What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-02-06 compared with 2024-11-06 · 296 added, 97 removed, 234 unchanged (63% 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 September 29, 2024, while a reference to the “prior period” refers to the three-month period ended October 1, 2023.

A reference to the “current period” refers to the three-month period ended December 29, 2024, while a reference to the “prior period” refers to the three-month period ended December 31, 2023.

A reference to the “current six-month period” refers to the six-month period ended December 29, 2024, while a reference to the “prior six-month period” refers to the six-month period ended December 31, 2023.

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

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

Our discussions in this Item 2 focus on our results during, or as of, the three months ended 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.

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 29, 2024 and December 31, 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

September 29, 2024

October 1, 2023

For the Six Months Ended

December 29, 2024

December 31, 2023

December 29, 2024

December 31, 2023

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

6 unchanged sentences

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.

In addition, the following pressures have been present or recently introduced:

(i) the impact of inflation on consumer spending, (ii) elevated interest rates for consumers and customers, including the impact on the carrying costs of customer inventories, and (iii) the volatility of trade and regulatory matters in light of recent executive and legislative branch changes.

UNIFI will continue to monitor these and other aspects of the current environment, leverage our global business model as necessary, 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.

37 unchanged sentences

Review of Results of Operations

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

Three Months Ended December 29, 2024 Compared to Three Months Ended December 31, 2023

Consolidated Overview

4 unchanged sentences

For the Three Months Ended

September 29, 2024

October 1, 2023

December 29, 2024

December 31, 2023

Cost of sales

Gross profit (loss)

Provision (benefit) for bad debts

Other operating expense, net

(Benefit) provision for bad debts

Gain on sale of assets

Restructuring costs

Other operating (income) expense, net

Operating loss

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

September 29, 2024

October 1, 2023

December 29, 2024

December 31, 2023

Interest expense, net

Provision (benefit) for income taxes

Provision for income taxes

Depreciation and amortization expense (1)

Other adjustments (2)

Gain on sale of assets (2)

Loss on joint venture dissolution (3)

Severance (4)

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

(2) In the second quarter of fiscal 2025, UNIFI recorded a gain of $4,296 related to the sale of a warehouse located in Yadkinville, North Carolina.

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

(4) In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with the Profitability Improvement Plan in the U.S.

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

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.

The tables below set forth reconciliations of (i) Loss before income taxes (“Pre-tax Loss”), (ii) Provision for income taxes (“Tax Impact”), (iii) Net Loss to Adjusted Net Loss, and (iv) Diluted EPS to Adjusted EPS.

For the Three Months Ended December 29, 2024

For the Three Months Ended December 31, 2023

Gain on sale of assets (1)

Loss on joint venture dissolution (2)

Severance (3)

Adjusted results

Weighted average common shares outstanding

(1) In the second quarter of fiscal 2025, UNIFI recorded a gain of $4,296 related to the sale of a warehouse located in Yadkinville, North Carolina.

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

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

(3) In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with the Profitability Improvement Plan in the U.S.

Consolidated net sales for the current period increased by $1,963, or 1.4%, and consolidated sales volumes increased by 6.2%, 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 and market share gains in Brazil, mainly offset by a weaker sales mix in Asia.

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 4.8% 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.

The decrease in sales prices was primarily attributable to a weaker sales mix in the Asia 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 31%, or $43,272, of consolidated net sales, compared to 33%, or $45,725, for the prior period.

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.

Gross profit for the current period decreased to $534 from $1,636 in the prior period.

Gross profit decreased primarily due to softer sales and profitability in the Asia Segment.

This was partially offset by (i) increased sales volumes, (ii) improved productivity, and (iii) higher conversion margins in the Brazil Segment.

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.

• For the Americas Segment, gross profit was flat primarily due to higher sales volumes and conversion margins, which were mostly offset by inflationary pressures.

• For the Brazil Segment, gross profit increased primarily due to higher sales volumes from market share gains partially offset by an unfavorable foreign currency translation impact.

• For the Asia Segment, gross profit decreased primarily due to unfavorable changes in customer-specific programs 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 prior period provision reflect no material activity.

Other Operating Expense, Net

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

(Benefit) Provision for Bad Debts

The current period benefit reflects no material activity, while the prior period provision reflected an increase for a specifically identified customer balance originating in the U.S.

fiber market.

Gain on Sale of Assets

In the second quarter of fiscal 2025, UNIFI recorded a gain of $4,296 related to the sale of a warehouse located in Yadkinville, North Carolina.

Restructuring Costs

Restructuring costs for the prior period consisted of (i) a loss of $2,750 for the dissolution of a nylon joint venture and (ii) severance charges of $2,351 in connection with the Profitability Improvement Plan in the U.S.

Other Operating (Income) Expense, Net

The current period and the prior period include foreign currency transaction (gains) losses of $(221) and $464, respectively, with no other meaningful activity.

Interest Expense, Net

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

Equity in Loss (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:

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

For the Three Months Ended

September 29, 2024

October 1, 2023

Provision (benefit) for income taxes

December 29, 2024

December 31, 2023

Provision for income taxes

Effective tax rate

4 unchanged sentences

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

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.

The decrease in the effective tax rate from the prior period to the current period is primarily attributable to fewer losses in the U.S.

and a discrete benefit from the release of interest and penalties accrued on uncertain tax positions after the close of the IRS audit in the prior period.

The improvement in net loss was primarily attributable to (i) a gain on sale of assets, (ii) no restructuring costs in the current period, (iii) lower bad debt expense and (iv) foreign currency translation gains, partially offset by (a) lower gross profit and (b) higher income tax expense.

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

Adjusted EBITDA and Adjusted EPS were generally consistent with the prior period as the lower gross profit was mostly offset by (a) lower bad debt expense and (b) foreign currency translation gains.

Segment Overview

1 unchanged sentence

Americas Segment

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:

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:

For the Three Months Ended

September 29, 2024

October 1, 2023

December 29, 2024

December 31, 2023

Cost of sales

Depreciation expense

Segment Profit (Loss)

Segment net sales as a percentage of

consolidated amounts

Segment Profit (Loss) as a percentage of

Segment Loss as a percentage of

consolidated amounts

4 unchanged sentences

Net sales for the current period

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.

The increase in net sales for the Americas Segment from the prior period to the current period was primarily attributable to higher sales volumes.

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

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

The change in Segment 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 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.

Increase in underlying unit margins

Segment Loss for the current period

Segment Loss for the Americas Segment was relatively unchanged from the prior period to the current period as higher conversion margins were offset by inflationary pressures.

Brazil Segment

1 unchanged sentence

For the Three Months Ended

September 29, 2024

October 1, 2023

December 29, 2024

December 31, 2023

Cost of sales

18 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 (i) higher conversion margins and (ii) an increase in sales volumes discussed above, partially offset by unfavorable foreign currency translation effects.

The increase in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to (i) improved underlying margins from higher selling prices and (ii) an increase in sales volumes as 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

September 29, 2024

October 1, 2023

December 29, 2024

December 31, 2023

Cost of sales

9 unchanged sentences

Increase in sales volumes

Favorable foreign currency translation effects

Unfavorable foreign currency translation effects

Net sales for the current period

The decrease in net sales for the Asia Segment from the prior period to the current period was primarily attributable to 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 decrease in net sales for the Asia Segment from the prior period to the current period was primarily attributable to the changes in sales volumes related to customer-specific programs, which were partially offset by an overall improvement in sales volumes compared to the prior period despite continued weak global demand, particularly for apparel.

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

4 unchanged sentences

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.

Six Months Ended December 29, 2024 Compared to Six Months Ended December 31, 2023

Consolidated Overview

The below tables provide:

• the components of net loss and the percentage increase or decrease over the prior six-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 29, 2024

December 31, 2023

Cost of sales

Provision for bad debts

Gain on sale of assets

Restructuring costs

Other operating expense, net

Operating loss

Interest expense, net

Equity in loss (earnings) of unconsolidated affiliates

Loss before income taxes

Provision (benefit) 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 Six Months Ended

December 29, 2024

December 31, 2023

Interest expense, net

Provision (benefit) for income taxes

Depreciation and amortization expense (1)

Gain on sale of assets (2)

Loss on joint venture dissolution (3)

Severance (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 2025, UNIFI recorded a gain of $4,296 related to the sale of a warehouse located in Yadkinville, North Carolina.

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

(4) In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with the Profitability Improvement Plan in the U.S.

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

The tables below set forth reconciliations of (i) Loss before income taxes (“Pre-tax Loss”), (ii) Provision (benefit) for income taxes (“Tax Impact”), (iii) Net Loss to Adjusted Net Loss, and (iv) Diluted EPS to Adjusted EPS.

For the Six Months Ended December 29, 2024

For the Six Months Ended December 31, 2023

Gain on sale of assets (1)

Loss on joint venture dissolution (2)

Severance (3)

Adjusted results

Weighted average common shares outstanding

(1) In the second quarter of fiscal 2025, UNIFI recorded a gain of $4,296 related to the sale of a warehouse located in Yadkinville, North Carolina.

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

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

(3) In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with the Profitability Improvement Plan in the U.S.

Consolidated net sales for the current six-month period increased by $10,491, or 3.8%, and consolidated sales volumes increased 6.9%, compared to the prior six-month period.

Net sales in the current six-month 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 3.1% which partially offset the volume increase.

REPREVE ® Fiber products for the current six-month period comprised 31%, or $88,014, of consolidated net sales, compared to 32%, or $88,186, for the prior six-month period.

Gross profit for the current six-month period increased to $9,992 from $1,061 in the prior six-month period.

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

• 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) higher selling prices, (ii) higher sales volumes from market share gains, and (iii) higher conversion margins, which were partially offset by an unfavorable foreign currency translation impact.

• For the Asia Segment, gross profit decreased primarily due to lower conversion margins from an unfavorable change in sales mix in a weak demand environment.

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

Provision for Bad Debts

The current six-month period provision reflects no material activity, while the prior six-month period provision reflected an increase for a specifically identified customer balance originating in the U.S.

fiber market.

Gain on Sale of Assets

In the second quarter of fiscal 2025, UNIFI recorded a gain of $4,296 related to the sale of a warehouse located in Yadkinville, North Carolina.

Restructuring Costs

Restructuring costs for the prior six-month period consisted of (i) a loss of $2,750 for the dissolution of a nylon joint venture and (ii) severance charges of $2,351 in connection with the Profitability Improvement Plan in the U.S.

Other Operating Expense, Net

Other operating expense, net for the current six-month period and the prior six-month period include foreign currency transaction losses of $268 and $430, respectively, with no other meaningful activity.

Interest Expense, Net

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

Equity in Loss (Earnings) of Unconsolidated Affiliates

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

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

For the Six Months Ended

December 29, 2024

December 31, 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 mix of income by jurisdiction;

changes in deferred tax valuation allowances;

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 decrease in the effective tax rate from the prior six-month period to the current six-month period is primarily attributable to less losses in the U.S.

in the current six-month period, as well as a decrease in valuation allowances on deferred tax asset balances adjusted in response to the IRS audit of tax years 2014 through 2019, which was concluded during the prior six-month period.

The improvement in net loss was primarily attributable to (i) increased gross profit, (ii) lower bad debt expense, (iii) a gain on sale of assets, and (iv) no restructuring costs in the current period, partially offset by (a) higher interest expense, net, (b) higher income tax expense, (c) higher SG&A costs, and (d) lower earnings from unconsolidated affiliates.

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

Adjusted EBITDA and Adjusted EPS increased primarily due to (i) higher gross profit and (ii) lower bad debt expense, partially offset by (a) higher SG&A costs and (b) lower earnings from unconsolidated affiliates.

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.

Americas Segment

The components of Segment Profit (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 29, 2024

December 31, 2023

Cost of sales

Depreciation expense

Segment Profit (Loss)

Segment net sales as a percentage of

consolidated amounts

Segment Profit (Loss) 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

Increase in sales volumes

Change in average selling price and sales mix

Net sales for the current six-month period

The increase in net sales for the Americas Segment from the prior six-month period to the current six-month 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 (Loss) for the Americas Segment was as follows:

Segment Loss for the prior six-month period

Change in underlying unit margins and sales mix

Change in sales volumes

Segment Profit for the current six-month period

The increase in Segment Profit for the Americas Segment from the prior six-month period to the current six-month period was primarily attributable to higher margins 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.

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 29, 2024

December 31, 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 six-month period

Increase in average selling price and change in sales mix

Increase in sales volumes

Unfavorable foreign currency translation effects

Net sales for the current six-month period

The increase in net sales for the Brazil Segment from the prior six-month period to the current six-month 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:

Segment Profit for the prior six-month period

Increase in underlying unit margins

Increase in sales volumes

Unfavorable foreign currency translation effects

Segment Profit for the current six-month period

The increase in Segment Profit for the Brazil Segment from the prior six-month period to the current six-month 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.

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 29, 2024

December 31, 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 six-month period

Change in average selling price and sales mix

Increase in sales volumes

Favorable foreign currency translation effects

Net sales for the current six-month period

The decrease in net sales for the Asia Segment from the prior six-month period to the current six-month period was primarily attributable to the changes in sales volumes related to customer-specific programs, partially offset by (a) an overall increase in sales volumes compared to the prior six-month 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 six-month period

Change in underlying unit margins and sales mix

Increase in sales volumes

Favorable foreign currency translation effects

Segment Profit for the current six-month period

The decrease in Segment Profit for the Asia Segment from the prior six-month period to the current six-month 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 overall increase in sales volumes and (b) favorable foreign currency translation effects.

Liquidity and Capital Resources

1 unchanged sentence

Further discussion and analysis of liquidity and capital resources follow.

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.

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.

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

For the current six-month period, cash used by operations was $15,004 and, at December 29, 2024, availability under the ABL Revolver and 2024 Facility was $26,387 and $22,546, respectively.

As of December 29, 2024, all of UNIFI’s $135,203 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 September 29, 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 December 29, 2024 for domestic operations compared to foreign operations:

Cash and cash equivalents

Borrowings available under financing arrangements

Potential borrowings available under financing arrangements

Trigger level under ABL Revolver

Available Liquidity

Working capital

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.

Borrowings available under financing arrangements are generally collateralized by receivables and inventory owned in the U.S., plus cash equivalents pledged by one of the members of UNIFI’s Board of Directors, and generally constrained by the fixed charge coverage ratio and trigger level prescribed in the 2022 Credit Agreement.

Accordingly, “Available Liquidity” includes consideration for the trigger level that currently constrains our borrowing ability until a fixed charge coverage ratio of 1.05 to 1.00 is achieved.

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.

On January 2, 2025, UNIFI borrowed $22,000 against the 2024 Facility and used the proceeds to reduce the outstanding ABL Revolver balance.

There was no impact to debt principal from these transactions.

Liquidity Considerations

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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 September 29, 2024:

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

The following outlines the attributes relating to our credit facilities as of December 29, 2024:

• UNIFI was in compliance with all applicable financial covenants in the 2022 Credit Agreement and 2024 Facility;

• no amounts had been borrowed against the 2024 Facility as of December 29, 2024;

• availability under the 2024 Facility was $22,546 as of December 29, 2024;

• excess availability before the Trigger Level (as defined in the 2022 Credit Agreement) under the ABL Revolver was $8,727;

• the Trigger Level was $17,890;

• the Trigger Level under the ABL Revolver was $17,660;

• $0 of standby letters of credit were outstanding.

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%.

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

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 and 2024 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 within the 2022 Credit Agreement, and other factors.

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UNIFI has met its historical liquidity requirements for working capital, capital expenditures, debt service requirements, and other operating needs from its cash flows from operations and available borrowings.

UNIFI believes that its existing cash balances, cash provided by operating activities, and credit facility will enable UNIFI to meet its foreseeable liquidity requirements.

UNIFI believes that its existing cash balances, cash provided by operating activities, and credit facilities will enable UNIFI to meet its foreseeable liquidity requirements.

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:

September 29, 2024

December 29, 2024

June 30, 2024

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cash and cash equivalents

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

The increase in Net Debt primarily reflects the use of operating cash during fiscal 2025 and capital expenditures during the current six-month period.

The increase was partially offset by the application of proceeds to the ABL Revolver for the warehouse sale in October 2024.

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:

September 29, 2024

December 29, 2024

June 30, 2024

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Adjusted Working Capital

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.

Adjusted Working Capital decreased $1,228 from June 30, 2024 to December 29, 2024.

The decrease in Adjusted Working Capital was primarily attributable to a decrease in receivables, net primarily due to a decrease in sales and the timing of cash receipts, which was mostly offset by a decrease in accounts payable primarily due to the normal scheduled operational shutdowns and the decline in sales due to seasonality.

Operating Cash Flows

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

For the Six Months Ended

December 29, 2024

December 31, 2023

Equity in earnings of unconsolidated affiliates

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Non-cash compensation expense

Gain on sale of assets

Deferred income taxes

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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.

The decrease in operating cash flows was due to the relative changes in working capital including receivables, net, inventories, and accounts payable and other current liabilities, partially offset by an improvement in earnings in the current six-month period compared to the prior six-month period.

Investing Cash Flows

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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.

and El Salvador by 18 months.

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

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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