What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2024-02-07 · 214 added, 197 removed, 317 unchanged (56% of the section changed)

2 unchanged sentences

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 December 31, 2023, while a reference to the “prior period” refers to the three-month period ended January 1, 2023.

A reference to the “current six-month period” refers to the six-month period ended December 31, 2023, while a reference to the “prior six-month period” refers to the six-month period ended January 1, 2023.

A reference to the “current period” refers to the three-month period ended March 31, 2024, while a reference to the “prior period” refers to the three-month period ended April 2, 2023.

A reference to the “current nine-month period” refers to the nine-month period ended March 31, 2024, while a reference to the “prior nine-month period” refers to the nine-month period ended April 2, 2023.

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

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

The current six-month period and the prior six-month period each consisted of 26 weeks.

Our discussions in this Item 2 focus on our results during, or as of, the three months ended December 31, 2023 and January 1, 2023, 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.

The current nine-month period and the prior nine-month period each consisted of 39 weeks.

Our discussions in this Item 2 focus on our results during, or as of, the three months ended March 31, 2024 and April 2, 2023, 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.

3 unchanged sentences

For the Three Months Ended

For the Six Months Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

For the Nine Months Ended

March 31, 2024

April 2, 2023

March 31, 2024

April 2, 2023

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

5 unchanged sentences

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 half of fiscal 2024.

The current economic environment and significant decrease in textile product demand adversely impacted our consolidated sales and profitability in fiscal 2023 and the first nine months 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:

1 unchanged sentence

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 conflict in the Middle East.

While we had 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.

While we recognize the disruption to global markets and supply chains caused by (i) Russia’s invasion of Ukraine and (ii) the conflict in the Middle East, 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 global raw material costs or unforeseen adverse impacts.

During the second quarter of fiscal 2024, we terminated our supply agreement and relationship with our joint venture partner in Israel, which was not due to the current conflicts in that region.

The supply levels prior to the termination were insignificant.

Input Costs and Global Production Volatility

4 unchanged sentences

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 when presently available.

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.

35 unchanged sentences

Review of Results of Operations

Three Months Ended December 31, 2023 Compared to Three Months Ended January 1, 2023

Three Months Ended March 31, 2024 Compared to Three Months Ended April 2, 2023

Consolidated Overview

The below tables provide:

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

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

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

1 unchanged sentence

For the Three Months Ended

December 31, 2023

January 1, 2023

March 31, 2024

April 2, 2023

Cost of sales

Gross profit (loss)

Provision (benefit) for bad debts

Restructuring costs

Other operating expense, net

1 unchanged sentence

Interest expense, net

Equity in earnings of unconsolidated affiliates

Equity in loss (earnings) of unconsolidated affiliates

Loss before income taxes

Provision (benefit) for income taxes

Provision for income taxes

nm = not meaningful

2 unchanged sentences

For the Three Months Ended

December 31, 2023

January 1, 2023

March 31, 2024

April 2, 2023

Interest expense, net

Provision (benefit) for income taxes

Provision for income taxes

Depreciation and amortization expense (1)

Loss on joint venture dissolution (2)

Severance (3)

Contract modification costs (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) In the second quarter of fiscal 2024, UNIFI recorded a loss of $2,750 related to the dissolution of UNF.

(3) In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with overall cost reduction efforts in the U.S.

However, within the accompanying Condensed Consolidated Statements of Cash Flows, amortization of debt issuance costs is reflected in depreciation and amortization expense.

(2) In the third quarter of fiscal 2023, UNIFI amended certain existing contracts related to future purchases of texturing machinery by delaying the scheduled receipt and installation of such equipment in the U.S.

and El Salvador for 18 months.

UNIFI paid the associated vendor $623 to facilitate the 18-month delay.

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

For the Three Months Ended December 31, 2023

For the Three Months Ended January 1, 2023

Loss on joint venture dissolution (1)

Severance (2)

Recovery of income taxes (3)

For the Three Months Ended March 31, 2024

For the Three Months Ended April 2, 2023

Contract modification costs (1)

Adjusted results

Weighted average common shares outstanding

(1) In the second quarter of fiscal 2024, UNIFI recorded a loss of $2,750 related to the dissolution of UNF.

(2) In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with overall cost reduction efforts in the U.S.

(3) In the second quarter of fiscal 2023, UNIFI recorded a recovery of income taxes in connection with filing amended tax returns in Brazil relating to certain income taxes paid in prior fiscal years.

Consolidated net sales for the current period increased by $705, or 0.5%, and consolidated sales volumes increased 13.0%, compared to the prior period.

The increase was primarily due to improvements in volumes in all segments, however sales levels remain below historical averages, primarily due to lower global demand in connection with the weakness in apparel sector and inventory destocking efforts of major brands and retailers, especially those impacting the Americas and Asia Segments.

Consolidated weighted average sales prices decreased 13.5%, 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 product sales in the Americas Segment.

(1) In the third quarter of fiscal 2023, UNIFI amended certain existing contracts related to future purchases of texturing machinery by delaying the scheduled receipt and installation of such equipment in the U.S.

and El Salvador for 18 months.

UNIFI paid the associated vendor $623 to facilitate the 18-month delay.

The associated tax impact was estimated to be $0 due to (i) a valuation allowance against net operating losses in the U.S.

and (ii) UNIFI's effective tax rate in El Salvador.

Consolidated net sales for the current period decreased by $7,742, or 4.9%, while consolidated sales volumes increased 10.7%, compared to the prior period.

Weighted average selling prices decreased 15.6% in response to sales mix changes and lower raw material costs, primarily in the Americas Segment.

Sales levels continue to remain below historical averages, primarily due to lower global demand in connection with economic and industry factors described above.

REPREVE ® Fiber products for the current period comprised 31%, or $46,754, of consolidated net sales, compared to 32%, or $49,619, for the prior period.

Gross Profit (Loss)

Gross profit for the current period improved by $9,636, or 120.5%, compared to the prior period.

Gross profit improved as a result of (i) increased sales volumes, (ii) cost saving initiatives, and (iii) more stable raw material costs.

Gross profit for the current period decreased by $4,889, or 50.6%, compared to the prior period.

Gross profit declined primarily due to (i) the unfavorable impact of higher manufacturing costs related to the timing and extent of the Company's holiday shutdown periods and (ii) lower conversion margins.

These were partially offset by (a) variable cost saving initiatives, (b) improved productivity, and (c) stable raw material costs.

However, gross profit continues to be negatively impacted by weak fixed cost absorption in the Americas Segment, where utilization and productivity remain below historical averages due to depressed demand.

• For the Americas Segment, gross loss improved due to (i) higher sales volumes, (ii) variable cost management efforts, and (iii) a more stable raw material cost environment, but remains adversely impacted by overall weak global demand and weak fixed cost absorption in connection with low production.

• For the Americas Segment, the gross loss was primarily due to (i) higher manufacturing costs related to the timing and extent of the holiday shutdown periods and (ii) lower conversion margins.

These were partially offset by (a) variable cost management efforts and (b) a stable raw material cost environment.

• For the Brazil Segment, gross profit increased primarily due to (i) improved underlying unit margins and (ii) higher sales volumes.

• For the Asia Segment, gross profit increased primarily due to (i) improved underlying margins and sales mix and (ii) higher sales volumes compared to the prior period despite continued weak global demand.

SG&A for the current period increased compared to the prior period, primarily due to (i) higher compensation expenses prior to the cost reduction actions executed in the current period.

• For the Asia Segment, gross profit increased primarily due to (i) improved underlying unit margins and sales mix and (ii) higher sales volumes compared to the prior period despite continued weak global demand.

SG&A for the current period decreased compared to the prior period, primarily due to lower amortization, compensation, and discretionary expenses.

Provision (Benefit) for Bad Debts

The current period's provision reflects an increase for a specifically identified customer balance originating in the U.S.

fiber market.

Restructuring Costs

Restructuring costs consisted of (i) a loss of $2,750 for the dissolution of UNF and (ii) severance charges of $2,351 in connection with overall cost reduction efforts in the U.S.

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

Other Operating Expense, Net

The current period and prior period include foreign currency transaction losses (gains) of $464 and ($78), respectively, with no other meaningful activity.

The current period and the prior period include foreign currency transaction (gains) losses of ($35) and $174, respectively, with no other meaningful activity.

The prior period also includes $623 paid to a vendor to facilitate an 18-month delay for contracted equipment purchases.

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.

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

Interest expense, net increased in connection with higher borrowings on the revolving credit facility and higher average interest rates.

Equity in Loss (Earnings) of Unconsolidated Affiliates

The current period reflects net losses shared with our unconsolidated affiliate whereas the prior period benefited from more favorable results.

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

For the Three Months Ended

December 31, 2023

January 1, 2023

Provision (benefit) for income taxes

March 31, 2024

April 2, 2023

Provision for income taxes

Effective tax rate

4 unchanged sentences

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 decrease in the effective tax rate from the prior period to the current period is primarily attributable to a discrete tax benefit related to the recovery of certain Brazilian income taxes in the prior period.

The increase in net loss was primarily attributable to restructuring costs, higher bad debt expense, higher interest expense, net, and higher income tax expense, partially offset by improved gross profit.

Additionally, the impacts of discrete and other rate impacting items are more pronounced when loss before income taxes is lower.

The increase in the effective tax rate from the prior period to the current period was primarily attributable to lower book income for foreign subsidiaries, in combination with lower deferred tax expense on unremitted foreign earnings in the current period.

The increase in net loss was primarily attributable to lower gross margin and lower earnings from an unconsolidated affiliate, partially offset by lower SG&A expenses and lower income tax expense.

Adjusted EBITDA and Adjusted EPS (Non-GAAP Financial Measures)

Adjusted EBITDA and Adjusted EPS increased primarily due to improved gross profit, partially offset by higher bad debt and SG&A expenses.

Adjusted EBITDA and Adjusted EPS decreased primarily due to lower gross profit and lower earnings from an unconsolidated affiliate, partially offset by lower SG&A expenses.

Segment Overview

1 unchanged sentence

Americas Segment

The components of Segment Loss, 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:

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

For the Three Months Ended

December 31, 2023

January 1, 2023

March 31, 2024

April 2, 2023

Cost of sales

Gross (loss) profit

Depreciation expense

Segment Profit

Segment net sales as a percentage of

consolidated amounts

Segment Loss as a percentage of

Segment Profit as a percentage of

consolidated amounts

nm = not meaningful

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

Change in average selling price and sales mix

Increase 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 Chip sales in the current period and (ii) lower proportion of fiber sales volumes following continued weak global textile demand.

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

Segment Loss for the prior period

Net increase in underlying margins

Change in sales volumes

Segment Loss for the current period

The improvement in Segment Loss for the Americas Segment from the prior period to the current period was primarily attributable to variable cost management efforts and more stable raw material costs in the current period, along with volume improvements.

Segment Loss for the Americas Segment continued to be negatively impacted by weak fixed cost absorption as fiber production remains below historical averages.

The decrease in net sales for the Americas Segment from the prior period to the current period was primarily attributable to the net change in average selling price and sales mix that includes lower raw material input costs, partially offset by an increase in sales volumes in connection with recent commercial efforts.

Both periods were unfavorably impacted by the continued weak global textile demand environment.

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

Segment Profit for the prior period

Decrease in underlying unit margins

Increase in sales volumes

Segment Profit for the current period

The decrease in Segment Profit for the Americas Segment from the prior period to the current period was primarily attributable to (i) higher manufacturing costs related to the timing and extent of the holiday shutdown periods and (ii) lower conversion margins.

Segment Profit for the Americas Segment continues to be negatively impacted by weak fixed cost absorption as fiber production remains below historical averages.

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.

2 unchanged sentences

For the Three Months Ended

December 31, 2023

January 1, 2023

March 31, 2024

April 2, 2023

Cost of sales

11 unchanged sentences

Net sales for the current period

The increase in net sales for the Brazil Segment from the prior period to the current period was primarily attributable to (i) higher sales volumes and (ii) favorable foreign currency translation effects, partially offset by selling price pressures from low-priced imports.

The increase in net sales for the Brazil Segment from the prior period to the current period was primarily attributable to (i) higher sales volumes resulting from gains in market share and (ii) favorable foreign currency translation effects from the strengthening of the BRL versus the USD, partially offset by lower average selling prices associated with lower raw material input costs.

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

4 unchanged sentences

Segment Profit for the current period

The increase in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to an overall increase in underlying unit margins and improved sales volumes, partially offset by pressure on selling prices from low-priced import competition.

The increase in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to (i) an overall increase in conversion margins and (ii) improved sales volumes with recent market share gains.

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

1 unchanged sentence

For the Three Months Ended

December 31, 2023

January 1, 2023

March 31, 2024

April 2, 2023

Cost of sales

7 unchanged sentences

Net sales for the prior period

Net increase in sales volumes

Increase in sales volumes

Change in average selling price and sales mix

1 unchanged sentence

Net sales for the current period

The increase in net sales for the Asia Segment from the prior period to the current period was primarily attributable to (i) increase in sales volume compared to the prior period despite continued weak global demand during the current period and (ii) improved sales mix compared to the prior period, partially offset by unfavorable foreign currency translation effects due to the weakening of the RMB versus the USD.

The increase in net sales for the Asia Segment from the prior period to the current period was primarily attributable to an increase in sales volumes compared to the prior period, despite continued weak global demand during the current period, partially offset by (i) lower average selling prices compared to the prior period 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

Change in underlying margins and sales mix

Increase in sales volumes

Unfavorable foreign currency translation effects

Change in underlying unit margins and sales mix

Segment Profit for the current period

The increase in Segment Profit for the Asia Segment from the prior period to the current period is attributable to (i) an improved gross margin rate associated with a strong sales mix of REPREVE products and (ii) the increase in sales volumes discussed above.

Six Months Ended December 31, 2023 Compared to Six Months Ended January 1, 2023

The increase in Segment Profit for the Asia Segment from the prior period to the current period was primarily attributable to the increase in sales volumes discussed above, partially offset by unfavorable foreign currency translation effects due to the weakening of the RMB versus the USD.

Nine Months Ended March 31, 2024 Compared to Nine Months Ended April 2, 2023

Consolidated Overview

The below tables provide:

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

• the components of net loss and the percentage increase or decrease over the prior nine-month period amounts, and

• 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 Six Months Ended

December 31, 2023

January 1, 2023

For the Nine Months Ended

March 31, 2024

April 2, 2023

Cost of sales

Gross profit (loss)

Provision for bad debts

Provision (benefit) for bad debts

Restructuring costs

2 unchanged sentences

Interest expense, net

Equity in earnings of unconsolidated affiliates

Equity in loss (earnings) of unconsolidated affiliates

Loss before income taxes

Benefit for income taxes

Provision for income taxes

nm = not meaningful

1 unchanged sentence

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

For the Six Months Ended

December 31, 2023

January 1, 2023

For the Nine Months Ended

March 31, 2024

April 2, 2023

Interest expense, net

Benefit for income taxes

Provision for income taxes

Depreciation and amortization expense (1)

1 unchanged sentence

Severance (3)

Contract modification costs (4)

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.

However, within the accompanying Condensed Consolidated Statements of Cash Flows, amortization of debt issuance costs is reflected in depreciation and amortization expense.

(2) In the second quarter of fiscal 2024, UNIFI recorded a loss of $2,750 related to the dissolution of UNF.

(3) In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with overall cost reduction efforts in the U.S.

(4) In the third quarter of fiscal 2023, UNIFI amended certain existing contracts related to future purchases of texturing machinery by delaying the scheduled receipt and installation of such equipment in the U.S.

and El Salvador for 18 months.

UNIFI paid the associated vendor $623 to facilitate the 18-month delay.

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

For the Six Months Ended December 31, 2023

For the Six Months Ended January 1, 2023

For the Nine Months Ended March 31, 2024

For the Nine Months Ended April 2, 2023

Loss on joint venture dissolution (1)

Severance (2)

Contract modification costs (3)

Recovery of income taxes (4)

3 unchanged sentences

(2) In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with overall cost reduction efforts in the U.S.

(3) In the third quarter of fiscal 2023, UNIFI amended certain existing contracts related to future purchases of texturing machinery by delaying the scheduled receipt and installation of such equipment in the U.S.

and El Salvador for 18 months.

UNIFI paid the associated vendor $623 to facilitate the 18-month delay.

The associated tax impact was estimated to be $0 due to (i) a valuation allowance against net operating losses in the U.S.

and (ii) UNIFI's effective tax rate in El Salvador.

(4) In the second quarter of fiscal 2023, UNIFI recorded a recovery of income taxes in connection with filing amended tax returns in Brazil relating to certain income taxes paid in prior fiscal years.

Consolidated net sales for the current six-month period decreased by $39,970, or 12.7%, while consolidated sales volumes increased 3.1%, compared to the prior six-month period.

Consolidated net sales for the current nine-month period decreased by $47,712, or 10.1%, while consolidated sales volumes increased 5.7%, compared to the prior nine-month period.

Despite modest sales volume improvements in each of the reportable segments, volumes remain depressed, particularly in the Americas and Asia Segments as a result of low global demand in connection with the apparel market.

Consolidated weighted average sales prices decreased 15.8% which drove the decrease in net sales.

The decrease in sales price was 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 six-month period comprised 32%, or $88,186, of consolidated net sales, compared to 29%, or $92,045, for the prior six-month period.

Gross Profit (Loss)

Gross profit for the current six-month period improved by $2,498, or 173.8%, compared to the prior six-month period.

Gross profit improved as a result of variable cost management efforts and more stable raw material costs, along with increased sales volume.

Gross profit was negatively impacted by weak fixed cost absorption in 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 improved due to variable cost management efforts and more stable raw material costs in the current six-month period, partially offset by weak global demand and weak fixed cost absorption in connection with low production levels.

• 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 increased primarily due to (i) a strong sales mix and (ii) higher sales volumes compared to the period six-month period despite weak global demand.

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

Provision for Bad Debts

The current six-month period's provision reflects an increase for a specifically identified customer balance originating in the U.S.

The decrease in sales price was primarily attributable to (a) lower selling prices in response to lower raw material input costs and (b) a greater mix of Chip and Flake product sales, both particularly in the Americas Segment, together with (c) competitive pricing pressures in Brazil.

REPREVE ® Fiber products for the current nine-month period comprised 32%, or $134,940, of consolidated net sales, compared to 30%, or $141,664, for the prior nine-month period.

Gross profit for the current nine-month period decreased by $2,391, or 29.1%, compared to the prior nine-month period.

Gross profit declined primarily due to (i) higher manufacturing costs and (ii) lower conversion margins.

These were partially offset by (a) increased sales volumes, (b) variable cost saving initiatives, (c) improved productivity, and (d) more stable raw material costs.

However, gross profit continues to be unfavorably impacted by weak fixed cost absorption in the Americas Segment, where utilization and productivity remain below historical averages due to depressed demand.

• For the Americas Segment, gross profit declined primarily due to (i) higher manufacturing costs and (ii) lower conversion margins.

These were partially offset by (a) higher sales volumes, (b) variable cost management efforts, and (c) a more stable raw material cost environment.

• For the Brazil Segment, gross profit decreased primarily due to decreasing market prices in Brazil due to low-cost import competition, partially offset by higher sales volume from market share gains and favorable foreign currency translation effects.

• For the Asia Segment, gross profit increased primarily due to (i) a strong sales mix and (ii) higher sales volumes compared to the prior nine-month period despite continued weak global demand.

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

Provision (Benefit) for Bad Debts

The current nine-month period's provision reflects an increase for a specifically identified customer balance originating in the U.S.

fiber market.

Restructuring Costs

Restructuring costs consisted of (i) a loss of $2,750 when UNIFI dissolved its interest in UNF under an agreement with its former joint venture partner and (ii) severance charges of $2,351 in connection with overall cost reduction efforts in the U.S.

Restructuring costs consisted of (i) a loss of $2,750 for the dissolution of UNF, our former joint venture partner in Israel, and (ii) severance charges of $2,351 in connection with overall cost reduction efforts in the U.S.

Other Operating Expense (Income), Net

The current six-month period and prior six-month period include foreign currency transaction losses (gains) of $430 and ($803), respectively, with no other meaningful activity.

The current nine-month period and the prior nine-month period include foreign currency transaction losses (gains) of $395 and ($629), respectively, with no other meaningful activity.

The prior nine-month period also includes $623 paid to a vendor to facilitate an 18-month delay for contracted equipment purchases.

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 six-month period or the prior six-month period.

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

For the Six Months Ended

December 31, 2023

January 1, 2023

Benefit for income taxes

Interest expense, net increased in connection with higher average borrowings on the revolving credit facility combined with higher average interest rates.

Equity in Loss (Earnings) of Unconsolidated Affiliates

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

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

For the Nine Months Ended

March 31, 2024

April 2, 2023

Provision for income taxes

Effective tax rate

3 unchanged sentences

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 decrease in the effective tax rate from the prior six-month period to the current six-month period is primarily attributable to a discrete tax benefit related to the recovery of certain Brazilian income taxes in the prior six-month period.

The increase in net loss was primarily attributable to restructuring costs, higher bad debt expense, and higher interest expense, net, partially offset by improved gross profit.

Additionally, the impacts of discrete and other rate impacting items are more pronounced when loss before income taxes is lower.

The increase in the effective tax rate from the prior nine-month period to the current nine-month period was primarily attributable to lower book income for foreign subsidiaries, in combination with lower deferred tax expense on unremitted foreign earnings in the current nine-month period.

The increase in net loss was primarily attributable to lower gross profit, restructuring costs, higher bad debt expense, lower earnings from unconsolidated affiliates, and higher interest expense, net.

Adjusted EBITDA and Adjusted EPS (Non-GAAP Financial Measures)

Adjusted EBITDA and Adjusted EPS increased primarily due to improved gross profit, partially offset by higher bad debt expense and other operating expenses.

Adjusted EBITDA and Adjusted EPS decreased primarily due to lower gross profit, higher bad debt expense, lower earnings from unconsolidated affiliates, and other operating expenses (income), net.

Segment Overview

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

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

Americas Segment

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

For the Six Months Ended

December 31, 2023

January 1, 2023

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

For the Nine Months Ended

March 31, 2024

April 2, 2023

Cost of sales

Depreciation expense

Segment (Loss) Profit

Segment net sales as a percentage of

consolidated amounts

Segment Loss as a percentage of

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 six-month period

Net change in average selling price and sales mix

Net sales for the prior nine-month period

Change in average selling price and sales mix

Increase in sales volumes

Net sales for the current six-month period

The change in net sales for the Americas Segment from the prior six-month period to the current six-month 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 Chip and Flake sales in the current six-month period and (ii) lower fiber sales volumes following weaker global textile demand.

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

Segment Loss for the prior six-month period

Change in underlying margins and sales mix

Change in sales volumes

Segment Loss for the current six-month period

The improvement in Segment Loss for the Americas Segment from the prior six-month period to the current six-month period was primarily attributable to variable cost management efforts and more stable raw material costs in the current six-month period.

Segment Loss for the Americas Segment continued to be negatively impacted by low fiber sales volumes.

Net sales for the current nine-month period

The decrease in net sales for the Americas Segment from the prior nine-month period to the current nine-month period was primarily attributable to the net change in average selling price and sales mix that includes lower raw material input costs, partially offset by an increase in sales volumes.

Both periods were unfavorably impacted by the continued weak global textile demand environment.

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

Segment Profit for the prior nine-month period

Change in underlying unit margins and sales mix

Increase in sales volumes

Segment Loss for the current nine-month period

The decrease in Segment Profit for the Americas Segment from the prior nine-month period to the current nine-month period was primarily attributable to (i) higher manufacturing costs and (ii) lower conversion margins.

Segment Loss for the Americas Segment continues to be negatively impacted by a lower proportion of fiber sales volumes.

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

These negative impacts were partially offset by variable cost management efforts and more stable raw material costs in the current nine-month period.

Brazil Segment

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

For the Six Months Ended

December 31, 2023

January 1, 2023

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

For the Nine Months Ended

March 31, 2024

April 2, 2023

Cost of sales

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

Net sales for the prior six-month period

Net sales for the prior nine-month period

Decrease in average selling price and change in sales mix

Favorable foreign currency translation effects

Increase in sales volumes

Net sales for the current six-month period

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

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

Segment Profit for the prior six-month period

Decrease in underlying margins

Favorable foreign currency translation effects

Net sales for the current nine-month period

The decrease in net sales for the Brazil Segment from the prior nine-month period to the current nine-month period was primarily attributable to lower average selling prices due to pressure from low-priced import competition, partially offset by (i) an improvement in sales volumes from market share gains and (ii) favorable foreign currency translation effects from the strengthening of the BRL versus the USD.

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

Segment Profit for the prior nine-month period

Decrease in underlying unit margins

Increase in sales volumes

Segment Profit for the current six-month period

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

Favorable foreign currency translation effects

Segment Profit for the current nine-month period

The decrease in Segment Profit for the Brazil Segment from the prior nine-month period to the current nine-month period was primarily attributable to lower conversion margins mainly due to pressure on selling prices from low-priced imports, mostly offset by (i) increases in sales volumes discussed above and (ii) favorable foreign currency translation effects.

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 six-month period amounts for the Asia Segment, were as follows:

For the Six Months Ended

December 31, 2023

January 1, 2023

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

For the Nine Months Ended

March 31, 2024

April 2, 2023

Cost of sales

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

Net sales for the prior six-month period

Net sales for the prior nine-month period

Increase in sales volumes

Unfavorable foreign currency translation effects

Change in average selling price and sales mix

Net increase in sales volumes

Net sales for the current six-month period

The nominal change in net sales for the Asia Segment from the prior six-month period to the current six-month period was primarily attributable to (i) unfavorable foreign currency translation effects due to the weakening of the RMB versus the USD, offset by an improvement in sales volume compared to the prior six-month period despite continued weak global demand and inventory destocking by brands and retailers, particularly for apparel.

Net sales for the current nine-month period

The change in net sales for the Asia Segment from the prior nine-month period to the current nine-month period was primarily attributable to an improvement in sales volumes compared to the prior nine-month period despite continued weak global demand and inventory destocking by brands and retailers, particularly for apparel, mostly offset by (i) unfavorable foreign currency translation effects due to the weakening of the RMB versus the USD and (ii) changes in average selling prices and sales mix.

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

Segment Profit for the prior six-month period

Change in underlying margins and sales mix

Segment Profit for the prior nine-month period

Change in underlying unit margins and sales mix

Increase in sales volumes

Unfavorable foreign currency translation effects

Segment Profit for the current six-month period

The increase in Segment Profit for the Asia Segment from the prior six-month period to the current six-month period is attributable to (i) an improved gross margin rate associated with a strong sales mix of REPREVE products and (ii) the increase in sales volumes discussed above, offset by unfavorable foreign currency translation effects.

Segment Profit for the current nine-month period

The increase in Segment Profit for the Asia Segment from the prior nine-month period to the current nine-month period was attributable to (i) an improved gross margin rate associated with a strong sales mix of REPREVE products and (ii) the increase in sales volumes discussed above, partially offset by unfavorable foreign currency translation effects.

Liquidity and Capital Resources

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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 six-month period, cash provided by operations was $2,517, and, at December 31, 2023, availability under the ABL Revolver was $43,082.

As of December 31, 2023, all of UNIFI’s $132,760 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.

For the current nine-month period, cash provided by operations was $1,160 and, at March 31, 2024, availability under the ABL Revolver was $47,369.

As of March 31, 2024, all of UNIFI’s $128,670 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 December 31, 2023 for domestic operations compared to foreign operations:

The following table presents a summary of cash and cash equivalents, borrowings available under financing arrangements, liquidity, working capital, and total debt obligations as of March 31, 2024 for domestic operations compared to foreign operations:

Cash and cash equivalents

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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.

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.

Following the establishment of the 2022 Credit Agreement, UNIFI believes its global cash and liquidity positions are sufficient to sustain its operations and to meet its growth needs for the foreseeable future.

Additionally, UNIFI considers opportunities to repatriate existing cash to reduce debt and preserve or enhance liquidity.

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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 December 31, 2023:

The following outlines the attributes relating to our credit facility as of March 31, 2024:

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

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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.

Domestically, UNIFI believes 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.

UNIFI believes its 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:

December 31, 2023

March 31, 2024

Long-term debt

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cash and cash equivalents

The increase in Net Debt primarily reflects capital expenditures during the fiscal year, partially offset by the generation of operating cash flows during fiscal 2024.

The increase in Net Debt primarily reflects capital expenditures during the current nine-month period, partially offset by the generation of operating cash flows during that period.

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

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

December 31, 2023

March 31, 2024

Cash and cash equivalents

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Adjusted Working Capital

Adjusted Working Capital decreased $24,044 from July 2, 2023 to December 31, 2023.

Adjusted Working Capital decreased $28,475 from July 2, 2023 to March 31, 2024.

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 six-month period and lower units on hand.

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

The increase in other current liabilities primarily reflects the liabilities recorded in the current period for severance and the dissolution of UNF.

The change in income taxes receivable reflects the foreign tax payments made in the current six-month period.

The decrease in inventories was primarily attributable to lower weighted average costs in the current nine-month period.

The change in income taxes receivable reflects the foreign tax payments made in the current nine-month period.

The decrease in other current assets was primarily due to the decrease in Brazil's recovery of non-income taxes in the current nine-month period.

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

The increase in other current liabilities primarily reflects the liabilities recorded in the current nine-month period for severance and incentive compensation earned in fiscal 2024.

The change in income taxes payable reflects the impact of the interim tax provision.

The changes in other current assets, current operating lease liabilities, and current portion of long-term debt were insignificant.

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

Operating Cash Flows

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

For the Six Months Ended

December 31, 2023

January 1, 2023

Equity in earnings of unconsolidated affiliates

For the Nine Months Ended

March 31, 2024

April 2, 2023

Equity in loss (earnings) of unconsolidated affiliates

Distribution received from unconsolidated affiliate

Depreciation and amortization expense

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Net cash provided by operating activities

The decrease in operating cash flows was primarily due to weaker earnings in the current six-month period compared to the prior six-month period.

The decrease in operating cash flows was primarily due to weaker earnings in the current nine-month period compared to the prior nine-month period, partially offset by working capital improvements.

Investing Cash Flows

Investing activities primarily includes $5,982 for capital expenditures.

Investing activities primarily include $8,566 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.

In March 2023, UNIFI amended certain existing contracts related to future purchases of texturing machinery by delaying the scheduled receipt and installation of such equipment in the U.S.

and El Salvador for 18 months.

In December 2023, UNIFI extended this delay by an additional 12 months at no cost to the Company.

Financing Cash Flows

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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, except for the capital purchase obligations are approximately $6,000, $0 and $19,000 for fiscal years 2024, 2025 and 2026, respectively.

Off-Balance Sheet Arrangements

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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 2. Management’s Discussion and Analysis