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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 27, 2020

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission File Number: 1-10542

 

UNIFI, INC.

(Exact name of registrant as specified in its charter)

 

 

New York

 

11-2165495

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

7201 West Friendly Avenue

 

 

Greensboro, North Carolina  

 

27410

(Address of principal executive offices)

 

(Zip Code)

(336) 294-4410

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.10 per share

UFI

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

As of January 28, 2021, there were 18,480,750 shares of the registrant’s common stock, par value $0.10 per share, outstanding.

 

 

 


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that relate to our plans, objectives, estimates and goals.  Statements expressing expectations regarding our future, or projections or estimates relating to products, sales, revenues, expenditures, costs, strategies, initiatives or earnings, are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on management’s beliefs, assumptions and expectations about our future performance, considering the information currently available to management.  The words “believe,” “may,” “could,” “will,” “should,” “would,” “anticipate,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek,” “strive” and words of similar import, or the negative of such words, identify or signal the presence of forward-looking statements.  These statements are not statements of historical fact; and they involve risks and uncertainties that may cause our actual results, performance or financial condition to differ materially from the expectations of future results, performance or financial condition that we express or imply in any forward-looking statement.  Factors that could contribute to such differences include, but are not limited to:

 

the competitive nature of the textile industry and the impact of global competition;

 

changes in the trade regulatory environment and governmental policies and legislation;

 

the availability, sourcing and pricing of raw materials;

 

general domestic and international economic and industry conditions in markets where the Company competes, including economic and political factors over which the Company has no control;

 

changes in consumer spending, customer preferences, fashion trends and end uses for products;

 

the financial condition of the Company’s customers;

 

the loss of a significant customer or brand partner;

 

natural disasters, industrial accidents, power or water shortages, extreme weather conditions and other disruptions at one of our facilities;

 

the disruption of operations, global demand, or financial performance as a result of catastrophic or extraordinary events, including epidemics or pandemics such as the recent strain of coronavirus (“COVID-19”);

 

the success of the Company’s strategic business initiatives;

 

the volatility of financial and credit markets;

 

the ability to service indebtedness and fund capital expenditures and strategic business initiatives;

 

the availability of and access to credit on reasonable terms;

 

changes in foreign currency exchange, interest and inflation rates;

 

fluctuations in production costs;

 

the ability to protect intellectual property;

 

the strength and reputation of our brands;

 

employee relations;

 

the ability to attract, retain and motivate key employees;

 

the impact of environmental, health and safety regulations;

 

the impact of tax laws, the judicial or administrative interpretations of tax laws and/or changes in such laws or interpretations; and

 

other factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2020 or in the Company’s other periodic reports and information filed with the Securities and Exchange Commission (“SEC”).

All such factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control.  New factors emerge from time to time, and it is not possible for management to predict all such factors or to assess the impact of each such factor on the Company.  Any forward-looking statement speaks only as of the date on which such statement is made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, except as may be required by federal securities laws.

In light of all the above considerations, we reiterate that forward-looking statements are not guarantees of future performance, and we caution you not to rely on them as such.

 


UNIFI, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 27, 2020

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Page

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of December 27, 2020 and June 28, 2020

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the Three Months and Six Months Ended December 27, 2020 and December 29, 2019

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended December 27, 2020 and December 29, 2019

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months and Six Months Ended December 27, 2020 and December 29, 2019

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 27, 2020 and December 29, 2019

 

5

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

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

 

17

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

34

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

35

 

PART II—OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

36

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

36

 

 

 

 

 

Item 6.

 

Exhibits

 

36

 

 

 

 

 

 

 

Signatures

 

37

 

 

 

 

 

 

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

December 27, 2020

 

 

June 28, 2020

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

83,321

 

 

$

75,267

 

Receivables, net

 

 

83,124

 

 

 

53,726

 

Inventories

 

 

111,489

 

 

 

109,704

 

Income taxes receivable

 

 

9,283

 

 

 

4,033

 

Other current assets

 

 

10,282

 

 

 

11,763

 

Total current assets

 

 

297,499

 

 

 

254,493

 

Property, plant and equipment, net

 

 

199,884

 

 

 

204,246

 

Operating lease assets

 

 

8,082

 

 

 

8,940

 

Deferred income taxes

 

 

2,425

 

 

 

2,352

 

Other non-current assets

 

 

5,108

 

 

 

4,131

 

Total assets

 

$

512,998

 

 

$

474,162

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

38,786

 

 

$

25,610

 

Accrued expenses

 

 

20,331

 

 

 

13,689

 

Income taxes payable

 

 

6,467

 

 

 

349

 

Current operating lease liabilities

 

 

1,685

 

 

 

1,783

 

Current portion of long-term debt

 

 

13,683

 

 

 

13,563

 

Total current liabilities

 

 

80,952

 

 

 

54,994

 

Long-term debt

 

 

78,621

 

 

 

84,607

 

Non-current operating lease liabilities

 

 

6,538

 

 

 

7,251

 

Other long-term liabilities

 

 

11,010

 

 

 

8,606

 

Deferred income taxes

 

 

1,004

 

 

 

2,549

 

Total liabilities

 

 

178,125

 

 

 

158,007

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.10 par value (500,000,000 shares authorized; 18,480,750 and 18,446,436

   shares issued and outstanding as of December 27, 2020 and June 28, 2020, respectively)

 

 

1,848

 

 

 

1,845

 

Capital in excess of par value

 

 

63,972

 

 

 

62,392

 

Retained earnings

 

 

326,620

 

 

 

315,724

 

Accumulated other comprehensive loss

 

 

(57,567

)

 

 

(63,806

)

Total shareholders’ equity

 

 

334,873

 

 

 

316,155

 

Total liabilities and shareholders’ equity

 

$

512,998

 

 

$

474,162

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

1


CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

December 27, 2020

 

 

December 29, 2019

 

Net sales

 

$

162,776

 

 

$

169,511

 

 

$

304,281

 

 

$

349,460

 

Cost of sales

 

 

136,842

 

 

 

153,846

 

 

 

263,786

 

 

 

316,352

 

Gross profit

 

 

25,934

 

 

 

15,665

 

 

 

40,495

 

 

 

33,108

 

Selling, general and administrative

  expenses

 

 

12,625

 

 

 

12,508

 

 

 

23,989

 

 

 

23,488

 

Benefit for bad debts

 

 

(259

)

 

 

(258

)

 

 

(1,146

)

 

 

(249

)

Other operating expense, net

 

 

476

 

 

 

854

 

 

 

1,654

 

 

 

962

 

Operating income

 

 

13,092

 

 

 

2,561

 

 

 

15,998

 

 

 

8,907

 

Interest income

 

 

(187

)

 

 

(212

)

 

 

(312

)

 

 

(422

)

Interest expense

 

 

833

 

 

 

1,101

 

 

 

1,704

 

 

 

2,358

 

Equity in (earnings) loss of

  unconsolidated affiliates

 

 

(130

)

 

 

756

 

 

 

(223

)

 

 

1,622

 

Income before income taxes

 

 

12,576

 

 

 

916

 

 

 

14,829

 

 

 

5,349

 

Provision for income taxes

 

 

5,112

 

 

 

507

 

 

 

3,933

 

 

 

1,228

 

Net income

 

$

7,464

 

 

$

409

 

 

$

10,896

 

 

$

4,121

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

Basic

 

$

0.40

 

 

$

0.02

 

 

$

0.59

 

 

$

0.22

 

Diluted

 

$

0.40

 

 

$

0.02

 

 

$

0.58

 

 

$

0.22

 

 

See accompanying notes to condensed consolidated financial statements.

 


2


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

December 27, 2020

 

 

December 29, 2019

 

Net income

 

$

7,464

 

 

$

409

 

 

$

10,896

 

 

$

4,121

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

5,912

 

 

 

3,248

 

 

 

5,730

 

 

 

(3,080

)

Changes in interest rate swaps, net of tax of

   $78, $0, $156 and $0, respectively

 

 

255

 

 

 

289

 

 

 

509

 

 

 

(39

)

Other comprehensive income (loss), net

 

 

6,167

 

 

 

3,537

 

 

 

6,239

 

 

 

(3,119

)

Comprehensive income

 

$

13,631

 

 

$

3,946

 

 

$

17,135

 

 

$

1,002

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


 

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(In thousands)

 

 

 

Shares

 

 

Common Stock

 

 

Capital in Excess of Par Value

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Loss

 

 

Total Shareholders’ Equity

 

Balance at September 27, 2020

 

 

18,447

 

 

$

1,845

 

 

$

62,810

 

 

$

319,156

 

 

$

(63,734

)

 

$

320,077

 

Options exercised

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of restricted stock units

 

 

36

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,223

 

 

 

 

 

 

 

 

 

1,223

 

Common stock withheld in satisfaction of tax

  withholding obligations under net share settle

  transactions

 

 

(3

)

 

 

(1

)

 

 

(57

)

 

 

 

 

 

 

 

 

(58

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,167

 

 

 

6,167

 

Net income

 

 

 

 

 

 

 

 

 

 

 

7,464

 

 

 

 

 

 

7,464

 

Balance at December 27, 2020

 

 

18,481

 

 

$

1,848

 

 

$

63,972

 

 

$

326,620

 

 

$

(57,567

)

 

$

334,873

 

 

 

 

Shares

 

 

Common Stock

 

 

Capital in Excess of Par Value

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Loss

 

 

Total Shareholders’ Equity

 

Balance at June 28, 2020

 

 

18,446

 

 

$

1,845

 

 

$

62,392

 

 

$

315,724

 

 

$

(63,806

)

 

$

316,155

 

Options exercised

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of restricted stock units

 

 

38

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,648

 

 

 

 

 

 

 

 

 

1,648

 

Common stock withheld in satisfaction of tax

  withholding obligations under net share settle

  transactions

 

 

(4

)

 

 

(1

)

 

 

(64

)

 

 

 

 

 

 

 

 

(65

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,239

 

 

 

6,239

 

Net income

 

 

 

 

 

 

 

 

 

 

 

10,896

 

 

 

 

 

 

10,896

 

Balance at December 27, 2020

 

 

18,481

 

 

$

1,848

 

 

$

63,972

 

 

$

326,620

 

 

$

(57,567

)

 

$

334,873

 

 

 

 

Shares

 

 

Common Stock

 

 

Capital in Excess of Par Value

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Loss

 

 

Total Shareholders’ Equity

 

Balance at September 29, 2019

 

 

18,490

 

 

$

1,849

 

 

$

59,663

 

 

$

378,380

 

 

$

(49,885

)

 

$

390,007

 

Options exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of restricted stock units

 

 

16

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

4

 

 

 

1

 

 

 

1,581

 

 

 

 

 

 

 

 

 

1,582

 

Common stock withheld in satisfaction of tax

  withholding obligations under net share settle

  transactions

 

 

(5

)

 

 

(1

)

 

 

(55

)

 

 

 

 

 

 

 

 

(56

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,537

 

 

 

3,537

 

Net income

 

 

 

 

 

 

 

 

 

 

 

409

 

 

 

 

 

 

409

 

Balance at December 29, 2019

 

 

18,505

 

 

$

1,851

 

 

$

61,187

 

 

$

378,789

 

 

$

(46,348

)

 

$

395,479

 

 

 

 

Shares

 

 

Common Stock

 

 

Capital in Excess of Par Value

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Loss

 

 

Total Shareholders’ Equity

 

Balance at June 30, 2019

 

 

18,462

 

 

$

1,846

 

 

$

59,560

 

 

$

374,668

 

 

$

(43,229

)

 

$

392,845

 

Options exercised

 

 

10

 

 

 

1

 

 

 

28

 

 

 

 

 

 

 

 

 

29

 

Conversion of restricted stock units

 

 

34

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

4

 

 

 

1

 

 

 

1,702

 

 

 

 

 

 

 

 

 

1,703

 

Common stock withheld in satisfaction of tax

  withholding obligations under net share settle

  transactions

 

 

(5

)

 

 

(1

)

 

 

(99

)

 

 

 

 

 

 

 

 

(100

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,119

)

 

 

(3,119

)

Net income

 

 

 

 

 

 

 

 

 

 

 

4,121

 

 

 

 

 

 

4,121

 

Balance at December 29, 2019

 

 

18,505

 

 

$

1,851

 

 

$

61,187

 

 

$

378,789

 

 

$

(46,348

)

 

$

395,479

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

4


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

Cash and cash equivalents at beginning of period

 

$

75,267

 

 

$

22,228

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

 

10,896

 

 

 

4,121

 

Adjustments to reconcile net income to net cash

   provided by operating activities:

 

 

 

 

 

 

 

 

Equity in (earnings) loss of unconsolidated affiliates

 

 

(223

)

 

 

1,622

 

Distributions received from unconsolidated affiliates

 

 

 

 

 

10,437

 

Depreciation and amortization expense

 

 

12,187

 

 

 

11,610

 

Non-cash compensation expense

 

 

1,816

 

 

 

1,837

 

Deferred income taxes

 

 

(1,700

)

 

 

(878

)

Other, net

 

 

(25

)

 

 

(64

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables, net

 

 

(28,558

)

 

 

9,873

 

Inventories

 

 

311

 

 

 

(1,330

)

Other current assets

 

 

1,862

 

 

 

(2,159

)

Income taxes

 

 

890

 

 

 

(249

)

Accounts payable and accrued expenses

 

 

18,830

 

 

 

(6,298

)

Other, net

 

 

3,440

 

 

 

113

 

Net cash provided by operating activities

 

 

19,726

 

 

 

28,635

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(6,035

)

 

 

(8,335

)

Purchase of intangible asset

 

 

(1,088

)

 

 

 

Other, net

 

 

163

 

 

 

60

 

Net cash used by investing activities

 

 

(6,960

)

 

 

(8,275

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from ABL Revolver

 

 

 

 

 

41,100

 

Payments on ABL Revolver

 

 

 

 

 

(38,000

)

Payments on ABL Term Loan

 

 

(5,000

)

 

 

(5,000

)

Payments on finance lease obligations

 

 

(1,725

)

 

 

(3,085

)

Other, net

 

 

(64

)

 

 

(70

)

Net cash used by financing activities

 

 

(6,789

)

 

 

(5,055

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

2,077

 

 

 

(323

)

Net increase in cash and cash equivalents

 

 

8,054

 

 

 

14,982

 

Cash and cash equivalents at end of period

 

$

83,321

 

 

$

37,210

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

1.  Background

Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, “UNIFI,” the “Company,” “we,” “us” or “our”), is a multinational company that manufactures and sells innovative recycled and synthetic products, made from polyester and nylon, primarily to other yarn manufacturers and knitters and weavers (UNIFI’s direct customers) that produce yarn and/or fabric for the apparel, hosiery, home furnishings, automotive, industrial and other end-use markets (UNIFI’s indirect customers).  We refer to these indirect customers as “brand partners.” Polyester products include partially oriented yarn (“POY”), textured, solution and package dyed, twisted, beamed and draw wound yarns, and each is available in virgin or recycled varieties. Recycled solutions, made from both pre-consumer and post-consumer waste, include plastic bottle flake (“Flake”), polyester polymer beads (“Chip”) and staple fiber.  Nylon products include virgin or recycled textured, solution dyed and spandex covered yarns.

UNIFI maintains one of the textile industry’s most comprehensive product offerings that include a range of specialized, value-added and commodity solutions, with principal geographic markets in the Americas, Asia and Europe. UNIFI has direct manufacturing operations in four countries and participates in joint ventures with operations in Israel and the United States (“U.S.”).

 

2.  Basis of Presentation; Condensed Notes

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) for interim financial information. As contemplated by the instructions of the SEC to Form 10-Q, the following notes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements.  Reference should be made to UNIFI’s year-end audited consolidated financial statements and related notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended June 28, 2020 (the “2020 Form 10-K”).

The financial information included in this report has been prepared by UNIFI, without audit.  In the opinion of management, all adjustments, which consist of normal, recurring adjustments, considered necessary for a fair statement of the results for interim periods have been included.  Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year.  The preparation of financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the amounts reported and certain financial statement disclosures.  Actual results may vary from these estimates.

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

The fiscal quarter for each of Unifi, Inc., its primary domestic operating subsidiaries and its subsidiary in El Salvador ended on December 27, 2020. Unifi, Inc.’s remaining material operating subsidiaries’ fiscal quarter ended on December 31, 2020. There were no significant transactions or events that occurred between Unifi, Inc.’s fiscal quarter end and such wholly owned subsidiaries’ subsequent fiscal quarter end. The three-month periods ended December 27, 2020 and December 29, 2019 both consisted of 13 weeks. The six-month periods ended December 27, 2020 and December 29, 2019 both consisted of 26 weeks.  

 

3.  Recent Accounting Pronouncements

Recently Adopted

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses, with an effective date consistent with UNIFI’s fiscal 2021. The new guidance requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected and eliminates the probable initial recognition threshold to instead reflect an entity’s current estimate of all expected credit losses. UNIFI adopted the ASU in fiscal 2021 using the modified retrospective approach and the adoption did not have a material impact to UNIFI’s financial position or results of operations.

Based on UNIFI’s review of ASUs issued since the filing of the 2020 Form 10-K, there have been no other newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a material impact on UNIFI’s consolidated financial statements.

 

4.  Revenue Recognition

The following tables present disaggregated revenues for UNIFI:

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

December 27, 2020

 

 

December 29, 2019

 

Third-party manufacturer

 

$

160,146

 

 

$

167,537

 

 

$

298,987

 

 

$

345,557

 

Service

 

 

2,630

 

 

 

1,974

 

 

 

5,294

 

 

 

3,903

 

Net sales

 

$

162,776

 

 

$

169,511

 

 

$

304,281

 

 

$

349,460

 

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

December 27, 2020

 

 

December 29, 2019

 

REPREVE® Fiber

 

$

60,660

 

 

$

56,893

 

 

$

110,518

 

 

$

113,378

 

Non-REPREVE® Fiber

 

 

102,116

 

 

 

112,618

 

 

 

193,763

 

 

 

236,082

 

Total

 

$

162,776

 

 

$

169,511

 

 

$

304,281

 

 

$

349,460

 

6


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

Third-Party Manufacturer

Third-party manufacturer revenue is primarily generated through sales to direct customers. Such sales represent satisfaction of UNIFI’s performance obligations required by the associated revenue contracts. Each of UNIFI’s reportable segments derives revenue from sales to third-party manufacturers.

Service Revenue

Service revenue is primarily generated, as services are rendered, through fulfillment of toll manufacturing of textile products or transportation services governed by written agreements. Such toll manufacturing and transportation services represent satisfaction of UNIFI’s performance obligations required by the associated revenue contracts. The Polyester Segment derives service revenue for toll manufacturing and the All Other category derives service revenue for transportation services.

REPREVE® Fiber

REPREVE® Fiber represents UNIFI’s platform of recycled polyester and recycled nylon filament and staple fiber products in either base recycled form or with added technologies.

Variable Consideration

Volume-based incentives

Volume-based incentives involve rebates or refunds of cash that are redeemable if the customer satisfies certain order volume thresholds during a defined time period. Under these incentive programs, UNIFI estimates the anticipated rebate to be paid and allocates a portion of the estimated cost of the rebate to each underlying sales transaction with the customer.

Product claims

UNIFI generally offers customers claims support or remuneration for defective products. UNIFI estimates the amount of its product sales that may be claimed as defective by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized.

For all variable consideration, where appropriate, UNIFI estimates the amount using the expected value method, which takes into consideration historical experience, current contractual requirements, specific known market events and forecasted customer buying and payment patterns. Overall, these reserves reflect UNIFI’s best estimates of the amount of consideration to which the customer is entitled based on the terms of the contracts.

 

5.  Receivables, Net

Receivables, net consists of the following:

 

 

 

December 27, 2020

 

 

June 28, 2020

 

Customer receivables

 

$

69,796

 

 

$

53,307

 

Allowance for uncollectible accounts

 

 

(2,675

)

 

 

(3,796

)

Reserves for quality claims

 

 

(822

)

 

 

(928

)

Net customer receivables

 

 

66,299

 

 

 

48,583

 

Other receivables

 

 

16,825

 

 

 

5,143

 

Total receivables, net

 

$

83,124

 

 

$

53,726

 

 

Other receivables includes $14,532 of banker’s acceptance notes (“BANs”) as of December 27, 2020 in connection with the settlement of customer receivables generated from trade activity in the Asia Segment. The BANs are redeemable upon maturity from the drawing financial institutions, or earlier at a discount. BANs of $1,596 previously reflected in customer receivables as of June 28, 2020 have been reclassified to other receivables to conform to the current presentation.

 

6.  Inventories

Inventories consists of the following:

 

 

 

December 27, 2020

 

 

June 28, 2020

 

Raw materials

 

$

42,636

 

 

$

42,758

 

Supplies

 

 

9,561

 

 

 

9,294

 

Work in process

 

 

6,432

 

 

 

6,267

 

Finished goods

 

 

57,061

 

 

 

55,609

 

Gross inventories

 

 

115,690

 

 

 

113,928

 

Net realizable value adjustment

 

 

(4,201

)

 

 

(4,224

)

Total inventories

 

$

111,489

 

 

$

109,704

 

 

7


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

7.  Other Current Assets

 

Other current assets consists of the following:

 

 

 

December 27, 2020

 

 

June 28, 2020

 

Vendor deposits

 

$

4,947

 

 

$

2,349

 

Prepaid expenses

 

 

2,392

 

 

 

1,857

 

Value-added taxes receivable

 

 

2,044

 

 

 

2,604

 

Contract assets

 

 

899

 

 

 

4,953

 

Total other current assets

 

$

10,282

 

 

$

11,763

 

 

8.  Property, Plant and Equipment, Net

Property, plant and equipment (“PP&E”), net consists of the following:

 

 

 

December 27, 2020

 

 

June 28, 2020

 

Land

 

$

3,176

 

 

$

3,154

 

Land improvements

 

 

16,371

 

 

 

16,344

 

Buildings and improvements

 

 

159,458

 

 

 

158,025

 

Assets under finance leases

 

 

22,000

 

 

 

29,857

 

Machinery and equipment

 

 

611,024

 

 

 

602,867

 

Computers, software and office equipment

 

 

23,216

 

 

 

22,677

 

Transportation equipment

 

 

10,447

 

 

 

7,806

 

Construction in progress

 

 

8,216

 

 

 

7,582

 

Gross PP&E

 

 

853,908

 

 

 

848,312

 

Less: accumulated depreciation

 

 

(649,064

)

 

 

(636,221

)

Less: accumulated amortization – finance leases

 

 

(4,960

)

 

 

(7,845

)

Total PP&E, net

 

$

199,884

 

 

$

204,246

 

 

9.  Accrued Expenses

Accrued expenses consists of the following:

 

 

 

December 27, 2020

 

 

June 28, 2020

 

Payroll and fringe benefits

 

$

6,157

 

 

$

7,259

 

Incentive compensation

 

 

6,125

 

 

 

777

 

Deferred revenue

 

 

3,413

 

 

 

1,279

 

Severance

 

 

879

 

 

 

1,083

 

Other

 

 

3,757

 

 

 

3,291

 

Total accrued expenses

 

$

20,331

 

 

$

13,689

 

 

10.  Long-Term Debt

Debt Obligations

The following table presents the total balances outstanding for UNIFI’s debt obligations, their scheduled maturity dates and the weighted average interest rates for borrowings as well as the applicable current portion of long-term debt:

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

Scheduled

 

Interest Rate as of

 

 

Principal Amounts as of

 

 

 

Maturity Date

 

December 27, 2020

 

 

December 27, 2020

 

 

June 28, 2020

 

ABL Revolver

 

December 2023

 

0.0%

 

 

$

 

 

$

 

ABL Term Loan (1)

 

December 2023

 

3.3%

 

 

 

82,500

 

 

 

87,500

 

Finance lease obligations

 

(2)

 

3.6%

 

 

 

10,396

 

 

 

11,381

 

Total debt

 

 

 

 

 

 

 

 

92,896

 

 

 

98,881

 

Current ABL Term Loan

 

 

 

 

 

 

 

 

(10,000

)

 

 

(10,000

)

Current portion of finance lease obligations

 

 

 

 

 

 

 

 

(3,683

)

 

 

(3,563

)

Unamortized debt issuance costs

 

 

 

 

 

 

 

 

(592

)

 

 

(711

)

Total long-term debt

 

 

 

 

 

 

 

$

78,621

 

 

$

84,607

 

 

(1)

Includes the effects of interest rate swaps.

(2)

Scheduled maturity dates for finance lease obligations range from May 2022 to November 2027.

On December 18, 2018, Unifi, Inc. and certain of its subsidiaries entered into a Third Amendment to Amended and Restated Credit Agreement and Second Amendment to Amended and Restated Guaranty and Security Agreement (the “2018 Amendment”).  The 2018 Amendment amended the

8


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

Amended and Restated Credit Agreement, dated as of March 26, 2015, by and among Unifi, Inc. and a syndicate of lenders, as previously amended (together with all previous and subsequent amendments, the “Credit Agreement”).  The Credit Agreement provides for a $200,000 senior secured credit facility (the “ABL Facility”), including a $100,000 revolving credit facility (the “ABL Revolver”) and a term loan that can be reset up to a maximum amount of $100,000, once per fiscal year, if certain conditions are met (the “ABL Term Loan”). The ABL Facility has a maturity date of December 18, 2023.

ABL Facility borrowings bear interest at LIBOR plus an applicable margin of 1.25% to 1.75%, or the Base Rate (as defined in the Credit Agreement) plus an applicable margin of 0.25% to 0.75%, with interest currently being paid on a monthly basis. As of December 27, 2020 and June 28, 2020, ABL Facility borrowings carried interest at LIBOR plus 1.50%.

UNIFI currently maintains three interest rate swaps that fix LIBOR at approximately 1.9% on $75,000 of variable-rate debt. Such swaps are scheduled to terminate in May 2022.

Scheduled Debt Maturities

The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the remainder of fiscal 2021, the following four fiscal years and thereafter:

 

 

 

Fiscal 2021

 

 

Fiscal 2022

 

 

Fiscal 2023

 

 

Fiscal 2024

 

 

Fiscal 2025

 

 

Thereafter

 

ABL Revolver

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

ABL Term Loan

 

 

5,000

 

 

 

10,000

 

 

 

10,000

 

 

 

57,500

 

 

 

 

 

 

 

Finance lease obligations

 

 

1,921

 

 

 

3,545

 

 

 

1,257

 

 

 

1,301

 

 

 

1,195

 

 

 

1,177

 

Total

 

$

6,921

 

 

$

13,545

 

 

$

11,257

 

 

$

58,801

 

 

$

1,195

 

 

$

1,177

 

 

11.  Other Long-Term Liabilities

Other long-term liabilities consists of the following:

 

 

 

December 27, 2020

 

 

June 28, 2020

 

Supplemental post-employment plan

 

$

3,022

 

 

$

3,019

 

Uncertain tax positions

 

 

2,778

 

 

 

1,112

 

Interest rate swaps

 

 

1,886

 

 

 

2,551

 

Other

 

 

3,324

 

 

 

1,924

 

Total other long-term liabilities

 

$

11,010

 

 

$

8,606

 

 

12.  Income Taxes

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

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

December 27, 2020

 

 

December 29, 2019

 

Provision for income taxes

 

$

5,112

 

 

$

507

 

 

$

3,933

 

 

$

1,228

 

Effective tax rate

 

 

40.6

%

 

 

55.3

%

 

 

26.5

%

 

 

23.0

%

U.S. Tax Law Change

On July 20, 2020, the U.S. Treasury issued and enacted final regulations related to global intangible low-tax income (“GILTI”) that allow certain U.S. taxpayers to elect to exclude foreign income that is subject to a high effective tax rate from their GILTI inclusions. The GILTI high-tax exclusion is an annual election and is retroactively available for tax years beginning after December 31, 2017. The three-month and six-month periods ended December 27, 2020 include discrete tax benefits of $359 and $5,148, respectively, related to the retroactive election.

Valuation Allowance

UNIFI regularly assesses whether it is more-likely-than-not that some portion or all of its deferred tax assets will not be realized.  UNIFI considers the scheduled reversal of taxable temporary differences, taxable income in carryback years, projected future taxable income and tax planning strategies in making this assessment.  Since UNIFI operates in multiple jurisdictions, the assessment is made on a jurisdiction-by-jurisdiction basis, taking into account the effects of local tax law.

As a result of the newly enacted GILTI regulations, and their impact on prior tax periods, UNIFI does not expect to realize the full benefit of its U.S. federal net operating loss and research credit carryforwards. The three-month and six-month periods ended December 27, 2020 include discrete tax expense of $26 and $2,153, respectively, related to the change in valuation allowance.

9


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

Income Tax Expense

 

UNIFI’s provision for income taxes for the six months ended December 27, 2020 and December 29, 2019 was calculated by applying an estimate of the annual effective tax rate for the full fiscal year to year-to-date income from ordinary activity.  Tax effects of significant and unusual, or infrequently occurring, items are excluded from the estimated annual effective tax rate calculation and recognized discretely in the interim period in which they occur.

The effective tax rate for the three months ended December 27, 2020 was higher than the U.S. federal statutory rate primarily due to current U.S. tax on GILTI. The effective tax rate for the six months ended December 27, 2020 was higher than the U.S. federal statutory rate primarily due to current U.S. tax on GILTI, the change in valuation allowance for deferred tax assets, and earnings taxed at higher rates in foreign jurisdictions. These rate impacts were partially offset by the retroactive GILTI high-tax exclusion for prior periods.

The effective tax rate for the three months ended December 29, 2019 was higher than the U.S. federal statutory rate primarily due to U.S. tax on GILTI, losses in tax jurisdictions for which no tax benefit could be recognized, foreign withholding taxes, and lower-than-expected income before income taxes. These rate impacts were partially offset by the use of foreign tax credits generated in both current and prior tax years. The effective tax rate for the six months ended December 29, 2019 was higher than the U.S. federal statutory rate primarily due to U.S. tax on GILTI, losses in tax jurisdictions for which no tax benefit could be recognized, and foreign withholding taxes. These rate impacts were partially offset by the use of foreign tax credits generated in both current and prior tax years.

Unrecognized Tax Benefits

The amount of unrecognized tax benefits for uncertain tax positions as of December 27, 2020 and June 28, 2020 was $2,855 and $1,218, respectively. Unrecognized benefits would generate a favorable impact of $1,893 on UNIFI’s effective tax rate when recognized. UNIFI does not expect material changes in unrecognized tax benefits within the next 12 months.

UNIFI regularly assesses the outcomes of both completed and ongoing examinations to ensure that its provision for income taxes is sufficient. Certain returns that remain open to examination have utilized carryforward tax attributes generated in prior tax years, including net operating losses, which could potentially be revised upon examination.

 

13.  Shareholders’ Equity

On October 31, 2018, UNIFI announced that its Board of Directors (the “Board”) approved a new share repurchase program (the “2018 SRP”) under which UNIFI is authorized to acquire up to $50,000 of its common stock. Under the 2018 SRP, purchases may be made from time to time in the open market at prevailing market prices, through private transactions or block trades. The timing and amount of repurchases will depend on market conditions, share price, applicable legal requirements and other factors. The share repurchase authorization is discretionary and has no expiration date. Repurchases, if any, are expected to be financed through cash generated from operations and borrowings under the ABL Revolver, and are subject to applicable limitations and restrictions as set forth in the ABL Facility. UNIFI may discontinue repurchases at any time that management determines additional purchases are not beneficial or advisable.

 

The following table summarizes UNIFI’s repurchases and retirements of its common stock under the 2018 SRP for the fiscal periods noted:

 

 

Total Number

of Shares

Repurchased as

Part of Publicly

Announced Plans

or Programs

 

 

Average Price

Paid per Share

 

 

Approximate Dollar

Value that May

Yet Be Repurchased

Under Publicly

Announced Plans

or Programs

 

Fiscal 2019

 

 

 

 

$

 

 

 

 

 

Fiscal 2020

 

 

84

 

 

$

23.72

 

 

 

 

 

Fiscal 2021 (through December 27, 2020)

 

 

 

 

$

 

 

 

 

 

Total

 

 

84

 

 

$

23.72

 

 

$

48,008

 

Repurchased shares are retired and have the status of authorized and unissued shares.  The cost of the repurchased shares is recorded as a reduction to common stock to the extent of the par value of the shares acquired and the remainder is allocated between capital in excess of par value and retained earnings, on a pro rata basis.

10


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

14.  Stock-Based Compensation

On October 24, 2018, the Unifi, Inc. Amended and Restated 2013 Incentive Compensation Plan (the “2018 Plan”) became effective, upon approval by shareholders at UNIFI’s annual meeting of shareholders held on October 31, 2018.  The 2018 Plan set the number of shares available for future issuance pursuant to awards granted under the 2018 Plan to 1,250 and updated certain provisions for changes to Section 162(m) of the Internal Revenue Code of 1986, as amended.

On October 29, 2020, UNIFI’s shareholders approved the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (the “2020 Plan”). The 2020 Plan set the number of shares available for future issuance pursuant to awards granted under the 2020 Plan to 850.  No additional awards can be granted under the 2018 Plan or other prior plans; however, awards outstanding under a respective prior plan remain subject to that plan’s provisions.

The following table provides information as of December 27, 2020 with respect to the number of securities remaining available for future issuance under the 2020 Plan:

Authorized under the 2020 Plan

 

 

850

 

Plus: Awards expired, forfeited or otherwise terminated unexercised

 

 

 

Less: Awards granted to employees

 

 

(75

)

Less: Awards granted to non-employee directors

 

 

 

Available for issuance under the 2020 Plan

 

 

775

 

 

Stock-based compensation units granted or issued from the 2018 Plan and/or 2020 Plan were as follows:

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

Stock options

 

 

155

 

 

 

83

 

Restricted stock units

 

 

110

 

 

 

77

 

Vested share units

 

 

 

 

 

24

 

Common stock

 

 

 

 

 

4

 

 

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

UNIFI uses derivative financial instruments such as foreign currency forward contracts or interest rate swaps to reduce its ongoing business exposures to fluctuations in foreign currency exchange rates or interest rates.  UNIFI currently maintains three interest rate swaps that fix LIBOR at approximately 1.9% on $75,000 of variable-rate debt. UNIFI does not enter into derivative contracts for speculative purposes.

The following table presents details regarding UNIFI’s hedging activities:

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

December 27, 2020

 

 

December 29, 2019

 

Interest expense

 

$

833

 

 

$

1,101

 

 

$

1,704

 

 

$

2,358

 

(Increase) decrease in fair value of interest rate

   swaps

 

 

(333

)

 

 

(289

)

 

 

(665

)

 

 

39

 

Impact of interest rate swaps to increase (decrease)

   interest expense

 

 

335

 

 

 

15

 

 

 

664

 

 

 

(48

)

 

For the six months ended December 27, 2020 and December 29, 2019, there were no significant changes to UNIFI’s assets and liabilities measured at fair value, and there were no transfers into or out of the levels of the fair value hierarchy.

 

UNIFI believes that there have been no significant changes to its credit risk profile or the interest rates available to UNIFI for debt issuances with similar terms and average maturities, and UNIFI estimates that the fair values of its debt obligations approximate the carrying amounts.  Other financial instruments include cash and cash equivalents, receivables, accounts payable and accrued expenses.  The financial statement carrying amounts of these items approximate the fair values due to their short-term nature.

 

16.  Accumulated Other Comprehensive Loss

The components of and the changes in accumulated other comprehensive loss, net of tax, as applicable, consist of the following:

 

 

Foreign

Currency

Translation

Adjustments

 

 

Changes in Interest

Rate Swaps

 

 

Accumulated

Other

Comprehensive

Loss

 

Balance at June 28, 2020

 

$

(61,848

)

 

$

(1,958

)

 

$

(63,806

)

Other comprehensive income

 

 

5,730

 

 

 

509

 

 

 

6,239

 

Balance at December 27, 2020

 

$

(56,118

)

 

$

(1,449

)

 

$

(57,567

)

11


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

 

A summary of the after-tax effects of the components of other comprehensive income (loss), net for the three-month and six-month periods ended December 27, 2020 and December 29, 2019 is included in the accompanying condensed consolidated statements of comprehensive income.

 

17.  Earnings Per Share

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

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

December 27, 2020

 

 

December 29, 2019

 

Net income

 

$

7,464

 

 

$

409

 

 

$

10,896

 

 

$

4,121

 

Basic weighted average shares

 

 

18,465

 

 

 

18,499

 

 

 

18,456

 

 

 

18,490

 

Net potential common share equivalents

 

 

267

 

 

 

273

 

 

 

273

 

 

 

255

 

Diluted weighted average shares

 

 

18,732

 

 

 

18,772

 

 

 

18,729

 

 

 

18,745

 

Excluded from the calculation of common share equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive common share equivalents

 

 

706

 

 

 

362

 

 

 

747

 

 

 

373

 

Excluded from the calculation of diluted shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested stock options that vest upon achievement

  of certain market conditions

 

 

333

 

 

 

 

 

 

333

 

 

 

 

 

The calculation of EPS is based on the weighted average number of Unifi, Inc.’s common shares outstanding for the applicable period.  The calculation of diluted EPS presents the effect of all potential dilutive common shares that were outstanding during the respective period, unless the effect of doing so is anti-dilutive.

 

18.  Investments in Unconsolidated Affiliates and Variable Interest Entities

As of December 27, 2020, UNIFI maintained investments in two entities classified as unconsolidated affiliates: U.N.F. Industries, Ltd. (“UNF”); and UNF America LLC (“UNFA”) (collectively known as “UNFs”). UNIFI’s combined investment in UNFs was $2,532, reflected within other non-current assets in the accompanying condensed consolidated balance sheets.

Parkdale America, LLC

Parkdale America, LLC (“PAL”) is a limited liability company treated as a partnership for income tax reporting purposes and in which UNIFI held a 34% ownership interest (the “PAL Investment”) until UNIFI sold the investment on April 29, 2020. UNIFI accounted for the PAL Investment using the equity method of accounting and, because PAL was deemed a significant subsidiary in certain prior fiscal years, comparative prior year data is presented separately below.

U.N.F. Industries, Ltd.

Raw material and production services for UNF are provided by Nilit Ltd. under separate supply and services agreements. UNF’s fiscal year end is December 31, and it is a registered Israeli private company located in Migdal Ha-Emek, Israel.

UNF America LLC

Raw material and production services for UNFA are provided by Nilit America Inc. under separate supply and services agreements.  UNFA’s fiscal year end is December 31, and it is a limited liability company treated as a partnership for income tax reporting purposes located in Ridgeway, Virginia.

In conjunction with the formation of UNFA, UNIFI entered into a supply agreement with UNF and UNFA whereby UNIFI agreed to purchase all of its first quality nylon POY requirements for texturing (subject to certain exceptions) from either UNF or UNFA.  The supply agreement has no stated minimum purchase quantities and pricing is negotiated every six months, based on market rates.  As of December 27, 2020, UNIFI’s open purchase orders related to this supply agreement were $1,545.

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

 

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

UNFA

 

$

8,005

 

 

$

8,582

 

UNF

 

 

207

 

 

 

1,209

 

Total

 

$

8,212

 

 

$

9,791

 

 

As of December 27, 2020 and June 28, 2020, UNIFI had combined accounts payable due to UNF and UNFA of $3,123 and $1,166, respectively.

12


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

UNIFI has determined that UNF and UNFA are variable interest entities and that UNIFI is the primary beneficiary of these entities, based on the terms of the supply agreement discussed above.  As a result, these entities should be consolidated with UNIFI’s financial results.  As (i) UNIFI purchases substantially all of the output from the two entities, (ii) the two entities’ balance sheets constitute 3% or less of UNIFI’s current assets, total assets and total liabilities, and (iii) such balances are not expected to comprise a larger portion in the future, UNIFI has not included the accounts of UNF and UNFA in its consolidated financial statements.  The financial results of UNF and UNFA are included in UNIFI’s consolidated financial statements with a one-month lag, using the equity method of accounting and with intercompany profits eliminated in accordance with UNIFI’s accounting policy.  Other than the supply agreement discussed above, UNIFI does not provide any other commitments or guarantees related to either UNF or UNFA.

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

 

 

 

As of December 27, 2020

 

 

As of June 28, 2020

 

 

 

PAL

 

 

UNFs

 

 

Total

 

 

PAL

 

 

UNFs

 

 

Total

 

Current assets

 

$

 

 

$

7,499

 

 

$

7,499

 

 

$

 

 

$

5,190

 

 

$

5,190

 

Non-current assets

 

 

 

 

 

731

 

 

 

731

 

 

 

 

 

 

561

 

 

 

561

 

Current liabilities

 

 

 

 

 

3,166

 

 

 

3,166

 

 

 

 

 

 

1,415

 

 

 

1,415

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity and capital

   accounts

 

 

 

 

 

5,064

 

 

 

5,064

 

 

 

 

 

 

4,336

 

 

 

4,336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UNIFI’s portion of undistributed

   earnings

 

 

 

 

 

2,041

 

 

 

2,041

 

 

 

 

 

 

1,424

 

 

 

1,424

 

 

 

 

For the Three Months Ended December 27, 2020

 

 

For the Three Months Ended December 29, 2019

 

 

 

PAL

 

 

UNFs

 

 

Total

 

 

PAL

 

 

UNFs

 

 

Total

 

Net sales

 

$

 

 

$

4,651

 

 

$

4,651

 

 

$

161,648

 

 

$

5,475

 

 

$

167,123

 

Gross profit (loss)

 

 

 

 

 

1,092

 

 

 

1,092

 

 

 

(186

)

 

 

812

 

 

 

626

 

Income (loss) from operations

 

 

 

 

 

673

 

 

 

673

 

 

 

(5,026

)

 

 

377

 

 

 

(4,649

)

Net income (loss)

 

 

 

 

 

674

 

 

 

674

 

 

 

(2,463

)

 

 

383

 

 

 

(2,080

)

Depreciation and amortization

 

 

 

 

 

42

 

 

 

42

 

 

 

11,393

 

 

 

43

 

 

 

11,436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash received by PAL under

   cotton rebate program

 

 

 

 

 

 

 

 

 

 

 

3,463

 

 

 

 

 

 

3,463

 

Earnings recognized by PAL for

   cotton rebate program

 

 

 

 

 

 

 

 

 

 

 

2,766

 

 

 

 

 

 

2,766

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions received

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended December 27, 2020

 

 

For the Six Months Ended December 29, 2019

 

 

 

PAL

 

 

UNFs

 

 

Total

 

 

PAL

 

 

UNFs

 

 

Total

 

Net sales

 

$

 

 

$

7,864

 

 

$

7,864

 

 

$

360,815

 

 

$

10,136

 

 

$

370,951

 

Gross profit

 

 

 

 

 

1,533

 

 

 

1,533

 

 

 

885

 

 

 

1,353

 

 

 

2,238

 

Income (loss) from operations

 

 

 

 

 

719

 

 

 

719

 

 

 

(8,301

)

 

 

489

 

 

 

(7,812

)

Net income (loss)

 

 

 

 

 

723

 

 

 

723

 

 

 

(5,918

)

 

 

507

 

 

 

(5,411

)

Depreciation and amortization

 

 

 

 

 

78

 

 

 

78

 

 

 

22,024

 

 

 

90

 

 

 

22,114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash received by PAL under

   cotton rebate program

 

 

 

 

 

 

 

 

 

 

 

7,156

 

 

 

 

 

 

7,156

 

Earnings recognized by PAL for

   cotton rebate program

 

 

 

 

 

 

 

 

 

 

 

6,354

 

 

 

 

 

 

6,354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions received

 

 

 

 

 

 

 

 

 

 

 

10,437

 

 

 

 

 

 

10,437

 

 

19.  Commitments and Contingencies

Collective Bargaining Agreements

While employees of UNIFI’s Brazilian operations are unionized, none of the labor force employed by UNIFI’s domestic or other foreign subsidiaries is currently covered by a collective bargaining agreement.

Environmental

On September 30, 2004, Unifi Kinston, LLC (“UK”), a subsidiary of Unifi, Inc., completed its acquisition of polyester filament manufacturing assets located in Kinston, North Carolina from Invista S.a.r.l. (“INVISTA”).  The land for the Kinston site was leased pursuant to a 99-year ground lease (the “Ground Lease”) with E.I. DuPont de Nemours (“DuPont”).  Since 1993, DuPont has been investigating and cleaning up the Kinston site under the supervision of the U.S. Environmental Protection Agency and the North Carolina Department of Environmental Quality (“DEQ”) pursuant to the Resource Conservation and Recovery Act Corrective Action program.  The program requires DuPont to identify all potential areas of environmental concern (“AOCs”), assess the extent of containment at the identified AOCs and remediate the AOCs to comply with applicable regulatory standards.  Effective

13


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

March 20, 2008, UK entered into a lease termination agreement associated with conveyance of certain assets at the Kinston site to DuPont.  This agreement terminated the Ground Lease and relieved UK of any future responsibility for environmental remediation, other than participation with DuPont, if so called upon, with regard to UK’s period of operation of the Kinston site, which was from 2004 to 2008.  At this time, UNIFI has no basis to determine if or when it will have any responsibility or obligation with respect to the AOCs or the extent of any potential liability for the same.

UK continues to own property (the “Kentec site”) acquired in the 2004 transaction with INVISTA that has contamination from DuPont’s prior operations and is monitored by DEQ.  The Kentec site has been remediated by DuPont, and DuPont has received authority from DEQ to discontinue further remediation, other than natural attenuation.  Prior to transfer of responsibility to UK, DuPont and UK had a duty to monitor and report the environmental status of the Kentec site to DEQ.

Effective April 10, 2019, UK assumed sole remediator responsibility of the Kentec site pursuant to its contractual obligations with INVISTA and received $180 of net monitoring and reporting costs due from DuPont.  In connection with monitoring, UK expects to sample and report to DEQ annually. UNIFI expects minimal active site remediation may be required, but has no basis to determine any costs that may be associated with active remediation.

 

20.  Related Party Transactions

There were no related party receivables as of December 27, 2020 or June 28, 2020.

 

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

 

 

 

December 27, 2020

 

 

June 28, 2020

 

Accounts payable

 

$

672

 

 

$

616

 

Operating lease obligations

 

 

1,337

 

 

 

1,481

 

Finance lease obligations

 

 

6,835

 

 

 

6,509

 

Total related party payables

 

$

8,844

 

 

$

8,606

 

 

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

 

 

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

Affiliated Entity

 

Transaction Type

 

December 27, 2020

 

 

December 29, 2019

 

 

December 27, 2020

 

 

December 29, 2019

 

Salem Leasing Corporation

 

Payments for transportation equipment costs and finance lease debt service

 

$

924

 

 

$

1,108

 

 

$

1,863

 

 

$

2,116

 

 

21.  Business Segment Information

UNIFI defines operating segments as components of the organization for which discrete financial information is available and operating results are evaluated on a regular basis by UNIFI’s principal executive officer, who is the chief operating decision maker (the “CODM”), in order to assess performance and allocate resources. Characteristics of UNIFI which were relied upon in making the determination of reportable segments include the nature of the products sold, the internal organizational structure, the trade policies in the geographic regions in which UNIFI operates and the information that is regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.

UNIFI’s operating segments are aggregated into four reportable segments (the Polyester Segment, the Asia Segment, the Brazil Segment and the Nylon Segment) based on similarities between the operating segments’ economic characteristics, nature of products sold, type of customer, methods of distribution and regulatory environment.

 

The operations within the Polyester Segment exhibit similar long-term economic characteristics and primarily sell into an economic trading zone covered by the United States-Mexico-Canada Agreement (“USMCA”), North American Free Trade Agreement (“NAFTA”) and Dominican Republic—Central America Free Trade Agreement (“CAFTA-DR”) (collectively, the regions comprising these economic trading zones are referred to as “NACA”) to similar customers utilizing similar methods of distribution. These operations derive revenues primarily from manufacturing polyester-based products with sales primarily to other yarn manufacturers and knitters and weavers that produce yarn and/or fabric for the apparel, hosiery, automotive, home furnishings, automotive, industrial and other end-use markets. The Polyester Segment consists of sales and manufacturing operations in the U.S. and El Salvador.

 

The operations within the Asia Segment exhibit similar long-term economic characteristics and sell to similar customers utilizing similar methods of distribution primarily in Asia and Europe, which are outside of the NACA region. The Asia Segment primarily sources polyester-based products from third-party suppliers and sells to knitters and weavers that produce fabric for the apparel, automotive, home furnishings, automotive, industrial and other end-use markets principally in Asia.  The Asia Segment includes a sales office in China.

 

The Brazil Segment primarily manufactures and sells polyester-based products to knitters and weavers that produce fabric for the apparel, automotive, home furnishings, industrial and other end-use markets principally in South America.  The Brazil Segment includes a manufacturing location and sales offices in Brazil.

 

The operations within the Nylon Segment exhibit similar long-term economic characteristics and primarily sell into the NACA region to similar customers utilizing similar methods of distribution. These operations derive revenues primarily from manufacturing nylon-based products with sales to knitters and weavers that produce fabric primarily for the apparel, hosiery and medical markets.  The Nylon Segment includes an immaterial operating segment in Colombia that sells similar nylon-based textile products to similar customers in Colombia and

14


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

Mexico utilizing similar methods of distribution.  The Nylon Segment consists of sales and manufacturing operations in the U.S. and Colombia.

In addition to UNIFI’s reportable segments, an All Other category is included in the tables below. All Other consists primarily of for-hire transportation services. For-hire transportation services revenue is derived from performing common carrier services utilizing UNIFI’s fleet of transportation equipment.

The operations within All Other (i) are not subject to review by the CODM at a level consistent with UNIFI’s other operations, (ii) are not regularly evaluated using the same metrics applied to UNIFI’s other operations and (iii) do not qualify for aggregation with an existing reportable segment. Therefore, such operations are excluded from reportable segments.

UNIFI evaluates the operating performance of its segments based upon Segment Profit, which represents segment gross profit (loss) plus segment depreciation expense.  This measurement of segment profit or loss best aligns segment reporting with the current assessments and evaluations performed by, and information provided to, the CODM.

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

Selected financial information is presented below:

 

 

 

For the Three Months Ended December 27, 2020

 

 

 

Polyester

 

 

Asia

 

 

Brazil

 

 

Nylon

 

 

All Other

 

 

Total

 

Net sales

 

$

76,696

 

 

$

44,692

 

 

$

24,253

 

 

$

16,008

 

 

$

1,127

 

 

$

162,776

 

Cost of sales

 

 

65,801

 

 

 

38,164

 

 

 

16,276

 

 

 

15,613

 

 

 

988

 

 

 

136,842

 

Gross profit

 

 

10,895

 

 

 

6,528

 

 

 

7,977

 

 

 

395

 

 

 

139

 

 

 

25,934

 

Segment depreciation expense

 

 

4,470

 

 

 

 

 

 

321

 

 

 

438

 

 

 

164

 

 

 

5,393

 

Segment Profit

 

$

15,365

 

 

$

6,528

 

 

$

8,298

 

 

$

833

 

 

$

303

 

 

$

31,327

 

 

 

 

For the Three Months Ended December 29, 2019

 

 

 

Polyester

 

 

Asia

 

 

Brazil

 

 

Nylon

 

 

All Other

 

 

Total

 

Net sales

 

$

82,750

 

 

$

47,918

 

 

$

20,862

 

 

$

17,084

 

 

$

897

 

 

$

169,511

 

Cost of sales

 

 

76,090

 

 

 

42,401

 

 

 

17,432

 

 

 

17,038

 

 

 

885

 

 

 

153,846

 

Gross profit

 

 

6,660

 

 

 

5,517

 

 

 

3,430

 

 

 

46

 

 

 

12

 

 

 

15,665

 

Segment depreciation expense

 

 

4,183

 

 

 

 

 

 

357

 

 

 

503

 

 

 

124

 

 

 

5,167

 

Segment Profit

 

$

10,843

 

 

$

5,517

 

 

$

3,787

 

 

$

549

 

 

$

136

 

 

$

20,832

 

 

 

 

For the Six Months Ended December 27, 2020

 

 

 

Polyester

 

 

Asia

 

 

Brazil

 

 

Nylon

 

 

All Other

 

 

Total

 

Net sales

 

$

145,772

 

 

$

82,415

 

 

$

46,859

 

 

$

27,037

 

 

$

2,198

 

 

$

304,281

 

Cost of sales

 

 

130,245

 

 

 

71,309

 

 

 

34,269

 

 

 

25,977

 

 

 

1,986

 

 

 

263,786

 

Gross profit

 

 

15,527

 

 

 

11,106

 

 

 

12,590

 

 

 

1,060

 

 

 

212

 

 

 

40,495

 

Segment depreciation expense

 

 

8,873

 

 

 

 

 

 

751

 

 

 

880

 

 

 

328

 

 

 

10,832

 

Segment Profit

 

$

24,400

 

 

$

11,106

 

 

$

13,341

 

 

$

1,940

 

 

$

540

 

 

$

51,327

 

 

 

 

For the Six Months Ended December 29, 2019

 

 

 

Polyester

 

 

Asia

 

 

Brazil

 

 

Nylon

 

 

All Other

 

 

Total

 

Net sales

 

$

171,445

 

 

$

93,875

 

 

$

45,034

 

 

$

37,286

 

 

$

1,820

 

 

$

349,460

 

Cost of sales

 

 

156,990

 

 

 

84,076

 

 

 

37,445

 

 

 

36,062

 

 

 

1,779

 

 

 

316,352

 

Gross profit

 

 

14,455

 

 

 

9,799

 

 

 

7,589

 

 

 

1,224

 

 

 

41

 

 

 

33,108

 

Segment depreciation expense

 

 

8,224

 

 

 

 

 

 

732

 

 

 

994

 

 

 

163

 

 

 

10,113

 

Segment Profit

 

$

22,679

 

 

$

9,799

 

 

$

8,321

 

 

$

2,218

 

 

$

204

 

 

$

43,221

 

 

15


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

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

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

December 27, 2020

 

 

December 29, 2019

 

Polyester

 

$

10,895

 

 

$

6,660

 

 

$

15,527

 

 

$

14,455

 

Asia

 

 

6,528

 

 

 

5,517

 

 

 

11,106

 

 

 

9,799

 

Brazil

 

 

7,977

 

 

 

3,430

 

 

 

12,590

 

 

 

7,589

 

Nylon

 

 

395

 

 

 

46

 

 

 

1,060

 

 

 

1,224

 

All Other

 

 

139

 

 

 

12

 

 

 

212

 

 

 

41

 

Segment gross profit

 

 

25,934

 

 

 

15,665

 

 

 

40,495

 

 

 

33,108

 

Selling, general and administrative expenses

 

 

12,625

 

 

 

12,508

 

 

 

23,989

 

 

 

23,488

 

Benefit for bad debts

 

 

(259

)

 

 

(258

)

 

 

(1,146

)

 

 

(249

)

Other operating expense, net

 

 

476

 

 

 

854

 

 

 

1,654

 

 

 

962

 

Operating income

 

 

13,092

 

 

 

2,561

 

 

 

15,998

 

 

 

8,907

 

Interest income

 

 

(187

)

 

 

(212

)

 

 

(312

)

 

 

(422

)

Interest expense

 

 

833

 

 

 

1,101

 

 

 

1,704

 

 

 

2,358

 

Equity in (earnings) loss of unconsolidated affiliates

 

 

(130

)

 

 

756

 

 

 

(223

)

 

 

1,622

 

Income before income taxes

 

$

12,576

 

 

$

916

 

 

$

14,829

 

 

$

5,349

 

 

The reconciliations of segment total assets to consolidated total assets are as follows:

 

 

 

December 27, 2020

 

 

June 28, 2020

 

Polyester

 

$

261,769

 

 

$

263,496

 

Asia

 

 

54,661

 

 

 

41,452

 

Brazil

 

 

60,006

 

 

 

49,967

 

Nylon

 

 

39,682

 

 

 

42,020

 

Segment total assets

 

 

416,118

 

 

 

396,935

 

Other current assets

 

 

68,900

 

 

 

48,600

 

Other PP&E

 

 

22,687

 

 

 

23,676

 

Other operating lease assets

 

 

1,308

 

 

 

1,503

 

Other non-current assets

 

 

3,985

 

 

 

3,448

 

Total assets

 

$

512,998

 

 

$

474,162

 

 

22.  Supplemental Cash Flow Information

Cash payments for interest and taxes consist of the following: 

 

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

Interest, net of capitalized interest of $92 and $56, respectively

 

$

1,610

 

 

$

2,357

 

Income tax payments, net

 

 

3,923

 

 

 

3,429

 

 

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

Non-Cash Investing and Financing Activities

As of December 27, 2020 and June 28, 2020, $697 and $630, respectively, were included in accounts payable for unpaid capital expenditures. As of December 29, 2019 and June 30, 2019, $1,127 and $1,329, respectively, were included in accounts payable for unpaid capital expenditures.

During the six months ended December 27, 2020 and December 29, 2019, UNIFI recorded non-cash activity relating to finance leases of $740 and $6,301, respectively.

 

 

 

16


 

Item 2.

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

The following is management’s discussion and analysis of certain significant factors that have affected UNIFI’s operations, along with material changes in financial condition, during the periods included in the accompanying condensed consolidated financial statements. A reference to a “note” in this section refers to the accompanying notes to condensed consolidated financial statements. A reference to the “current period” refers to the three-month period ended December 27, 2020, while a reference to the “prior period” refers to the three-month period ended December 29, 2019.  A reference to the “current six-month period” refers to the six-month period ended December 27, 2020, while a reference to the “prior six-month period” refers to the six-month period ended December 29, 2019. Such references may be accompanied by certain phrases for added clarity. The current period and the prior period each consisted of 13 weeks. The current six-month period and the prior six-month period each consisted of 26 weeks.

Our discussions in this Item 2 focus on our results during, or as of, the three months and six months ended December 27, 2020 and December 29, 2019, and, to the extent applicable, any material changes from the information discussed in the 2020 Form 10-K or other important intervening developments or information.  These discussions should be read in conjunction with the 2020 Form 10-K for more detailed and background information about our business, operations and financial condition. Discussion of foreign currency translation is primarily associated with the weakening of the Brazilian Real (“BRL”) and changes in the Chinese Renminbi (“RMB”) versus the U.S. Dollar (“USD”). In discussion of its operating results in this report, UNIFI refers to its operations in the “NACA” region, which is the region comprised of the trade zones covered by USMCA, NAFTA and CAFTA-DR.

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

Overview and Significant General Matters

UNIFI focuses on delivering products and solutions to direct customers and brand partners throughout the world, leveraging our internal manufacturing capabilities and an enhanced global supply chain that delivers a diverse range of synthetic and recycled fibers and polymers. This strategic and synergistic focus includes three supporting pillars: (1) engaging in strategic relationships with like-minded entities, (2) growing our existing portfolio of technologies and capabilities, and (3) expanding our supply chain to best serve our direct and indirect customers. UNIFI remains committed to this strategy, which we believe will increase profitability and generate improved cash flows from operations.

UNIFI has four reportable segments for its operations – the Polyester Segment, the Asia Segment, the Brazil Segment and the Nylon Segment – as well as certain ancillary operations that include for-hire transportation services, which comprise an All Other category. The ancillary operations classified within All Other are insignificant for all periods presented; therefore, UNIFI’s discussion and analysis of those activities is generally limited to their impact on consolidated results, where appropriate.

Significant general matters for the current period and the current six-month period, which include certain sales pressures from the ongoing COVID-19 pandemic, are summarized below:

 

net sales for the current period decreased $6,735, or 4.0%, to $162,776, compared to $169,511 for the prior period;

 

net sales for the current six-month period decreased $45,179, or 12.9%, to $304,281, compared to $349,460 for the prior six-month period;

 

revenues from REPREVE® Fiber products for the current period represented 37% of consolidated net sales, compared to 34% for the prior period, 36% for the current six-month period, and 32% for the prior six-month period;

 

gross margin was 15.9% for the current period, compared to 9.2% for the prior period, and was 13.3% for the current six-month period, compared to 9.5% for the prior six-month period;

 

operating income was $13,092 for the current period, compared to $2,561 for the prior period, and was $15,998 for the current six-month period, compared to $8,907 for the prior six-month period; and

 

diluted EPS was $0.40 for the current period, compared to $0.02 for the prior period, and was $0.58 for the current six-month period, compared to $0.22 for the prior six-month period.

COVID-19 Pandemic in Calendar 2020

In March 2020, the World Health Organization declared the current COVID-19 outbreak a global pandemic. Efforts to contain the spread of COVID-19 intensified during March and April 2020. Several states, including North Carolina, where UNIFI’s primary manufacturing and administrative operations are located, declared states of emergency. A number of foreign and local governments also enacted temporary business closures, issued quarantine orders and took other restrictive measures in response to the COVID-19 pandemic. The local and global measures significantly reduced economic activity and demand, thereby reducing overall demand for UNIFI’s products.

In an effort to protect the health and safety of our employees, customers and communities, UNIFI took proactive, aggressive actions from the earliest signs of the outbreak that included social distancing and travel restriction policies for all locations, along with reducing costs in both manufacturing and selling, general and administrative expenses (“SG&A”) without impacting our ability to service customers. These measures remain in effect and are evaluated regularly against local, state and federal recommendations.

Global measures taken to reduce the spread of the COVID-19 pandemic generated a significant decline in global business activity that may have a lasting impact on the global economy and consumer demand. The duration of the COVID-19 pandemic and its related impact on our business is currently unknown. Through March 2020, the COVID-19 pandemic had no significant adverse impact on UNIFI’s business, although sales growth for our Asia Segment was temporarily slowed by the extensive government shutdown in China. Throughout calendar 2020, the Asia Segment’s overall performance and profitability was moderately impacted by the COVID-19 pandemic, while our U.S., Brazil and El Salvador operations were more adversely impacted by the COVID-19 pandemic, most notably in the June 2020 quarter during the most intense declines in global demand. UNIFI anticipates that the global disruption caused by the COVID-19 pandemic has negatively impacted, and will continue to negatively impact, overall global demand and business activity, including textiles in both the Americas and Asia.

While our operating results for the current six-month period indicate a robust recovery of the textile supply chain and increased activity from the considerably low levels of demand and production experienced in the June 2020 quarter, significant restoration of consumer spending and retail activity

17


 

will be critical to our end-markets to enable a full and sustained economic rebound. UNIFI anticipates a recovery in global economic activity when the COVID-19 pandemic is sufficiently contained.  The economic rebound will depend on the pace and effectiveness of the containment efforts deployed by various international, national, state, and local governments, along with the speed and effectiveness with which potential treatment and vaccine methods are deployed. However, the anticipated economic rebound would be jeopardized by a significant degradation in local and global healthcare systems’ abilities to treat infections, mutations of the virus that generate further difficulty in containment efforts, or shelter-in-place orders in UNIFI’s primary geographic markets.

Textile demand and business activity levels in the second half of calendar 2020 exceeded our expectations set when we began the fiscal year, however there is no certainty that such levels will continue or increase during calendar 2021. Additionally, there is no clear indication that the demand and activity levels experienced in the second half of calendar 2020 were the result of economic restoration, as those levels could have been favorably impacted by pent up demand. UNIFI will continue to monitor the COVID-19 pandemic, prioritizing the health and safety of our employees, while delivering on customer demand. Although our year-to-date fiscal 2021 results have exceeded our expectations and we have experienced several improvements across certain financial metrics, our underlying sales volumes in certain core markets have not fully recovered. Therefore, we are unsure of the impact on our operational and financial results through at least fiscal 2021, based on present factors and conditions, along with the uncertainty surrounding global demand.

Update on Recent Trade Initiatives

UNIFI remains committed to pursuing relief from the elevated levels of low-cost and subsidized polyester textured yarn entering the U.S. market from foreign countries. Efforts to slow low-cost and subsidized polyester textured yarn from China and India were successful during calendar 2019, which led to a temporary improvement in our U.S. polyester textured yarn sales prior to the onset of the COVID-19 pandemic in March 2020.

Subsequent to the completion of the trade initiatives against China and India, imports from Indonesia, Malaysia, Thailand, and Vietnam seemingly replaced the imports from China and India and surged into the U.S. market. Subject import volume from Indonesia, Malaysia, Thailand, and Vietnam increased from calendar 2017 to calendar 2019 by over 80%. Similar to the adverse impacts of imports from China and India in previous years, the subject imports from Indonesia, Malaysia, Thailand, and Vietnam undersold the domestic industry, taking sales from and exerting considerable downward pricing pressure on yarns produced by UNIFI. Accordingly, UNIFI is a petitioner to the United States Department of Commerce and the United States International Trade Commission (the "USITC") alleging dumping of polyester textured yarn in the U.S. market from Indonesia, Malaysia, Thailand, and Vietnam.

In December 2020, the USITC made affirmative determinations in its preliminary phase of antidumping duty investigations concerning polyester textured yarn from Indonesia, Malaysia, Thailand, and Vietnam. The entire investigative process will take approximately one year, with final determinations of dumping and injury likely occurring by the end of calendar 2021.

Current Six-Month Period Performance

Prior to the COVID-19 pandemic, our operations were achieving incremental sales volume growth from both (i) continued demand for sustainable products with our REPREVE® platform and (ii) U.S. market share recapture from our trade initiatives that were finalized in January 2020. Additionally, we have recently benefited from a more favorable polyester raw material cost environment.

In the current six-month period, our Polyester and Nylon Segments were adversely impacted by the COVID-19 pandemic, as manufacturing activity in the U.S. has recovered less rapidly than in Asia and Brazil, while production activity in Central America surged following the June 2020 quarter. In Asia, although productivity remains pressured by lower global demand, our Asia Segment continues to perform well with both new and existing customer programs. The Brazil Segment was able to navigate its domestic recovery more favorably than competitive importers, resulting in sales volume and market share growth compared to recent quarters. We believe the outperformance by the Brazil Segment includes temporary capture of market share from competitive imports and higher conversion margin due to the unfavorable dynamics facing competitors surrounding input and freight costs combined with weaker delivery speed. Competition and pricing are expected to normalize over the mid- to long-term.

Although sales volumes in the NACA region were pressured in the current six-month period, our operations benefited from raw material and selling price stability and sales mix improvements. Accordingly, we were able to achieve better-than-expected operating results in the current six-month period.

While sales and gross profit pressures from the COVID-19 pandemic have weighed on our financial results, we have remained diligent in managing our operations as efficiently and effectively as possible while delivering on customer demand. Accordingly, we generated operating cash flows in the current six-month period and continued to reduce our debt principal. Our performance in the first half of fiscal 2021 further strengthened our balance sheet and solidified the foundation for further growth subsequent to the negative impacts of the COVID-19 pandemic.

We believe that several facets of our business will remain drivers for growth once the COVID-19 pandemic subsides, including: (i) continued sales and portfolio growth for our Asia Segment, (ii) U.S. market share recapture from our recent trade initiatives, (iii) continued commitments in sustainability by corporations, governments and other entities leading to further demand for our REPREVE® platform, (iv) leading-edge innovation and commercialization efforts that deliver meaningful consumer products, and (v) continued expansion of our portfolio with additional markets, applications, and brand partners.

Key Performance Indicators and Non-GAAP Financial Measures

UNIFI continuously reviews performance indicators to measure its success.  These performance indicators form the basis of management’s discussion and analysis included below:

 

sales volume and revenue for UNIFI and for each reportable segment;

 

gross profit and gross margin for UNIFI and for each reportable segment;

 

net income and diluted EPS;

18


 

 

 

Segment Profit, which equals segment gross profit plus segment depreciation expense;

 

unit conversion margin, which represents unit net sales price less unit raw material costs, for UNIFI and for each reportable segment;

 

working capital, which represents current assets less current liabilities;

 

Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), which represents Net income before net interest expense, income tax expense and depreciation and amortization expense;

 

Adjusted EBITDA, which represents EBITDA adjusted to exclude equity in loss of PAL, and, from time to time, certain other adjustments necessary to understand and compare the underlying results of UNIFI;

 

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

 

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

 

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

 

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

EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Adjusted Working Capital and Net Debt (collectively, the “non-GAAP financial measures”) are not determined in accordance with GAAP and should not be considered a substitute for performance measures determined in accordance with GAAP. The calculations of the non-GAAP financial measures are subjective, based on management’s belief as to which items should be included or excluded in order to provide the most reasonable and comparable view of the underlying operating performance of the business. We may, from time to time, modify the amounts used to determine our non-GAAP financial measures. When applicable, management’s discussion and analysis includes specific consideration for items that comprise the reconciliations of its non-GAAP financial measures. We believe that these non-GAAP financial measures better reflect UNIFI’s underlying operations and performance and that their use, as operating performance measures, provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets, among otherwise comparable companies.

Management uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of (a) items directly related to our asset base (primarily depreciation and amortization) and (b) items that we would not expect to occur as a part of our normal business on a regular basis; (ii) for planning purposes, including the preparation of our annual operating budget; (iii) as a valuation measure for evaluating our operating performance and our capacity to incur and service debt, fund capital expenditures and expand our business; and (iv) as one measure in determining the value of other acquisitions and dispositions. Adjusted EBITDA is a key performance metric utilized in the determination of variable compensation. We also believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity because it serves as a high-level proxy for cash generated from operations and is relevant to our fixed charge coverage ratio. Equity in loss of PAL is excluded from Adjusted EBITDA because such results do not reflect our operating performance.

Management uses Adjusted Net Income and Adjusted EPS (i) as measurements of net operating performance because they assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to occur as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not expect to occur as a part of our underlying taxable operations; (ii) for planning purposes, including the preparation of our annual operating budget; and (iii) as measures in determining the value of other acquisitions and dispositions.

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

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

19


 

Review of Results of Operations

Three Months Ended December 27, 2020 Compared to Three Months Ended December 29, 2019

Consolidated Overview

The below tables provide:

 

the components of net income and the percentage increase or decrease over the prior fiscal year amounts,

 

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

 

a reconciliation from net income to Adjusted Net Income and Adjusted EPS.

Following the tables is a discussion and analysis of the significant components of net income.

Net income

 

 

For the Three Months Ended

 

 

 

 

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

162,776

 

 

 

100.0

 

 

$

169,511

 

 

 

100.0

 

 

 

(4.0

)

Cost of sales

 

 

136,842

 

 

 

84.1

 

 

 

153,846

 

 

 

90.8

 

 

 

(11.1

)

Gross profit

 

 

25,934

 

 

 

15.9

 

 

 

15,665

 

 

 

9.2

 

 

 

65.6

 

SG&A

 

 

12,625

 

 

 

7.8

 

 

 

12,508

 

 

 

7.4

 

 

 

0.9

 

Benefit for bad debts

 

 

(259

)

 

 

(0.2

)

 

 

(258

)

 

 

(0.2

)

 

 

0.4

 

Other operating expense, net

 

 

476

 

 

 

0.3

 

 

 

854

 

 

 

0.5

 

 

 

(44.3

)

Operating income

 

 

13,092

 

 

 

8.0

 

 

 

2,561

 

 

 

1.5

 

 

nm

 

Interest expense, net

 

 

646

 

 

 

0.4

 

 

 

889

 

 

 

0.5

 

 

 

(27.3

)

Equity in (earnings) loss of unconsolidated affiliates

 

 

(130

)

 

 

(0.1

)

 

 

756

 

 

 

0.5

 

 

 

(117.2

)

Income before income taxes

 

 

12,576

 

 

 

7.7

 

 

 

916

 

 

 

0.5

 

 

nm

 

Provision for income taxes

 

 

5,112

 

 

 

3.1

 

 

 

507

 

 

 

0.3

 

 

nm

 

Net income

 

$

7,464

 

 

 

4.6

 

 

$

409

 

 

 

0.2

 

 

nm

 

 

nm – Not meaningful

EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)

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

 

 

For the Three Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

Net income

 

$

7,464

 

 

$

409

 

Interest expense, net

 

 

646

 

 

 

889

 

Provision for income taxes

 

 

5,112

 

 

 

507

 

Depreciation and amortization expense (1)

 

 

6,016

 

 

 

5,863

 

EBITDA

 

 

19,238

 

 

 

7,668

 

 

 

 

 

 

 

 

 

 

Equity in loss of PAL

 

 

 

 

 

837

 

EBITDA excluding PAL

 

 

19,238

 

 

 

8,505

 

 

 

 

 

 

 

 

 

 

Severance (2)

 

 

 

 

 

383

 

Adjusted EBITDA

 

$

19,238

 

 

$

8,888

 

 

(1)

Within this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are reflected in interest expense, net. Within the accompanying condensed consolidated statements of cash flows, amortization of debt issuance costs is reflected in depreciation and amortization expense.

(2)

In the second quarter of fiscal 2020, UNIFI commenced a wind-down plan for its operations in Sri Lanka. The adjustment primarily reflects accrued severance and exit costs.

20


 

Adjusted Net Income and Adjusted EPS (Non-GAAP Measures)

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

 

 

For the Three Months Ended December 27, 2020

 

 

For the Three Months Ended December 29, 2019

 

 

 

Pre-tax Income

 

 

Tax Impact

 

 

Net Income

 

 

Diluted EPS

 

 

Pre-tax Income

 

 

Tax Impact

 

 

Net Income

 

 

Diluted EPS

 

GAAP results

 

$

12,576

 

 

$

(5,112

)

 

$

7,464

 

 

$

0.40

 

 

$

916

 

 

$

(507

)

 

$

409

 

 

$

0.02

 

Severance (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

383

 

 

 

(80

)

 

 

303

 

 

 

0.02

 

Adjusted results

 

$

12,576

 

 

$

(5,112

)

 

$

7,464

 

 

$

0.40

 

 

$

1,299

 

 

$

(587

)

 

$

712

 

 

$

0.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

18,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,772

 

 

(1)

In the second quarter of fiscal 2020, UNIFI commenced a wind-down plan for its operations in Sri Lanka. The adjustment primarily reflects accrued severance and exit costs.  

Net Sales

Consolidated net sales decreased $6,735, or 4.0%, for the current period in comparison to the prior period primarily attributable to (i) the COVID-19 pandemic, (ii) lower average selling prices, and (iii) unfavorable foreign currency translation.

Consolidated sales volumes increased 1.0%, primarily attributable to the Brazil Segment, which was agile and responsive to COVID-19 pandemic-related demand fluctuations in the current period, and generated volume growth by capturing market share from competitors.  The increase was partially offset by the adverse impact of the COVID-19 pandemic on U.S. product demand, as our Americas and Asia markets have experienced significant, but not full recovery, since the June 2020 quarter.

Once the COVID-19 pandemic subsides, we believe incremental revenue for the Polyester Segment will be generated from our polyester textured yarn trade petitions (i) completed in early calendar 2020 and (ii) recently filed. However, our Nylon Segment results continue to reflect the current global trend of declining demand for nylon socks, ladies’ hosiery and intimate apparel.

Consolidated average sales prices decreased 5.0%, primarily attributable to (i) sales price declines associated with polyester raw material cost changes, and (ii) unfavorable foreign currency translation.

REPREVE® Fiber products for the current period comprised 37% of consolidated net sales, up from 34% for the prior period and 31% for fiscal 2020.

Gross Profit

Gross profit for the current period increased by $10,269, or 65.6%, as compared to the prior period. Although the COVID-19 pandemic adversely impacted sales volumes in our Polyester Segment and Asia Segment, favorable raw material costs and manufacturing efficiencies helped drive gross profit improvement. Further, the Brazil Segment has outperformed in the current period, primarily due to a temporarily improved competitive position.

 

For the Polyester Segment, gross profit benefited from manufacturing efficiencies, an improved conversion margin and an improved sales mix.

 

For the Asia Segment, gross profit benefited from cost and sales mix improvements, partially offset by lower demand levels driven by the COVID-19 pandemic.

 

For the Brazil Segment, gross profit benefited from higher sales volumes and stronger local pricing due to temporary market share capture.

 

For the Nylon Segment, gross profit increased due to improved cost management on low sales volumes.

SG&A

SG&A increased from the prior period, primarily due to higher accrued incentive compensation, partially offset by lower professional fees and travel and entertainment expenses in the current period.

Benefit for Bad Debts

The current period benefit for bad debts reflects general improvement in customer payment frequency following the adverse effects of the COVID-19 pandemic on customer health.

Other Operating Expense, Net

The current period and prior period both reflect foreign currency transaction losses of $324 in the current period and $486 in the prior period along with severance charges in the prior period.

21


 

Interest Expense, Net

Interest expense, net decreased from the prior period to the current period, primarily attributable to a lower average debt principal. The components of consolidated interest expense, net were as follows:

 

 

 

For the Three Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

Interest and fees on the ABL Facility

 

$

743

 

 

$

937

 

Other interest

 

 

78

 

 

 

127

 

Subtotal of interest on debt obligations

 

 

821

 

 

 

1,064

 

Other components of interest expense

 

 

12

 

 

 

37

 

Total interest expense

 

 

833

 

 

 

1,101

 

Interest income

 

 

(187

)

 

 

(212

)

Interest expense, net

 

$

646

 

 

$

889

 

Equity in (Earnings) Loss of Unconsolidated Affiliates

The components of equity in (earnings) loss of unconsolidated affiliates were as follows:

 

 

For the Three Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

Loss from PAL

 

$

 

 

$

837

 

Earnings from nylon joint ventures

 

 

(130

)

 

 

(81

)

Total equity in (earnings) loss of unconsolidated affiliates

 

$

(130

)

 

$

756

 

 

 

 

 

 

 

 

 

 

As a percentage of consolidated income before income taxes

 

 

1.0

%

 

 

(82.5

)%

On April 29, 2020, UNIFI sold its 34% non-controlling partnership interest in PAL. The comparative decrease in loss from PAL reflects a loss recorded in the prior period with no results recorded in the current period.

Income Taxes

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

 

 

 

For the Three Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

Provision for income taxes

 

$

5,112

 

 

$

507

 

Effective tax rate

 

 

40.6

%

 

 

55.3

%

 

The effective tax rate is subject to variation due to numerous factors, including variability in the amount of income before income taxes, 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 greater when income before income taxes is lower.

 

The decrease in the effective tax rate from the prior period to the current period is primarily attributable to higher earnings in the current period, which lessens the impact of rate reconciling items including (i) current U.S. tax on GILTI, (ii) losses in tax jurisdictions for which no benefit can be recognized, and (iii) foreign withholding taxes.  The comparative decrease is partially offset by certain foreign tax credits favorably impacting the prior period.

Net Income

Net income for the current period was $7,464, or $0.40 per share, compared to net income of $409 or $0.02 per share, for the prior period.  The change in net income was primarily due to (i) higher gross profit in the current period and (ii) the loss from PAL in the prior period.

Adjusted EBITDA (Non-GAAP Financial Measure)

Adjusted EBITDA increased from the prior period to the current period, commensurate with higher gross profit.

Segment Overview

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

22


 

Polyester 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 Polyester Segment, were as follows:

 

 

For the Three Months Ended

 

 

 

 

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

76,696

 

 

 

100.0

 

 

$

82,750

 

 

 

100.0

 

 

 

(7.3

)

Cost of sales

 

 

65,801

 

 

 

85.8

 

 

 

76,090

 

 

 

92.0

 

 

 

(13.5

)

Gross profit

 

 

10,895

 

 

 

14.2

 

 

 

6,660

 

 

 

8.0

 

 

 

63.6

 

Depreciation expense

 

 

4,470

 

 

 

5.8

 

 

 

4,183

 

 

 

5.1

 

 

 

6.9

 

Segment Profit

 

$

15,365

 

 

 

20.0

 

 

$

10,843

 

 

 

13.1

 

 

 

41.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

   consolidated amounts

 

 

47.1

%

 

 

 

 

 

 

48.8

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

   consolidated amounts

 

 

49.0

%

 

 

 

 

 

 

52.0

%

 

 

 

 

 

 

 

 

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

Net sales for the prior period

 

$

82,750

 

Net change in average selling price and sales mix

 

 

(5,128

)

Decrease in sales volumes

 

 

(926

)

Net sales for the current period

 

$

76,696

 

The decrease in net sales for the Polyester Segment from the prior period to the current period was primarily attributable to lower average selling prices associated with lower polyester raw material costs.

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

Segment Profit for the prior period

 

$

10,843

 

Net increase in underlying margins

 

 

4,643

 

Decrease in sales volumes

 

 

(121

)

Segment Profit for the current period

 

$

15,365

 

The increase in Segment Profit for the Polyester Segment from the prior period to the current period was primarily attributable to improved conversion margin, manufacturing efficiencies, and a better sales mix.

Asia 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 Asia Segment, were as follows:

 

 

For the Three Months Ended

 

 

 

 

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

44,692

 

 

 

100.0

 

 

$

47,918

 

 

 

100.0

 

 

 

(6.7

)

Cost of sales

 

 

38,164

 

 

 

85.4

 

 

 

42,401

 

 

 

88.5

 

 

 

(10.0

)

Gross profit

 

 

6,528

 

 

 

14.6

 

 

 

5,517

 

 

 

11.5

 

 

 

18.3

 

Depreciation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Profit

 

$

6,528

 

 

 

14.6

 

 

$

5,517

 

 

 

11.5

 

 

 

18.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

   consolidated amounts

 

 

27.5

%

 

 

 

 

 

 

28.3

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

   consolidated amounts

 

 

20.8

%

 

 

 

 

 

 

26.5

%

 

 

 

 

 

 

 

 

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

Net sales for the prior period

 

$

47,918

 

Decrease in sales volumes of Chip and staple fiber

 

 

(5,090

)

Change in average selling price and sales mix

 

 

(4,180

)

Net increase in sales volumes of certain other products

 

 

3,034

 

Favorable foreign currency translation effects

 

 

3,010

 

Net sales for the current period

 

$

44,692

 

23


 

 

The decrease in net sales for the Asia Segment from the prior period to the current period was primarily attributable to overall lower sales volumes and average selling prices driven by the adverse impacts of the COVID-19 pandemic, partially offset by the continued momentum of REPREVE®-branded products and favorable foreign currency translation effects.

The RMB weighted average exchange rate was 6.62 RMB/USD and 7.04 RMB/USD for the current period and the prior period, respectively.  

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

Segment Profit for the prior period

 

$

5,517

 

Change in underlying margins and sales mix

 

 

1,177

 

Favorable foreign currency translation effects

 

 

343

 

Decrease in sales volumes

 

 

(509

)

Segment Profit for the current period

 

$

6,528

 

Segment Profit for the Asia Segment increased from the prior period to the current period as raw material cost benefits achieved on certain product lines and sales mix improvements were partially offset by the decrease in sales volumes described in the net sales analysis above.

Brazil Segment

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

 

 

For the Three Months Ended

 

 

 

 

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

24,253

 

 

 

100.0

 

 

$

20,862

 

 

 

100.0

 

 

 

16.3

 

Cost of sales

 

 

16,276

 

 

 

67.1

 

 

 

17,432

 

 

 

83.6

 

 

 

(6.6

)

Gross profit

 

 

7,977

 

 

 

32.9

 

 

 

3,430

 

 

 

16.4

 

 

 

132.6

 

Depreciation expense

 

 

321

 

 

 

1.3

 

 

 

357

 

 

 

1.8

 

 

 

(10.1

)

Segment Profit

 

$

8,298

 

 

 

34.2

 

 

$

3,787

 

 

 

18.2

 

 

 

119.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

   consolidated amounts

 

 

14.9

%

 

 

 

 

 

 

12.3

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

   consolidated amounts

 

 

26.5

%

 

 

 

 

 

 

18.2

%

 

 

 

 

 

 

 

 

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

Net sales for the prior period

 

$

20,862

 

Increase in sales volumes

 

 

4,514

 

Increase in average selling price

 

 

3,943

 

Unfavorable foreign currency translation effects

 

 

(5,066

)

Net sales for the current period

 

$

24,253

 

 

The increase in net sales for the Brazil Segment from the prior period to the current period was primarily attributable to an improvement in sales volumes due to the Brazil Segment’s ability to capture market share from competitors and maintain pricing levels, partially offset by unfavorable foreign currency translation effects.

The BRL weighted average exchange rate was 5.41 BRL/USD and 4.12 BRL/USD for the current period and the prior period, respectively.  

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

Segment Profit for the prior period

 

$

3,787

 

Increase in underlying margins

 

 

4,624

 

Increase in sales volumes

 

 

816

 

Unfavorable foreign currency translation effects

 

 

(929

)

Segment Profit for the current period

 

$

8,298

 

The increase in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to the segment’s ability to achieve favorable pricing and utilization levels under a temporarily strengthened competitive position.

24


 

Nylon 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 Nylon Segment, were as follows:

 

 

For the Three Months Ended

 

 

 

 

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

16,008

 

 

 

100.0

 

 

$

17,084

 

 

 

100.0

 

 

 

(6.3

)

Cost of sales

 

 

15,613

 

 

 

97.5

 

 

 

17,038

 

 

 

99.7

 

 

 

(8.4

)

Gross profit

 

 

395

 

 

 

2.5

 

 

 

46

 

 

 

0.3

 

 

 

758.7

 

Depreciation expense

 

 

438

 

 

 

2.7

 

 

 

503

 

 

 

2.9

 

 

 

(12.9

)

Segment Profit

 

$

833

 

 

 

5.2

 

 

$

549

 

 

 

3.2

 

 

 

51.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

   consolidated amounts

 

 

9.8

%

 

 

 

 

 

 

10.1

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

   consolidated amounts

 

 

2.7

%

 

 

 

 

 

 

2.6

%

 

 

 

 

 

 

 

 

 

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

Net sales for the prior period

 

$

17,084

 

Net change in average selling price and sales mix

 

 

(957

)

Decrease in sales volumes

 

 

(119

)

Net sales for the current period

 

$

16,008

 

The decrease in net sales for the Nylon Segment from the prior period to the current period was primarily attributable to a shift in sales mix following declines in hosiery demand.

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

Segment Profit for the prior period

 

$

549

 

Net increase in underlying margins

 

 

288

 

Decrease in sales volumes

 

 

(4

)

Segment Profit for the current period

 

$

833

 

Segment Profit for the Nylon Segment in the current period was comparably stronger primarily due to manufacturing efficiencies.

Review of Results of Operations

Six Months Ended December 27, 2020 Compared to Six Months Ended December 29, 2019

Consolidated Overview

The below tables provide:

 

the components of net income and the percentage increase or decrease over the prior fiscal year amounts,

 

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

 

a reconciliation from net income to Adjusted Net Income and Adjusted EPS.

Following the tables is a discussion and analysis of the significant components of net income.

Net income

 

 

For the Six Months Ended

 

 

 

 

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

304,281

 

 

 

100.0

 

 

$

349,460

 

 

 

100.0

 

 

 

(12.9

)

Cost of sales

 

 

263,786

 

 

 

86.7

 

 

 

316,352

 

 

 

90.5

 

 

 

(16.6

)

Gross profit

 

 

40,495

 

 

 

13.3

 

 

 

33,108

 

 

 

9.5

 

 

 

22.3

 

SG&A

 

 

23,989

 

 

 

7.9

 

 

 

23,488

 

 

 

6.7

 

 

 

2.1

 

Benefit for bad debts

 

 

(1,146

)

 

 

(0.4

)

 

 

(249

)

 

 

(0.1

)

 

nm

 

Other operating expense, net

 

 

1,654

 

 

 

0.5

 

 

 

962

 

 

 

0.3

 

 

 

71.9

 

Operating income

 

 

15,998

 

 

 

5.3

 

 

 

8,907

 

 

 

2.6

 

 

 

79.6

 

Interest expense, net

 

 

1,392

 

 

 

0.5

 

 

 

1,936

 

 

 

0.6

 

 

 

(28.1

)

Equity in (earnings) loss of unconsolidated affiliates

 

 

(223

)

 

 

(0.1

)

 

 

1,622

 

 

 

0.5

 

 

 

(113.7

)

Income before income taxes

 

 

14,829

 

 

 

4.9

 

 

 

5,349

 

 

 

1.5

 

 

 

177.2

 

Provision for income taxes

 

 

3,933

 

 

 

1.3

 

 

 

1,228

 

 

 

0.3

 

 

nm

 

Net income

 

$

10,896

 

 

 

3.6

 

 

$

4,121

 

 

 

1.2

 

 

 

164.4

 

nm – Not meaningful

25


 

EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)

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

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

Net income

 

$

10,896

 

 

$

4,121

 

Interest expense, net

 

 

1,392

 

 

 

1,936

 

Provision for income taxes

 

 

3,933

 

 

 

1,228

 

Depreciation and amortization expense (1)

 

 

12,068

 

 

 

11,485

 

EBITDA

 

 

28,289

 

 

 

18,770

 

 

 

 

 

 

 

 

 

 

Equity in loss of PAL

 

 

 

 

 

2,012

 

EBITDA excluding PAL

 

 

28,289

 

 

 

20,782

 

 

 

 

 

 

 

 

 

 

Severance (2)

 

 

 

 

 

383

 

Adjusted EBITDA

 

$

28,289

 

 

$

21,165

 

 

(1)

Within this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are reflected in interest expense, net. Within the accompanying condensed consolidated statements of cash flows, amortization of debt issuance costs is reflected in depreciation and amortization expense.

(2)

In the second quarter of fiscal 2020, UNIFI commenced a wind-down plan for its operations in Sri Lanka. The adjustment primarily reflects accrued severance and exit costs.

 

Adjusted Net Income and Adjusted EPS (Non-GAAP Measures)

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

 

 

For the Six Months Ended December 27, 2020

 

 

For the Six Months Ended December 29, 2019

 

 

 

Pre-tax Income

 

 

Tax Impact

 

 

Net Income

 

 

Diluted EPS

 

 

Pre-tax Income

 

 

Tax Impact

 

 

Net Income

 

 

Diluted EPS

 

GAAP results

 

$

14,829

 

 

$

(3,933

)

 

$

10,896

 

 

$

0.58

 

 

$

5,349

 

 

$

(1,228

)

 

$

4,121

 

 

$

0.22

 

Severance (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

383

 

 

 

(80

)

 

 

303

 

 

 

0.02

 

Adjusted results

 

$

14,829

 

 

$

(3,933

)

 

$

10,896

 

 

$

0.58

 

 

$

5,732

 

 

$

(1,308

)

 

$

4,424

 

 

$

0.24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

18,729

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,745

 

 

(1)

In the second quarter of fiscal 2020, UNIFI commenced a wind-down plan for its operations in Sri Lanka. The adjustment primarily reflects accrued severance and exit costs.  

Net Sales

Consolidated net sales decreased $45,179, or 12.9%, for the current six-month period in comparison to the prior six-month period primarily attributable to (i) the COVID-19 pandemic, (ii) lower nylon sales volumes, (iii) lower average selling prices, and (iv) unfavorable foreign currency translation.

Consolidated sales volumes decreased 4.1%, primarily attributable to (i) the adverse impact of the COVID-19 pandemic on product demand and (ii) lower sales in the Nylon Segment. However, the overall volume decrease was partially offset by the Brazil Segment, which was agile and responsive to COVID-19 pandemic-related demand fluctuations in the current six-month period and generated volume growth by capturing market share from competitors.

Once the COVID-19 pandemic subsides, we believe incremental revenue for the Polyester Segment will be generated from our polyester textured yarn trade petitions (i) completed in early calendar 2020 and (ii) recently filed. However, our Nylon Segment results continue to reflect the adverse impacts of (i) customers shifting certain programs to overseas garment production and (ii) the current global trend of declining demand for nylon socks, ladies’ hosiery and intimate apparel.

Consolidated average sales prices decreased 8.8%, primarily attributable to (i) a decline in higher-priced nylon product sales, (ii) sales price declines associated with polyester raw material cost changes, and (iii) unfavorable foreign currency translation.

REPREVE® Fiber products for the current six-month period comprised 36% of consolidated net sales, up from 32% for the prior six-month period and 31% for fiscal 2020.

Gross Profit

Gross profit for the current six-month period increased by $7,387, or 22.3%, as compared to the prior six-month period. The COVID-19 pandemic adversely impacted sales and production volumes in our Polyester and Nylon Segments, driving comparably lower profitability in the U.S. during the September 2020 quarter. However, the Brazil Segment outperformed the prior six-month period by capturing market share and maintaining strong conversion margin.  The COVID-19 pandemic also adversely impacted sales volumes in the Asia Segment.

26


 

 

For the Polyester Segment, gross profit benefited from a better sales mix, higher conversion margin and manufacturing cost improvements, but was adversely impacted by lower fixed cost absorption due to lower demand in the September 2020 quarter.

 

For the Asia Segment, gross profit increased from the prior six-month period primarily due to supply chain efficiencies driving lower costs for certain products and sales mix improvements, partially offset by lower demand levels driven by the COVID-19 pandemic.

 

For the Brazil Segment, gross profit increased from the prior six-month period primarily due to higher sales volumes and conversion margin due to temporary market share capture, partially offset by unfavorable foreign currency translation impacts.

 

For the Nylon Segment, gross profit decreased primarily due to lower demand levels driven by the COVID-19 pandemic.

SG&A

SG&A increased from the prior six-month period, primarily due to higher accrued incentive compensation, partially offset by lower professional fees and travel and entertainment expenses in the current six-month period.

Benefit for Bad Debts

The current six-month period benefit for bad debts reflects general improvement in customer payment frequency following the adverse effects of the COVID-19 pandemic on customer health.

Other Operating Expense, Net

The current six-month period and the prior six-month period both reflect severance charges, along with foreign currency transaction losses of $606 and $30 in the current six-month period and in the prior six-month period, respectively.

Interest Expense, Net

Interest expense, net decreased from the prior six-month period to the current six-month period, primarily attributable to a lower average debt principal. The components of consolidated interest expense, net were as follows:

 

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

Interest and fees on the ABL Facility

 

$

1,497

 

 

$

2,049

 

Other interest

 

 

180

 

 

 

240

 

Subtotal of interest on debt obligations

 

 

1,677

 

 

 

2,289

 

Other components of interest expense

 

 

27

 

 

 

69

 

Total interest expense

 

 

1,704

 

 

 

2,358

 

Interest income

 

 

(312

)

 

 

(422

)

Interest expense, net

 

$

1,392

 

 

$

1,936

 

Equity in (Earnings) Loss of Unconsolidated Affiliates

The components of equity in (earnings) loss of unconsolidated affiliates were as follows:

 

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

Loss from PAL

 

$

 

 

$

2,012

 

Earnings from nylon joint ventures

 

 

(223

)

 

 

(390

)

Total equity in (earnings) loss of unconsolidated affiliates

 

$

(223

)

 

$

1,622

 

 

 

 

 

 

 

 

 

 

As a percentage of consolidated income before income taxes

 

 

1.5

%

 

 

(30.3

)%

On April 29, 2020, UNIFI sold its 34% non-controlling partnership interest in PAL. The comparative decrease in loss from PAL reflects a loss recorded in the prior six-month period with no results recorded in the current six-month period.

Income Taxes

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

 

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

Provision for income taxes

 

$

3,933

 

 

$

1,228

 

Effective tax rate

 

 

26.5

%

 

 

23.0

%

 

The effective tax rate is subject to variation due to numerous factors, including variability in the amount of income before income taxes, 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 greater when income before income taxes is lower.

 

27


 

 

The increase in the effective tax rate from the prior six-month period to the current six-month period is primarily attributable to (i) an expense recorded in the current six-month period to increase the valuation allowance for deferred tax assets, (ii) a higher rate impact of U.S. tax on GILTI in the current six-month period, and (iii) a benefit for foreign tax credits in the prior six-month period. This increase is partially offset by a discrete benefit in the current six-month period for the retroactive GILTI high-tax exclusion for prior periods.

Net Income

Net income for the current six-month period was $10,896, or $0.58 per share, compared to net income of $4,121 or $0.22 per share, for the prior six-month period. The change in net income was primarily attributable to higher gross profit in the Brazil and Asia Segments in the current six-month period and a loss from PAL in the prior six-month period, partially offset by unfavorable foreign currency impacts.

Adjusted EBITDA (Non-GAAP Financial Measure)

Adjusted EBITDA increased from the prior six-month period to the current six-month period, primarily attributable to higher gross profit.

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.

Polyester 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 Polyester Segment, were as follows:

 

 

 

For the Six Months Ended

 

 

 

 

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

145,772

 

 

 

100.0

 

 

$

171,445

 

 

 

100.0

 

 

 

(15.0

)

Cost of sales

 

 

130,245

 

 

 

89.4

 

 

 

156,990

 

 

 

91.6

 

 

 

(17.0

)

Gross profit

 

 

15,527

 

 

 

10.6

 

 

 

14,455

 

 

 

8.4

 

 

 

7.4

 

Depreciation expense

 

 

8,873

 

 

 

6.1

 

 

 

8,224

 

 

 

4.8

 

 

 

7.9

 

Segment Profit

 

$

24,400

 

 

 

16.7

 

 

$

22,679

 

 

 

13.2

 

 

 

7.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

  consolidated amounts

 

 

47.9

%

 

 

 

 

 

 

49.1

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

  consolidated amounts

 

 

47.5

%

 

 

 

 

 

 

52.5

%

 

 

 

 

 

 

 

 

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

 

Net sales for the prior six-month period

 

$

171,445

 

Net change in average selling price and sales mix

 

 

(13,377

)

Decrease in sales volumes

 

 

(12,296

)

Net sales for the current six-month period

 

$

145,772

 

The decrease in net sales for the Polyester Segment from the prior six-month period to the current six-month period was primarily attributable to (i) the adverse impact of COVID-19 pandemic on market demand, (ii) lower average selling prices associated with lower polyester raw material costs, and (iii) a higher proportion of Flake sales, which carry lower sales prices than other products.

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

 

Segment Profit for the prior six-month period

 

$

22,679

 

Change in underlying margins and sales mix

 

 

3,347

 

Decrease in sales volumes

 

 

(1,626

)

Segment Profit for the current six-month period

 

$

24,400

 

The increase in Segment Profit for the Polyester Segment from the prior six-month period to the current six-month period was primarily attributable to a better sales mix, stable conversion margin and manufacturing cost improvements, partially offset by lower sales volumes experienced in the September 2020 quarter in connection with the COVID-19 pandemic.

Asia 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 Asia Segment, were as follows:

 

28


 

 

 

 

For the Six Months Ended

 

 

 

 

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

82,415

 

 

 

100.0

 

 

$

93,875

 

 

 

100.0

 

 

 

(12.2

)

Cost of sales

 

 

71,309

 

 

 

86.5

 

 

 

84,076

 

 

 

89.6

 

 

 

(15.2

)

Gross profit

 

 

11,106

 

 

 

13.5

 

 

 

9,799

 

 

 

10.4

 

 

 

13.3

 

Depreciation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Profit

 

$

11,106

 

 

 

13.5

 

 

$

9,799

 

 

 

10.4

 

 

 

13.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

  consolidated amounts

 

 

27.1

%

 

 

 

 

 

 

26.9

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

  consolidated amounts

 

 

21.6

%

 

 

 

 

 

 

22.7

%

 

 

 

 

 

 

 

 

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

 

Net sales for the prior six-month period

 

$

93,875

 

Decrease in sales volumes of Chip and staple fiber

 

 

(12,332

)

Change in average selling price and sales mix

 

 

(6,900

)

Net increase in sales volumes of certain other products

 

 

4,083

 

Favorable foreign currency translation effects

 

 

3,689

 

Net sales for the current six-month period

 

$

82,415

 

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 overall lower sales volumes and average selling prices driven by the adverse impacts of the COVID-19 pandemic, partially offset by the continued momentum of REPREVE®-branded products.

The RMB weighted average exchange rate was 6.75 RMB/USD and 7.03 RMB/USD for the current six-month period and the prior six-month period, respectively.  

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

 

Segment Profit for the prior six-month period

 

$

9,799

 

Change in underlying margins and sales mix

 

 

1,840

 

Favorable foreign currency translation effects

 

 

406

 

Decrease in sales volumes

 

 

(939

)

Segment Profit for the current six-month period

 

$

11,106

 

The increase in Segment Profit for the Asia Segment from the prior six-month period to the current six-month period was primarily attributable to raw material cost benefits achieved on certain product lines and sales mix improvements, partially offset by the decrease in sales volumes described in the net sales analysis above.

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 27, 2020

 

 

December 29, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

46,859

 

 

 

100.0

 

 

$

45,034

 

 

 

100.0

 

 

 

4.1

 

Cost of sales

 

 

34,269

 

 

 

73.1

 

 

 

37,445

 

 

 

83.1

 

 

 

(8.5

)

Gross profit

 

 

12,590

 

 

 

26.9

 

 

 

7,589

 

 

 

16.9

 

 

 

65.9

 

Depreciation expense

 

 

751

 

 

 

1.6

 

 

 

732

 

 

 

1.6

 

 

 

2.6

 

Segment Profit

 

$

13,341

 

 

 

28.5

 

 

$

8,321

 

 

 

18.5

 

 

 

60.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

  consolidated amounts

 

 

15.4

%

 

 

 

 

 

 

12.9

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

  consolidated amounts

 

 

26.0

%

 

 

 

 

 

 

19.3

%

 

 

 

 

 

 

 

 

29


 

 

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

Net sales for the prior six-month period

 

$

45,034

 

Increase in sales volumes

 

 

9,129

 

Increase in average selling price and change in sales mix

 

 

4,052

 

Unfavorable foreign currency translation effects

 

 

(11,356

)

Net sales for the current six-month period

 

$

46,859

 

 

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 an improvement in sales volumes due to the Brazil Segment’s ability to capture market share from competitors during the first six months of fiscal 2021, partially offset by unfavorable foreign currency translation effects.

The BRL weighted average exchange rate was 5.40 BRL/USD and 4.04 BRL/USD for the current six-month period and the prior six-month period, respectively.  

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

Segment Profit for the prior six-month period

 

$

8,321

 

Increase in underlying margins

 

 

5,437

 

Increase in sales volumes

 

 

1,685

 

Unfavorable foreign currency translation effects

 

 

(2,102

)

Segment Profit for the current six-month period

 

$

13,341

 

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 an improved sales mix and conversion margin combined with higher sales volumes stemming from a temporarily improved competitive position in Brazil, partially offset by unfavorable foreign currency translation effects.

Nylon 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 Nylon Segment, were as follows:

 

 

 

For the Six Months Ended

 

 

 

 

 

 

 

December 27, 2020

 

 

December 29, 2019

 

 

 

 

 

 

 

 

 

 

 

% of

Net Sales

 

 

 

 

 

 

% of

Net Sales

 

 

%

Change

 

Net sales

 

$

27,037

 

 

 

100.0

 

 

$

37,286

 

 

 

100.0

 

 

 

(27.5

)

Cost of sales

 

 

25,977

 

 

 

96.1

 

 

 

36,062

 

 

 

96.7

 

 

 

(28.0

)

Gross profit

 

 

1,060

 

 

 

3.9

 

 

 

1,224

 

 

 

3.3

 

 

 

(13.4

)

Depreciation expense

 

 

880

 

 

 

3.3

 

 

 

994

 

 

 

2.7

 

 

 

(11.5

)

Segment Profit

 

$

1,940

 

 

 

7.2

 

 

$

2,218

 

 

 

6.0

 

 

 

(12.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net sales as a percentage of

  consolidated amounts

 

 

8.9

%

 

 

 

 

 

 

10.7

%

 

 

 

 

 

 

 

 

Segment Profit as a percentage of

  consolidated amounts

 

 

3.8

%

 

 

 

 

 

 

5.1

%

 

 

 

 

 

 

 

 

 

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

 

Net sales for the prior six-month period

 

$

37,286

 

Decrease in sales volumes

 

 

(7,982

)

Net change in average selling price and sales mix

 

 

(2,267

)

Net sales for the current six-month period

 

$

27,037

 

The decrease in net sales for the Nylon Segment from the prior six-month period to the current six-month period was primarily attributable to (i) demand declines in connection with the COVID-19 pandemic and (ii) a customer shifting certain programs to overseas garment production subsequent to the prior six-month period, contributing to (iii) a weaker sales mix following declines in hosiery demand.

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

Segment Profit for the prior six-month period

 

$

2,218

 

Decrease in sales volumes

 

 

(475

)

Net increase in underlying margins

 

 

197

 

Segment Profit for the current six-month period

 

$

1,940

 

 

The decrease in Segment Profit for the Nylon Segment from the prior six-month period to the current six-month period was primarily attributable to lower sales, as described in the net sales analysis above.

30


 

Liquidity and Capital Resources

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 and borrowings available under the ABL Revolver of its credit facility.  For the current six-month period, cash generated from operations was $19,726, and, at December 27, 2020, excess availability under the ABL Revolver was $56,039.

As of December 27, 2020, all of UNIFI’s $92,896 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, while 40% of UNIFI’s cash and cash equivalents were held by its foreign subsidiaries. Cash and cash equivalents held by foreign subsidiaries may not be presently available to fund UNIFI’s domestic capital requirements, including its domestic debt obligations. UNIFI employs a variety of strategies to ensure that its worldwide cash is available in the locations where it is needed. The following table presents a summary of cash and cash equivalents, borrowings available under financing arrangements, liquidity, working capital and total debt obligations as of December 27, 2020 for domestic operations compared to foreign operations:  

 

 

 

Domestic

 

 

Foreign

 

 

Total

 

Cash and cash equivalents

 

$

50,180

 

 

$

33,141

 

 

$

83,321

 

Borrowings available under financing arrangements

 

 

56,039

 

 

 

 

 

 

56,039

 

Liquidity

 

$

106,219

 

 

$

33,141

 

 

$

139,360

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

$

105,791

 

 

$

110,756

 

 

$

216,547

 

Total debt obligations

 

$

92,896

 

 

$

 

 

$

92,896

 

 

COVID-19 Pandemic Liquidity Considerations

Because global economic activity slowed within a short period of time, the COVID-19 pandemic introduced liquidity risk that was not present prior to calendar 2020. UNIFI believes that aggressive and prudent actions are necessary to preserve liquidity in the current economic environment, which is pressured by global demand declines that began in March 2020. Accordingly, to minimize the disruption to operations that could result from outbreaks among UNIFI employees, UNIFI has prioritized health and safety measures that include restricting travel and group meetings, enforcing social distancing and healthy habits, increased sanitation and disinfection and increased wellness monitoring. Additionally, the following aid in reducing risk and ensuring adequate cash is available to fund ongoing operations and obligations:

 

Managing working capital levels and ensuring higher inventory turns.

 

Participating in the supply chain for personal protective equipment and new customer programs.

 

Lowering discretionary expenses that focus on long-term returns, such as marketing, event and other commercial expenses.

 

Maintaining significant cash reserves from the proceeds from the PAL Investment sale in April 2020.

While we currently expect our significant cash balances and available borrowings to provide adequate liquidity during the on-going COVID-19 pandemic, should global demand and economic activity remain subdued beyond the short-term, UNIFI maintains the ability to (i) pursue aid and lending programs from governmental entities, (ii) seek additional credit or financing arrangements or extensions of existing arrangements, and (iii) implement further cost reduction initiatives to preserve cash and secure the longevity of the business and operations.

The following further describe the current strength of UNIFI’s liquidity position and access to capital resources:

 

We have not accessed public or private capital markets for recent liquidity needs.

 

We do not currently expect our cost of or access to existing capital and funding sources to materially change as a result of the COVID-19 pandemic; however, new capital and funding sources (if any) may carry higher costs than our current structure.

 

We have not taken advantage of rent, lease or debt deferrals, forbearance periods or other concessions, nor have we modified any material agreements to provide concessions.

 

We have not relied on supply chain financing, structured trade payables or vendor financing.

 

We are not at material risk of not meeting our financial covenants.

 

We continue to maintain significant borrowing availability on our existing credit facility.

Lastly, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) allowed UNIFI to defer certain employer payroll tax payments to future periods, extend utilization of a net operating loss carryback, and attain certain employee retention credits, all of which are not material to our short- and long-term liquidity position. We have not applied for or obtained any other material federal or state assistance.

31


 

Debt Obligations

The following table presents the total balances outstanding for UNIFI’s debt obligations, their scheduled maturity dates and the weighted average interest rates for borrowings as well as the applicable current portion of long-term debt:

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

Scheduled

 

Interest Rate as of

 

 

Principal Amounts as of

 

 

 

Maturity Date

 

December 27, 2020

 

 

December 27, 2020

 

 

June 28, 2020

 

ABL Revolver

 

December 2023

 

0.0%

 

 

$

 

 

$

 

ABL Term Loan (1)

 

December 2023

 

3.3%

 

 

 

82,500

 

 

 

87,500

 

Finance lease obligations

 

(2)

 

3.6%

 

 

 

10,396

 

 

 

11,381

 

Total debt

 

 

 

 

 

 

 

 

92,896

 

 

 

98,881

 

Current ABL Term Loan

 

 

 

 

 

 

 

 

(10,000

)

 

 

(10,000

)

Current portion of finance lease obligations

 

 

 

 

 

 

 

 

(3,683

)

 

 

(3,563

)

Unamortized debt issuance costs

 

 

 

 

 

 

 

 

(592

)

 

 

(711

)

Total long-term debt

 

 

 

 

 

 

 

$

78,621

 

 

$

84,607

 

 

(1)     Includes the effects of interest rate swaps.

(2)     Scheduled maturity dates for finance lease obligations range from May 2022 to November 2027.

As of December 27, 2020:

 

UNIFI was in compliance with all financial covenants in the Credit Agreement,

 

excess availability under the ABL Revolver was $56,039,

 

the Trigger Level (as defined in the Credit Agreement) was $22,813, and

 

$0 of standby letters of credit were outstanding.

UNIFI currently maintains three interest rate swaps that fix LIBOR at approximately 1.9% on $75,000 of variable-rate debt. Such swaps are scheduled to terminate in May 2022. Management will continue to monitor the potential termination of LIBOR and the potential impact on UNIFI’s operations. However, management does not expect (i) significant efforts are necessary to accommodate a termination of LIBOR or (ii) a significant impact to UNIFI’s operations upon a termination of LIBOR.

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.

Scheduled Debt Maturities

The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the remainder of fiscal 2021, the following four fiscal years and thereafter:

 

 

Fiscal 2021

 

 

Fiscal 2022

 

 

Fiscal 2023

 

 

Fiscal 2024

 

 

Fiscal 2025

 

 

Thereafter

 

ABL Revolver

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

ABL Term Loan

 

 

5,000

 

 

 

10,000

 

 

 

10,000

 

 

 

57,500

 

 

 

 

 

 

 

Finance lease obligations

 

 

1,921

 

 

 

3,545

 

 

 

1,257

 

 

 

1,301

 

 

 

1,195

 

 

 

1,177

 

Total

 

$

6,921

 

 

$

13,545

 

 

$

11,257

 

 

$

58,801

 

 

$

1,195

 

 

$

1,177

 

Net Debt (Non-GAAP Financial Measure)

The reconciliations for Net Debt are as follows:

 

 

December 27, 2020

 

 

June 28, 2020

 

Long-term debt

 

$

78,621

 

 

$

84,607

 

Current portion of long-term debt

 

 

13,683

 

 

 

13,563

 

Unamortized debt issuance costs

 

 

592

 

 

 

711

 

Debt principal

 

 

92,896

 

 

 

98,881

 

Less: cash and cash equivalents

 

 

83,321

 

 

 

75,267

 

Net Debt

 

$

9,575

 

 

$

23,614

 

32


 

 

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

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

 

 

 

December 27, 2020

 

 

June 28, 2020

 

Cash and cash equivalents

 

$

83,321

 

 

$

75,267

 

Receivables, net

 

 

83,124

 

 

 

53,726

 

Inventories

 

 

111,489

 

 

 

109,704

 

Income taxes receivable

 

 

9,283

 

 

 

4,033

 

Other current assets

 

 

10,282

 

 

 

11,763

 

Accounts payable

 

 

(38,786

)

 

 

(25,610

)

Accrued expenses

 

 

(20,331

)

 

 

(13,689

)

Other current liabilities

 

 

(21,835

)

 

 

(15,695

)

Working capital

 

$

216,547

 

 

$

199,499

 

 

 

 

 

 

 

 

 

 

Less: Cash and cash equivalents

 

 

(83,321

)

 

 

(75,267

)

Less: Income taxes receivable

 

 

(9,283

)

 

 

(4,033

)

Less: Other current liabilities

 

 

21,835

 

 

 

15,695

 

Adjusted Working Capital

 

$

145,778

 

 

$

135,894

 

 

Working capital increased from $199,499 as of June 28, 2020 to $216,547 as of December 27, 2020, while Adjusted Working Capital increased from $135,894 to $145,778.

 

The increase in cash and cash equivalents was driven by the operating cash flows generated by our global operations. The increase in receivables, net was primarily attributable to increased sales in the current six-month period following low sales activity in the June 2020 quarter due to significantly suppressed demand levels caused by the COVID-19 pandemic. The increase in inventories was insignificant. The decrease in other current assets was primarily due to the amount and timing of contract assets revenue recognition. The increase in accounts payable was consistent with the increase in sales and production activity. The increase in accrued expenses was primarily attributable to an increase in deferred revenue for increased sales activity in the Asia Segment and higher incentive compensation accruals in the current six-month period.

Capital Projects

During the current six-month period, UNIFI invested $6,035 in capital projects, primarily relating to (i) further improvements in production capabilities and technology enhancements in the Americas, (ii) eAFK Evo texturing machinery, and (iii) routine annual maintenance capital expenditures.  Maintenance capital expenditures are necessary to support UNIFI’s current operations, capacities and capabilities and exclude expenses relating to repairs and costs that do not extend an asset’s useful life.

For the remainder of fiscal 2021, we expect to invest approximately $18,000 in capital projects for an aggregate annual estimate of approximately $24,000, to include (i) making further improvements in production capabilities and technology enhancements in the Americas, (ii) continuing the purchase and installation of new eAFK Evo texturing machines, and (iii) annual maintenance capital expenditures.

The total amount ultimately invested for fiscal 2021 could be more or less than the currently estimated amount depending on the timing and scale of contemplated initiatives and is expected to be funded primarily by existing cash and cash equivalents.  UNIFI expects recent and future capital projects to provide benefits to future profitability. The additional assets from these capital projects consist primarily of machinery and equipment.

Share Repurchase Program

On October 31, 2018, the Board approved the 2018 SRP under which UNIFI is authorized to acquire up to $50,000 of its common stock. Under the 2018 SRP, purchases will be made from time to time in the open market at prevailing market prices or through private transactions or block trades. The timing and amount of repurchases will depend on market conditions, share price, applicable legal requirements and other factors. The share repurchase authorization is discretionary and has no expiration date.

 

As of December 27, 2020, UNIFI repurchased a total of 84 shares, at an average price of $23.72 (for a total of $1,994 inclusive of commission costs) pursuant to the 2018 SRP.  $48,008 remains available under the 2018 SRP as of December 27, 2020.

Liquidity Summary

UNIFI has met its historical liquidity requirements for working capital, capital expenditures, debt service requirements and other operating needs from its cash flows from operations and available borrowings.  UNIFI believes that its existing cash balances, cash provided by operating activities and borrowings available under the ABL Revolver will enable UNIFI to comply with the terms of its indebtedness and meet its foreseeable liquidity requirements.  Domestically, UNIFI’s cash balances, cash provided by operating activities and borrowings available under the ABL Revolver continue to be sufficient to fund UNIFI’s domestic operating activities as well as cash commitments for its investing and financing activities.  For its foreign operations, UNIFI expects its existing cash balances and cash provided by operating activities will provide the needed liquidity to fund its foreign operating activities and any foreign investing activities, such as future capital expenditures. However, expansion of our foreign operations may require cash sourced from our domestic subsidiaries.

33


 

Operating Cash Flows

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

 

 

 

For the Six Months Ended

 

 

 

December 27, 2020

 

 

December 29, 2019

 

Net income

 

$

10,896

 

 

$

4,121

 

Equity in (earnings) loss of unconsolidated affiliates

 

 

(223

)

 

 

1,622

 

Depreciation and amortization expense

 

 

12,187

 

 

 

11,610

 

Non-cash compensation expense

 

 

1,816

 

 

 

1,837

 

Deferred income taxes

 

 

(1,700

)

 

 

(878

)

Subtotal

 

 

22,976

 

 

 

18,312

 

 

 

 

 

 

 

 

 

 

Distributions received from unconsolidated affiliates

 

 

 

 

 

10,437

 

Other changes

 

 

(3,250

)

 

 

(114

)

Net cash provided by operating activities

 

$

19,726

 

 

$

28,635

 

 

The decrease in net cash provided by operating activities from the prior six-month period was primarily due to $10,437 of distributions received from PAL in September 2019, while higher Adjusted EBITDA was partially offset by an increase in Adjusted Working Capital in the current six-month period, both commensurate with business recovery since June 2020.

Investing Cash Flows

Investing activities include $6,035 for capital expenditures, which primarily relate to ongoing maintenance capital expenditures along with production capabilities and technology enhancements in the Americas.

Financing Cash Flows

Financing activities include payments against the ABL Term Loan and finance leases during fiscal 2021.

Contractual Obligations

UNIFI has incurred various financial obligations and commitments in its normal course of business.  Financial obligations are considered to represent known future cash payments that UNIFI is required to make under existing contractual arrangements, such as debt and lease agreements.

There have been no material changes in the scheduled maturities of UNIFI’s contractual obligations as disclosed in the table under the heading “Contractual Obligations” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2020 Form 10-K.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  The SEC has defined a company’s most critical accounting policies as those involving accounting estimates that require management to make assumptions about matters that are highly uncertain at the time and where different reasonable estimates or changes in the accounting estimate from quarter to quarter could materially impact the presentation of the financial statements.  UNIFI’s critical accounting policies are discussed in the 2020 Form 10-K.  There were no material changes to these policies during the current six-month period.

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

UNIFI is exposed to market risks associated with changes in interest rates, fluctuations in foreign currency exchange rates, and raw material and commodity costs, which may adversely affect its financial position, results of operations or cash flows.  UNIFI does not enter into derivative financial instruments for trading purposes, nor is it a party to any leveraged financial instruments.

Interest Rate Risk

UNIFI is exposed to interest rate risk through its borrowing activities.  As of December 27, 2020, UNIFI had borrowings under its ABL Revolver and ABL Term Loan that totaled $82,500 and contain variable rates of interest; however, UNIFI hedges a significant portion of such interest rate variability using interest rate swaps.  After considering the variable rate debt obligations that have been hedged and UNIFI’s outstanding debt obligations with fixed rates of interest, UNIFI’s sensitivity analysis indicates that a 50-basis point increase in LIBOR as of December 27, 2020 would result in an increase in annual interest expense of less than $100.

34


 

Foreign Currency Exchange Rate Risk

UNIFI conducts its business in various foreign countries and in various foreign currencies.  Each of UNIFI’s subsidiaries may enter into transactions (sales, purchases, fixed purchase commitments, etc.) that are denominated in currencies other than the subsidiary’s functional currency and thereby expose UNIFI to foreign currency exchange rate risk.  UNIFI may enter into foreign currency forward contracts to hedge this exposure.  UNIFI may also enter into foreign currency forward contracts to hedge its exposure for certain equipment or inventory purchase commitments.  As of December 27, 2020, UNIFI had no outstanding foreign currency forward contracts.

A significant portion of raw materials purchased by UNIFI’s Brazilian subsidiary are denominated in USDs, requiring UNIFI to regularly exchange BRL. A significant portion of sales and asset balances for our Asian subsidiaries are denominated in USDs. During recent fiscal years, UNIFI was negatively impacted by a devaluation of the BRL.  Also, the RMB experienced fluctuations in value at times during fiscal 2021, 2020 and 2019, which generated foreign currency translation losses in certain fiscal quarters. Discussion and analysis surrounding the impact of the devaluation of the BRL and fluctuations in the value of the RMB on UNIFI’s results of operations are included above in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

As of December 27, 2020, UNIFI’s subsidiaries outside the U.S., whose functional currency is other than the USD, held approximately 22.4% of UNIFI’s consolidated total assets. UNIFI does not enter into foreign currency derivatives to hedge its net investment in its foreign operations.

As of December 27, 2020, $29,268, or 35.1%, of UNIFI’s cash and cash equivalents were held outside the U.S., of which $12,866 was held in USDs, $6,245 was held in RMB and $9,730 was held in BRL. Approximately $3,700 of USD were held inside the U.S. by a foreign subsidiary.

Raw Material and Commodity Risks

A significant portion of UNIFI’s raw material and energy costs are derived from petroleum-based chemicals.  The prices for petroleum and petroleum-related products and related energy costs are volatile and dependent on global supply and demand dynamics, including certain geo-political risks.  A sudden rise in the price of petroleum and petroleum-based products could have a material impact on UNIFI’s profitability.  UNIFI does not use financial instruments to hedge its exposure to changes in these costs.  The costs of the primary raw materials that UNIFI uses throughout all of its operations are generally based on USD pricing, and such materials are purchased at market or at fixed prices that are established with individual vendors as part of the purchasing process for quantities expected to be consumed in the ordinary course of business.  UNIFI manages fluctuations in the cost of raw materials primarily by making corresponding adjustments to the prices charged to its customers.  Certain customers are subject to an index-based pricing model in which UNIFI’s prices are adjusted based on the change in the cost of raw materials in the prior quarter.  Pricing adjustments for other customers must be negotiated independently.  UNIFI attempts to pass on to its customers increases in raw material costs but due to market pressures, this is not always possible. When price increases can be implemented, there is typically a time lag that adversely affects UNIFI and its margins during one or more quarters.  In ordinary market conditions in which raw material price increases have stabilized and sales volumes are consistent with traditional levels, UNIFI has historically been successful in implementing price adjustments within one to two fiscal quarters of the raw material price increase for its index priced customers and within two fiscal quarters of the raw material price increase for its non-index priced customers.

During fiscal 2019 and 2018, UNIFI operated in a predominantly increasing raw material cost environment. UNIFI believes those higher costs were primarily a result of volatility in the crude oil markets, along with periods of supply and demand constraints for certain polyester feedstock.

During fiscal 2020 and the first six months of fiscal 2021, UNIFI has experienced a predominantly favorable, declining raw material cost environment. However, our raw material costs remain subject to the volatility described above and, should raw material costs increase unexpectedly, UNIFI’s results of operations and cash flows are likely to be adversely impacted.

Other Risks

UNIFI is also exposed to political risk, including changing laws and regulations governing international trade, such as quotas, tariffs and tax laws.  The degree of impact and the frequency of these events cannot be predicted.

Item 4.

Controls and Procedures

As of December 27, 2020, an evaluation of the effectiveness of UNIFI’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was performed under the supervision and with the participation of UNIFI’s management, including the principal executive officer and principal financial officer. Based on that evaluation, UNIFI’s principal executive officer and principal financial officer concluded that UNIFI’s disclosure controls and procedures are effective to ensure that information required to be disclosed by UNIFI in its reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that information required to be disclosed by UNIFI in the reports UNIFI files or submits under the Exchange Act is accumulated and communicated to UNIFI’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in UNIFI’s internal control over financial reporting during the three months ended December 27, 2020 that have materially affected, or are reasonably likely to materially affect, UNIFI’s internal control over financial reporting.

35


 

PART II—OTHER INFORMATION

Item 1.

We are from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. With respect to all such lawsuits, claims and proceedings, we record reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. We do not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on our results of operations, financial position or cash flows. We maintain liability insurance for certain risks that is subject to certain self-insurance limits.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

 

Item 6.

Exhibits

 

Exhibit No.

 

Description

 

 

 

3.1

 

Restated Certificate of Incorporation of Unifi, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed October 31, 2016 (File No. 001-10542)).

 

 

 

3.2

 

Amended and Restated By-laws of Unifi, Inc., as of October 26, 2016 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed October 31, 2016 (File No. 001-10542)).

 

 

 

3.3

 

Declaration of Amendment to the Amended and Restated By-laws of Unifi, Inc. effective April 30, 2019 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed May 1, 2019 (File No. 001-10542)).

 

 

 

31.1+

 

Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2+

 

Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1++

 

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2++

 

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

 

+

Filed herewith.

++

Furnished herewith.

 

36


 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

UNIFI, INC.

 

 

(Registrant)

 

 

 

 

Date: February 3, 2021

 

By:

/s/ CRAIG A. CREATURO

 

 

 

Craig A. Creaturo

 

 

 

Executive Vice President & Chief Financial Officer

 

 

 

(Principal Financial Officer and Principal

Accounting Officer)

 

 

37

ufi-ex311_9.htm

Exhibit 31.1

CERTIFICATION

I, Edmund M. Ingle, certify that:

1.  I have reviewed this Quarterly Report on Form 10-Q of Unifi, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:

 February 3, 2021

 

 

/s/ EDMUND M. INGLE

 

 

 

 

Edmund M. Ingle

 

 

 

 

Chief Executive Officer

 

 

 

 

(Principal Executive Officer)

 

ufi-ex312_7.htm

Exhibit 31.2

CERTIFICATION

I, Craig A. Creaturo, certify that:

1.  I have reviewed this Quarterly Report on Form 10-Q of Unifi, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:

 February 3, 2021

 

/s/ CRAIG A. CREATURO

 

 

 

Craig A. Creaturo

 

 

 

Executive Vice President & Chief Financial Officer

 

 

 

(Principal Financial Officer)

 

ufi-ex321_6.htm

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Unifi, Inc. (the “Company”) for the period ended December 27, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edmund M. Ingle, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:

February 3, 2021

 

 

/s/ EDMUND M. INGLE

 

 

 

 

Edmund M. Ingle

 

 

 

 

Chief Executive Officer

 

 

 

 

(Principal Executive Officer)

 

ufi-ex322_8.htm

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Unifi, Inc. (the “Company”) for the period ended December 27, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Craig A. Creaturo, Executive Vice President & Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date:

February 3, 2021

 

 

/s/ CRAIG A. CREATURO

 

 

 

 

Craig A. Creaturo

 

 

 

 

Executive Vice President & Chief Financial Officer

 

 

 

 

(Principal Financial Officer)