340
323,610
Total liabilities and shareholders’ equity
$
492,129
$
538,819
See accompanying notes to condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED STATE MENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except per share amounts)
For the Three Months Ended
For the Six Months Ended
December 31, 2023
January 1, 2023
December 31, 2023
January 1, 2023
Net sales
$
136,917
$
136,212
$
275,761
$
315,731
Cost of sales
135,281
144,212
274,700
317,168
Gross profit (loss)
1,636
( 8,000
)
1,061
( 1,437
)
Selling, general and administrative expenses
12,408
11,748
24,017
23,521
Provision (benefit) for bad debts
1,289
( 156
)
1,080
18
Restructuring costs
5,101
—
5,101
—
Other operating expense (income), net
481
226
535
( 463
)
Operating loss
( 17,643
)
( 19,818
)
( 29,672
)
( 24,513
)
Interest income
( 697
)
( 514
)
( 1,278
)
( 1,061
)
Interest expense
2,613
1,889
5,098
3,136
Equity in earnings of unconsolidated affiliates
( 93
)
( 86
)
( 293
)
( 381
)
Loss before income taxes
( 19,466
)
( 21,107
)
( 33,199
)
( 26,207
)
Provision (benefit) for income taxes
380
( 3,070
)
( 83
)
( 336
)
Net loss
$
( 19,846
)
$
( 18,037
)
$
( 33,116
)
$
( 25,871
)
Net loss per common share:
Basic
$
( 1.10
)
$
( 1.00
)
$
( 1.83
)
$
( 1.44
)
Diluted
$
( 1.10
)
$
( 1.00
)
$
( 1.83
)
$
( 1.44
)
Comprehensive loss:
For the Three Months Ended
For the Six Months Ended
December 31, 2023
January 1, 2023
December 31, 2023
January 1, 2023
Net loss
$
( 19,846
)
$
( 18,037
)
$
( 33,116
)
$
( 25,871
)
Other comprehensive income (loss):
Foreign currency translation adjustments
5,026
3,447
( 514
)
( 2,461
)
Other comprehensive income (loss), net
5,026
3,447
( 514
)
( 2,461
)
Comprehensive loss
$
( 14,820
)
$
( 14,590
)
$
( 33,630
)
$
( 28,332
)
See accompanying notes to condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEM ENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands)
Shares
Common Stock
Capital in Excess of Par Value
Retained Earnings
Accumulated Other Comprehensive Loss
Total Shareholders’ Equity
Balance at October 1, 2023
18,085
$
1,808
$
69,130
$
293,522
$
( 59,431
)
$
305,029
Options exercised
2
—
18
—
—
18
Conversion of equity units
65
7
( 7
)
—
—
—
Stock-based compensation
7
1
1,172
—
—
1,173
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions
( 9
)
( 1
)
( 59
)
—
—
( 60
)
Other comprehensive income, net of tax
—
—
—
—
5,026
5,026
Net loss
—
—
—
( 19,846
)
—
( 19,846
)
Balance at December 31, 2023
18,150
$
1,815
$
70,254
$
273,676
$
( 54,405
)
$
291,340
Shares
Common Stock
Capital in Excess of Par Value
Retained Earnings
Accumulated Other Comprehensive Loss
Total Shareholders’ Equity
Balance at July 2, 2023
18,081
$
1,808
$
68,901
$
306,792
$
( 53,891
)
$
323,610
Options exercised
5
—
39
—
—
39
Conversion of equity units
66
7
( 7
)
—
—
—
Stock-based compensation
7
1
1,381
—
—
1,382
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions
( 9
)
( 1
)
( 60
)
—
—
( 61
)
Other comprehensive loss, net of tax
—
—
—
—
( 514
)
( 514
)
Net loss
—
—
—
( 33,116
)
—
( 33,116
)
Balance at December 31, 2023
18,150
$
1,815
$
70,254
$
273,676
$
( 54,405
)
$
291,340
Shares
Common Stock
Capital in Excess of Par Value
Retained Earnings
Accumulated Other Comprehensive Loss
Total Shareholders’ Equity
Balance at October 2, 2022
18,012
$
1,801
$
66,709
$
345,302
$
( 65,513
)
$
348,299
Options exercised
—
—
2
—
—
2
Conversion of equity units
31
4
( 4
)
—
—
—
Stock-based compensation
12
1
1,217
—
—
1,218
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions
( 6
)
( 1
)
( 49
)
—
—
( 50
)
Other comprehensive income, net of tax
—
—
—
—
3,447
3,447
Net loss
—
—
—
( 18,037
)
—
( 18,037
)
Balance at January 1, 2023
18,049
$
1,805
$
67,875
$
327,265
$
( 62,066
)
$
334,879
Shares
Common Stock
Capital in Excess of Par Value
Retained Earnings
Accumulated Other Comprehensive Loss
Total Shareholders’ Equity
Balance at July 3, 2022
17,979
$
1,798
$
66,120
$
353,136
$
( 59,605
)
$
361,449
Options exercised
3
—
19
—
—
19
Conversion of equity units
62
7
( 7
)
—
—
—
Stock-based compensation
12
1
1,808
—
—
1,809
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions
( 7
)
( 1
)
( 65
)
—
—
( 66
)
Other comprehensive loss, net of tax
—
—
—
—
( 2,461
)
( 2,461
)
Net loss
—
—
—
( 25,871
)
—
( 25,871
)
Balance at January 1, 2023
18,049
$
1,805
$
67,875
$
327,265
$
( 62,066
)
$
334,879
See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEME NTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Six Months Ended
December 31, 2023
January 1, 2023
Cash and cash equivalents at beginning of period
$
46,960
$
53,290
Operating activities:
Net loss
( 33,116
)
( 25,871
)
Adjustments to reconcile net loss to net cash provided by operating activities:
Equity in earnings of unconsolidated affiliates
( 293
)
( 381
)
Depreciation and amortization expense
13,988
13,478
Non-cash compensation expense
1,387
1,976
Recovery of income taxes
—
( 3,799
)
Deferred income taxes
( 1,714
)
( 304
)
Other, net
( 120
)
289
Changes in assets and liabilities:
Receivables, net
14,367
40,552
Inventories
15,081
25,422
Other current assets
( 402
)
5,525
Income taxes
( 727
)
( 2,655
)
Accounts payable and other current liabilities
( 4,763
)
( 47,599
)
Other, net
( 1,171
)
639
Net cash provided by operating activities
2,517
7,272
Investing activities:
Capital expenditures
( 5,982
)
( 23,950
)
Other, net
488
( 576
)
Net cash used by investing activities
( 5,494
)
( 24,526
)
Financing activities:
Proceeds from ABL Revolver
80,600
96,800
Payments on ABL Revolver
( 82,700
)
( 82,200
)
Payments on ABL Term Loan
( 4,600
)
( 2,500
)
Proceeds from construction financing
—
4,900
Payments on finance lease obligations
( 1,440
)
( 899
)
Payments of debt financing fees
—
( 658
)
Other, net
( 27
)
( 47
)
Net cash (used) provided by financing activities
( 8,167
)
15,396
Effect of exchange rate changes on cash and cash equivalents
163
( 651
)
Net decrease in cash and cash equivalents
( 10,981
)
( 2,509
)
Cash and cash equivalents at end of period
$
35,979
$
50,781
See accompanying notes to condensed consolidated financial statements.
4
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Background
Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, “UNIFI,” the “Company,” “we,” “us,” or “our”), is a multinational company that manufactures and sells innovative recycled and synthetic products, made from polyester and nylon, primarily to other yarn manufacturers and knitters and weavers (UNIFI’s “direct customers”) that produce yarn and/or fabric for the apparel, hosiery, home furnishings, automotive, industrial, 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.
2. Basis of Presentation; Condensed Notes
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. In the opinion of management, all adjustments, which consist of normal, recurring adjustments, considered necessary for a fair statement of the results for interim periods have been included. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the amounts reported and certain financial statement disclosures. Actual results may vary from these estimates.
All amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted.
The fiscal quarter for each of Unifi, Inc., its primary domestic operating subsidiaries and its subsidiary in El Salvador ended on 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.
3. Recent Accounting Pronouncements
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 . ASU No. 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.
5
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
4. Revenue
The following tables present net sales disaggregated by (i) classification of customer type and (ii) REPREVE ® Fiber sales:
Third-Party Manufacturer
For the Three Months Ended
For the Six Months Ended
December 31, 2023
January 1, 2023
December 31, 2023
January 1, 2023
Third-party manufacturer
$
135,841
$
135,018
$
273,461
$
313,230
Service
1,076
1,194
2,300
2,501
Net sales
$
136,917
$
136,212
$
275,761
$
315,731
For the Three Months Ended
For the Six Months Ended
December 31, 2023
January 1, 2023
December 31, 2023
January 1, 2023
REPREVE ® Fiber
$
45,725
$
42,866
$
88,186
$
92,045
All other products and services
91,192
93,346
187,575
223,686
Net sales
$
136,917
$
136,212
$
275,761
$
315,731
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.
REPREVE ® Fiber
REPREVE ® Fiber represents UNIFI's 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 periods presented.
5. 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").
Weighted Average
Scheduled
Interest Rate as of
Principal Amounts as of
Maturity Date
December 31, 2023
December 31, 2023
July 2, 2023
ABL Revolver
October 2027
7.0
%
$
16,000
$
18,100
ABL Term Loan
October 2027
7.0
%
105,800
110,400
Finance lease obligations
(1)
5.1
%
10,960
10,767
Construction financing
(2)
0.0
%
—
1,632
Total debt
132,760
140,899
Current ABL Term Loan
( 9,200
)
( 9,200
)
Current portion of finance lease obligations
( 3,157
)
( 2,806
)
Unamortized debt issuance costs
( 259
)
( 289
)
Total long-term debt
$
120,144
$
128,604
(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.
ABL Facility and Amendments
There have been no changes to the 2022 Credit Agreement following the filing of the 2023 Form 10-K.
Construction Financing
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.
6
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
6. Income Taxes
The provision (benefit) for income taxes and effective tax rate were as follows:
For the Three Months Ended
For the Six Months Ended
December 31, 2023
January 1, 2023
December 31, 2023
January 1, 2023
Provision (benefit) for income taxes
$
380
$
( 3,070
)
$
( 83
)
$
( 336
)
Effective tax rate
( 2.0
)%
14.5
%
0.3
%
1.3
%
Income Tax Expense
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.
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.
During the three months ended December 31, 2023, UNIFI released $ 853 accrued for interest and penalties after receiving the final assessment from the IRS.
7. Shareholders’ Equity
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. The share repurchase authorization is discretionary and has no expiration date. No shares have been repurchased in fiscal 2023 and 2024 and $ 38,859 remains available for repurchase.
8. 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”). 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 . The First Amendment increased the remaining share reserve by 1,100 . 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
850
Plus: Share reserve increase from First Amendment
1,100
Plus: Awards expired, forfeited or otherwise terminated unexercised
48
Less: Awards granted to employees
( 1,083
)
Less: Awards granted to non-employee directors
( 197
)
Available for issuance under the 2020 Plan
718
9. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities
Financial Instruments
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
7
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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 $ 2,618 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 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 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.
10. Earnings Per Share
The components of the calculation of earnings per share (“EPS”) are as follows:
For the Three Months Ended
For the Six Months Ended
December 31, 2023
January 1, 2023
December 31, 2023
January 1, 2023
Net loss
$
( 19,846
)
$
( 18,037
)
$
( 33,116
)
$
( 25,871
)
Basic weighted average shares
18,110
18,034
18,097
18,017
Net potential common share equivalents
—
—
—
—
Diluted weighted average shares
18,110
18,034
18,097
18,017
Excluded from the calculation of common share equivalents:
Anti-dilutive common share equivalents
577
739
577
703
Excluded from the calculation of diluted shares:
Unvested stock options that vest upon achievement of certain market conditions
333
333
333
333
The calculation of EPS is based on the weighted average number of Unifi, Inc.’s common shares outstanding for the applicable period. The calculation of diluted EPS presents the effect of all potential dilutive common shares that were outstanding during the respective period, unless the effect of doing so is anti-dilutive.
11. 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.
12. 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 December 31, 2023 and July 2, 2023.
Related party payables for Salem Leasing Corporation consisted of the following:
December 31, 2023
July 2, 2023
Accounts payable
$
350
$
457
Operating lease obligations
403
502
Finance lease obligations
3,031
3,677
Total related party payables
$
3,784
$
4,636
The following were the Company’s significant related party transactions:
For the Three Months Ended
For the Six Months Ended
Affiliated Entity
Transaction Type
December 31, 2023
January 1, 2023
December 31, 2023
January 1, 2023
Salem Leasing Corporation
Payments for transportation equipment costs and finance lease debt service
$
1,228
$
1,184
$
2,437
$
2,383
8
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
13. Business Segment Information
UNIFI defines operating segments as components of the organization for which discrete financial information is available and operating results are evaluated on a regular basis by UNIFI’s principal executive officer, who is the chief operating decision maker (the “CODM”), in order to assess performance and allocate resources. Characteristics of UNIFI which were relied upon in making the determination of reportable segments include the nature of the products sold, the internal organizational structure, the trade policies in the geographic regions in which UNIFI operates, and the information that is regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.
UNIFI's 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.
The accounting policies for the segments are consistent with UNIFI’s accounting policies. Intersegment sales are omitted from segment disclosures, as they are (i) insignificant to UNIFI’s segments and eliminated from consolidated reporting and (ii) excluded from segment evaluations performed by the CODM.
Selected financial information is presented below:
For the Three Months Ended December 31, 2023
Americas
Brazil
Asia
Total
Net sales
$
80,549
$
26,061
$
30,307
$
136,917
Cost of sales
87,287
22,922
25,072
135,281
Gross (loss) profit
( 6,738
)
3,139
5,235
1,636
Segment depreciation expense
5,508
766
—
6,274
Segment (Loss) Profit
$
( 1,230
)
$
3,905
$
5,235
$
7,910
For the Three Months Ended January 1, 2023
Americas
Brazil
Asia
Total
Net sales
$
85,242
$
25,687
$
25,283
$
136,212
Cost of sales
98,326
24,357
21,529
144,212
Gross (loss) profit
( 13,084
)
1,330
3,754
( 8,000
)
Segment depreciation expense
5,542
391
—
5,933
Segment (Loss) Profit
$
( 7,542
)
$
1,721
$
3,754
$
( 2,067
)
For the Six Months Ended December 31, 2023
Americas
Brazil
Asia
Total
Net sales
$
162,122
$
55,970
$
57,669
$
275,761
Cost of sales
176,240
50,664
47,796
274,700
Gross (loss) profit
( 14,118
)
5,306
9,873
1,061
Segment depreciation expense
11,005
1,606
—
12,611
Segment (Loss) Profit
$
( 3,113
)
$
6,912
$
9,873
$
13,672
For the Six Months Ended January 1, 2023
Americas
Brazil
Asia
Total
Net sales
$
192,886
$
64,566
$
58,279
$
315,731
Cost of sales
210,839
56,449
49,880
317,168
Gross (loss) profit
( 17,953
)
8,117
8,399
( 1,437
)
Segment depreciation expense
11,022
861
—
11,883
Segment (Loss) Profit
$
( 6,931
)
$
8,978
$
8,399
$
10,446
9
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The reconciliations of segment gross profit (loss) to consolidated loss before income taxes are as follows:
For the Three Months Ended
For the Six Months Ended
December 31, 2023
January 1, 2023
December 31, 2023
January 1, 2023
Americas
$
( 6,738
)
$
( 13,084
)
$
( 14,118
)
$
( 17,953
)
Brazil
3,139
1,330
5,306
8,117
Asia
5,235
3,754
9,873
8,399
Segment gross profit (loss)
1,636
( 8,000
)
1,061
( 1,437
)
Selling, general and administrative expenses
12,408
11,748
24,017
23,521
Provision (benefit) for bad debts
1,289
( 156
)
1,080
18
Restructuring costs
5,101
—
5,101
—
Other operating expense (income), net
481
226
535
( 463
)
Operating loss
( 17,643
)
( 19,818
)
( 29,672
)
( 24,513
)
Interest income
( 697
)
( 514
)
( 1,278
)
( 1,061
)
Interest expense
2,613
1,889
5,098
3,136
Equity in earnings of unconsolidated affiliates
( 93
)
( 86
)
( 293
)
( 381
)
Loss before income taxes
$
( 19,466
)
$
( 21,107
)
$
( 33,199
)
$
( 26,207
)
There have been no material changes in segment assets during fiscal 2024.
14. Investments in Unconsolidated Affiliates
Included within Other non-current assets are UNIFI’s investments in unconsolidated affiliates: U.N.F. Industries, Ltd. (“UNF”) and UNF America LLC (“UNFA”).
U.N.F. Industries, Ltd.
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
Raw material and production services for UNFA are provided by Nilit America Inc. under separate supply and services agreements. UNFA’s fiscal year end is December 31, and it is a limited liability company 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 whereby UNIFI agreed to purchase all of its first quality nylon POY requirements for texturing (subject to certain exceptions) from either UNF or UNFA. The supply agreement has no stated minimum purchase quantities and pricing is typically negotiated every six months, based on market rates. 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
For the Six Months Ended
December 31, 2023
January 1, 2023
December 31, 2023
January 1, 2023
UNFA
$
3,787
$
5,390
$
6,913
$
12,791
UNF
—
—
—
37
Total
$
3,787
$
5,390
$
6,913
$
12,828
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 .
10
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Condensed balance sheet and income statement information for UNIFI’s unconsolidated affiliates (including reciprocal balances) are presented in the tables below.
December 31, 2023
July 2, 2023
Current assets
$
9,363
$
10,608
Non-current assets
473
494
Current liabilities
3,634
7,304
Non-current liabilities
—
—
Shareholders’ equity and capital accounts
6,202
3,798
UNIFI’s portion of undistributed earnings
3,042
2,938
For the Three Months Ended
For the Six Months Ended
December 31, 2023
January 1, 2023
December 31, 2023
January 1, 2023
Net sales
$
4,368
$
7,224
$
9,109
$
16,035
Gross profit
9
444
647
933
(Loss) income from operations
( 467
)
26
( 271
)
51
Net (loss) income
( 483
)
14
( 318
)
29
Depreciation and amortization
7
28
21
56
Distributions received
—
—
—
—
15. Supplemental Cash Flow Information
Cash payments for interest and taxes consist of the following:
For the Six Months Ended
December 31, 2023
January 1, 2023
Interest, net of capitalized interest of $ 104 and $ 239 , respectively
$
4,740
$
2,739
Income tax payments, net
2,606
4,064
Cash payments for taxes shown above consist primarily of income and withholding tax payments made by UNIFI in both U.S. and foreign jurisdictions, net of refunds.
Non-Cash Investing and Financing Activities
As of 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.
11
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
16. Other Financial Data
Select balance sheet information is presented in the following table.
December 31, 2023
July 2, 2023
Receivables, net:
Customer receivables
$
66,537
$
79,174
Allowance for uncollectible accounts
( 2,452
)
( 1,362
)
Reserves for quality claims
( 709
)
( 682
)
Net customer receivables
63,376
77,130
Banker's acceptance notes
5,446
5,870
Other receivables
761
725
Total receivables, net
$
69,583
$
83,725
Inventories:
Raw materials
$
58,448
$
59,983
Supplies
11,871
11,787
Work in process
7,077
6,633
Finished goods
65,646
78,032
Gross inventories
143,042
156,435
Net realizable value adjustment
( 7,366
)
( 5,625
)
Total inventories
$
135,676
$
150,810
Other current assets:
Vendor deposits
$
4,608
$
3,863
Prepaid expenses and other
3,826
2,584
Value-added taxes receivable
2,893
3,398
Contract assets
769
549
Recovery of non-income taxes, net
194
1,933
Total other current assets
$
12,290
$
12,327
Property, plant and equipment, net:
Land
$
2,512
$
2,512
Land improvements
16,445
16,443
Buildings and improvements
168,231
167,589
Assets under finance leases
18,030
16,397
Machinery and equipment
659,553
656,431
Computers, software and office equipment
25,370
26,654
Transportation equipment
10,731
10,710
Construction in progress
3,635
10,003
Gross property, plant and equipment
904,507
906,739
Less: accumulated depreciation
( 688,687
)
( 682,768
)
Less: accumulated amortization – finance leases
( 6,385
)
( 5,450
)
Total property, plant and equipment, net
$
209,435
$
218,521
Other non-current assets:
Recovery of taxes
$
6,156
$
5,957
Investments in unconsolidated affiliates
3,101
2,997
Grantor trust
2,618
2,496
Intangible assets, net
736
1,210
Other
2,228
1,848
Total other non-current assets
$
14,839
$
14,508
Other current liabilities:
Payroll and fringe benefits
$
4,827
$
6,981
Severance (1)
2,351
—
Incentive compensation
1,856
298
Dissolution of joint venture
1,550
—
Utilities
1,476
1,634
Deferred revenue
1,293
1,441
Property taxes, interest and other
4,056
2,578
Total other current liabilities
$
17,409
$
12,932
Other long-term liabilities:
Nonqualified deferred compensation plan obligation
$
2,675
$
2,659
Uncertain tax positions
1,032
1,973
Other
426
468
Total other long-term liabilities
$
4,133
$
5,100
(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.
12
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.