What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-06 compared with 2024-05-09 · 118 added, 318 removed, 213 unchanged (67% 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 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.

A reference to the “current period” refers to the three-month period ended September 29, 2024, while a reference to the “prior period” refers to the three-month period ended October 1, 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 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.

Our discussions in this Item 2 focus on our results during, or as of, the three months ended September 29, 2024 and October 1, 2023, and, to the extent applicable, any material changes from the information discussed in the 2024 Form 10-K or other important intervening developments or information.

These discussions should be read in conjunction with the 2024 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 Nine Months Ended

March 31, 2024

April 2, 2023

March 31, 2024

April 2, 2023

September 29, 2024

October 1, 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 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:

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

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.

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.

The challenging environment for textile production and demand has adversely impacted our consolidated sales and profitability.

In addition, the following pressures have been present:

(i) the impact of inflation on consumer spending and (ii) elevated interest rates for consumers and customers, including the impact on the carrying costs of customer inventories.

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

While we recognize the disruption to global markets and supply chains caused by the conflicts in Ukraine and the Middle East, we have not been directly impacted.

Input Costs and Global Production Volatility

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

Despite lowered input and freight costs and a marginally more stable labor pool recently, global demand volatility and uncertainty continued into fiscal 2025.

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

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

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

Cash Deposits and Financial Institution Risk

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.

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

If any of our lending counterparties are unable to perform on their commitments, our liquidity could be impacted.

We actively monitor all lending counterparties, and none have indicated that they may be unable to perform on their commitments.

In addition, we periodically review our lending counterparties, considering the stability of the institutions and other aspects of the relationships.

Based on our monitoring activities, we currently believe our lending counterparties will be able to perform their commitments.

Key Performance Indicators and Non-GAAP Financial Measures

30 unchanged sentences

Review of Results of Operations

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

Three Months Ended September 29, 2024 Compared to Three Months Ended October 1, 2023

Consolidated Overview

4 unchanged sentences

For the Three Months Ended

March 31, 2024

April 2, 2023

September 29, 2024

October 1, 2023

Cost of sales

Gross profit (loss)

Provision (benefit) for bad debts

2 unchanged sentences

Interest expense, net

Equity in loss (earnings) of unconsolidated affiliates

Equity in earnings of unconsolidated affiliates

Loss before income taxes

Provision for income taxes

Provision (benefit) for income taxes

nm = not meaningful

2 unchanged sentences

For the Three Months Ended

March 31, 2024

April 2, 2023

September 29, 2024

October 1, 2023

Interest expense, net

Provision for income taxes

Provision (benefit) for income taxes

Depreciation and amortization expense (1)

Contract modification costs (2)

Other adjustments (2)

Adjusted EBITDA

1 unchanged sentence

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.

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

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

For the 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 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.

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

Consolidated net sales for the current period increased by $8,528, or 6.1%, while consolidated sales volumes increased 7.7%, compared to the prior period.

Net sales in the current period were higher primarily due to improved sales volumes in each of the reportable segments, along with favorable pricing in Brazil.

Despite these sales volume improvements, volumes remain depressed, particularly in the Americas and Asia Segments as a result of continued weak global demand.

Consolidated weighted average sales prices decreased 1.6% which partially offset the volume increase.

The decrease in sales prices was primarily attributable to sales mix and lower average selling prices in Asia and the Americas Segment, together with unfavorable foreign currency translation effects from the weakening of the BRL versus the USD within our Brazil Segment.

REPREVE ® Fiber products for the current period comprised 30%, or $44,742, of consolidated net sales, compared to 31%, or $42,461, for the prior period.

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, 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 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.

Gross Profit (Loss)

Gross profit for the current period increased to $9,458 from a gross loss of $(575) in the prior period.

Gross profit increased primarily due to (i) increased sales volumes, (ii) variable cost saving initiatives, (iii) improved productivity, and (iv) higher conversion margins.

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 increased primarily due to (i) higher sales volumes, (ii) higher conversion margins, and (iii) variable cost management efforts.

• For the Brazil Segment, gross profit increased primarily due to (i) improved selling prices, (ii) higher sales volumes from market share gains, and (iii) lower material input costs due to lower costed inventories at the beginning of the quarter.

• For the Asia Segment, gross profit decreased primarily due to lower conversion margins from a weak demand environment.

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

Provision (Benefit) for Bad Debts

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

The current period and prior period provision reflect no material activity.

Other Operating Expense, Net

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.

The current period and the prior period include foreign currency transaction losses (gains) of $489 and $(33), respectively, with no other meaningful activity.

Interest Expense, Net

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:

Interest expense, net increased primarily due to lower interest income in the current period, associated with lower global cash balances.

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:

For the Three Months Ended

March 31, 2024

April 2, 2023

Provision for income taxes

September 29, 2024

October 1, 2023

Provision (benefit) for income taxes

Effective tax rate

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

variability in pre-tax book income;

The effective tax rate is subject to variation due to a number of factors, including variability in pre-tax book income;

the mix of income by jurisdiction;

changes in deferred tax valuation allowances;

and changes in statutes, regulations, and case law.

and changes in statutes, audit settlement, regulations, and case law.

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

The decrease in the effective tax rate is primarily attributable to a decrease in the valuation allowance on deferred tax asset balances adjusted by the IRS audit of tax years 2014 through 2019, which was concluded during the prior period.

The impact of this on comparative results is heightened by a smaller loss before income taxes in the current period.

The improvement in net loss was primarily attributable to increased gross profit, partially offset by foreign currency transaction losses, higher interest expense, net, and higher income tax expense.

Adjusted EBITDA (Non-GAAP Financial Measure)

Adjusted EBITDA increased primarily attributable to increased gross profit, partially offset by foreign currency transaction losses.

Segment Overview

1 unchanged sentence

Americas Segment

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

The components of Segment Profit (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:

For the Three Months Ended

March 31, 2024

April 2, 2023

September 29, 2024

October 1, 2023

Cost of sales

Gross (loss) profit

Depreciation expense

Segment Profit

Segment Profit (Loss)

Segment net sales as a percentage of

consolidated amounts

Segment Profit as a percentage of

Segment Profit (Loss) 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

Change in average selling price and sales mix

Increase in sales volumes

Change in average selling price and sales mix

Net sales for the current period

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.

The increase in net sales for the Americas Segment from the prior period to the current period was primarily attributable to higher sales volumes, partially offset by a lower-priced sales mix.

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

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

Segment Loss for the prior period

Change in underlying unit margins and sales mix

Change 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.

The increase in Segment Profit for the Americas Segment from the prior period to the current period was primarily attributable to higher conversion margins primarily due to improved variable cost management efforts.

Segment Profit 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.

Brazil Segment

1 unchanged sentence

For the Three Months Ended

March 31, 2024

April 2, 2023

September 29, 2024

October 1, 2023

Cost of sales

7 unchanged sentences

Net sales for the prior period

Increase in average selling price and change in sales mix

Increase in sales volumes

Favorable foreign currency translation effects

Decrease in average selling price

Unfavorable foreign currency translation effects

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 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 increase in net sales for the Brazil Segment from the prior period to the current period was primarily attributable to (i) higher average selling prices due to increasing raw material costs and (ii) an improvement in sales volumes from market share gains, partially offset by unfavorable foreign currency translation effects from the weakening of the BRL versus the USD.

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

2 unchanged sentences

Increase in sales volumes

Favorable foreign currency translation effects

Unfavorable foreign currency translation effects

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 (i) an overall increase in conversion margins and (ii) improved sales volumes with recent market share gains.

The increase in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to (i) higher conversion margins and (ii) an increase in sales volumes discussed above, partially offset by unfavorable foreign currency translation effects.

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

1 unchanged sentence

For the Three Months Ended

March 31, 2024

April 2, 2023

September 29, 2024

October 1, 2023

Cost of sales

7 unchanged sentences

Net sales for the prior period

Increase in sales volumes

Change in average selling price and sales mix

Unfavorable foreign currency translation effects

Increase in sales volumes

Favorable foreign currency translation effects

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 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 decrease in net sales for the Asia Segment from the prior period to the current period was primarily attributable to changes in sales mix, partially offset by (a) an improvement in sales volumes compared to the prior period despite continued weak global demand, particularly for apparel and (b) favorable foreign currency translation effects due to the strengthening of the RMB versus the USD.

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

Segment Profit for the prior period

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 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 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 Nine Months Ended

March 31, 2024

April 2, 2023

Cost of sales

Provision (benefit) for bad debts

Restructuring costs

Other operating expense (income), net

Operating loss

Interest expense, net

Equity in loss (earnings) of unconsolidated affiliates

Loss before income taxes

Provision for income taxes

nm = not meaningful

EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)

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

For the Nine Months Ended

March 31, 2024

April 2, 2023

Interest expense, net

Provision for income taxes

Depreciation and amortization expense (1)

Loss on joint venture dissolution (2)

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.

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 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)

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 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 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 (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.

• 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 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 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 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

The effective tax rate is subject to variation due to a number of factors, including variability in pre-tax book income;

the mix of income by jurisdiction;

changes in deferred tax valuation allowances;

and changes in statutes, regulations, and case law.

Additionally, the impacts of discrete and other rate impacting items are more pronounced when 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 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 nine-month period.

Americas Segment

The components of Segment (Loss) Profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior 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) Profit as a percentage of

consolidated amounts

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

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 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.

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 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

Depreciation expense

Segment Profit

Segment net sales as a percentage of

consolidated amounts

Segment Profit as a percentage of

consolidated amounts

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

Net sales for the prior nine-month period

Decrease in average selling price and change in sales mix

Increase in sales volumes

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

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 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

Depreciation expense

Segment Profit

Segment net sales as a percentage of

consolidated amounts

Segment Profit as a percentage of

consolidated amounts

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

Net sales for the prior nine-month period

Increase in sales volumes

Unfavorable foreign currency translation effects

Change in average selling price and sales mix

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 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 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.

Segment Profit for the current period

The decrease in Segment Profit for the Asia Segment from the prior period to the current period was attributable to a decline in gross margin rate associated with a change in sales mix of REPREVE products, partially offset by (a) the increase in sales volumes and (b) the favorable foreign currency translation effects.

Liquidity and Capital Resources

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Further discussion and analysis of liquidity and capital resources follow.

UNIFI’s primary capital requirements are for working capital, capital expenditures, debt service, and share repurchases.

UNIFI’s primary sources of capital are cash generated from operations, borrowings available under the 2022 Credit Agreement, and asset financing arrangements.

For the current 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.

UNIFI’s primary capital requirements are for working capital, capital expenditures, and debt service.

UNIFI’s primary sources of capital are cash generated from operations, borrowings available under the 2022 Credit Agreement, and 2024 Facility.

For the current three-month period, cash used by operations was $12,834 and, at September 29, 2024, availability under the ABL Revolver was $38,645.

As of September 29, 2024, all of UNIFI’s $131,691 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 March 31, 2024 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 September 29, 2024 for domestic operations compared to foreign operations:

Cash and cash equivalents

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Total debt obligations

Borrowings available under financing arrangements are generally collateralized by receivables and inventory owned in the U.S.

and generally constrained by the fixed charge coverage ratio and trigger level prescribed in the 2022 Credit Agreement.

Accordingly, not all of such funds are immediately available for use in UNIFI's operations.

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 believes its global cash and liquidity positions are sufficient to sustain its operations and to meet its growth needs for the foreseeable future.

Following the establishment of the 2024 Facility, 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 March 31, 2024:

The following outlines the attributes relating to our credit facility as of September 29, 2024:

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

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• $0 of standby letters of credit were outstanding.

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

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

On October 25, 2024, UNIFI entered into a new credit agreement with Wells Fargo Bank, National Association for a $25,000 revolving credit facility (the "2024 Facility").

The maturity date of the 2024 Facility is the earlier of (i) October 28, 2027 and (ii) the termination or refinancing of the 2022 Credit Agreement.

The 2024 Facility is deemed unsecured financing for UNIFI, but is collateralized by certain assets pledged by related party Kenneth G.

Langone, one of the members of UNIFI's Board of Directors.

Borrowings under the 2024 Facility bear interest at a rate of SOFR plus 0.90%.

The 2024 Facility contains no additional financial covenants beyond those already in effect for the 2022 Credit Agreement and is subject to a monthly unused line fee of 0.25% on available borrowing capacity.

As of the report date, no amounts had been borrowed against the 2024 Facility.

Liquidity Summary

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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 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.

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The reconciliations for Net Debt are as follows:

March 31, 2024

September 29, 2024

June 30, 2024

Long-term debt

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cash and cash equivalents

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.

The increase in Net Debt primarily reflects the increase in inventories and capital expenditures during the current 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:

March 31, 2024

September 29, 2024

June 30, 2024

Cash and cash equivalents

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Adjusted Working Capital

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

Adjusted Working Capital increased $15,305 from June 30, 2024 to September 29, 2024.

The increase in Adjusted Working Capital was primarily attributable to an increase in inventories, partially impacted by insignificant changes in other balance sheet accounts.

The increase in inventories was primarily a result of weaker-than-expected sales levels in the U.S.

and Asia, causing a decrease in inventory turnover.

Operating Cash Flows

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

For the Nine Months Ended

March 31, 2024

April 2, 2023

Equity in loss (earnings) of unconsolidated affiliates

Distribution received from unconsolidated affiliate

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

For the Three Months Ended

September 29, 2024

October 1, 2023

Equity in earnings of unconsolidated affiliates

Depreciation and amortization expense

Recovery of income taxes

Non-cash compensation expense

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Other changes

Net cash provided by operating activities

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.

Net cash (used) provided by operating activities

The decrease in operating cash flows was due to increased working capital primarily from an increase in inventories (as described above), partially offset by an improvement in earnings in the current period compared to the prior period.

Investing Cash Flows

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Financing Cash Flows

Financing activities primarily include net payments on the ABL Revolver and payments on the ABL Term Loan.

Financing activities primarily include net proceeds from the ABL Revolver and payments on the ABL Term Loan.

Share Repurchase Program

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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 2024, 2025, and 2026, respectively.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2024 Form 10-K.

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