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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 October 1, 2023

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 November 3, 2023, there were 18,116,605 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; 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 the Company’s 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 the Company’s facilities;
the disruption of operations, global demand, or financial performance as a result of catastrophic or extraordinary events, including, but not limited to, epidemics or pandemics such as strains of coronavirus (such as “COVID-19”);
the success of the Company’s strategic business initiatives;
the volatility of financial and credit markets, including the impacts of counterparty risk (e.g. deposit concentration and recent depositor sentiment and activity);
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 the Company’s brands;
employee relations;
the ability to attract, retain, and motivate key employees;
the impact of climate change or 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 July 2, 2023 or in the Company’s other periodic reports and information filed with the Securities and Exchange Commission (the “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 ENDED OCTOBER 1, 2023

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Page

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of October 1, 2023 and July 2, 2023

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended October 1, 2023 and October 2, 2022

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended October 1, 2023 and October 2, 2022

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended October 1, 2023 and October 2, 2022

 

4

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

5

 

 

 

 

 

Item 2.

 

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

 

13

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

21

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

22

 

PART II—OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

23

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

23

 

 

 

 

 

Item 6.

 

Exhibits

 

23

 

 

 

 

 

 

 

Signatures

 

24

 

 

 

 

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)

 

 

October 1, 2023

 

 

July 2, 2023

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

51,515

 

 

$

46,960

 

Receivables, net

 

 

78,706

 

 

 

83,725

 

Inventories

 

 

136,092

 

 

 

150,810

 

Income taxes receivable

 

 

1,592

 

 

 

238

 

Other current assets

 

 

9,419

 

 

 

12,327

 

Total current assets

 

 

277,324

 

 

 

294,060

 

Property, plant and equipment, net

 

 

212,634

 

 

 

218,521

 

Operating lease assets

 

 

7,576

 

 

 

7,791

 

Deferred income taxes

 

 

4,094

 

 

 

3,939

 

Other non-current assets

 

 

14,633

 

 

 

14,508

 

Total assets

 

$

516,261

 

 

$

538,819

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Accounts payable

 

$

37,064

 

 

$

44,455

 

Income taxes payable

 

 

996

 

 

 

789

 

Current operating lease liabilities

 

 

1,885

 

 

 

1,813

 

Current portion of long-term debt

 

 

12,323

 

 

 

12,006

 

Other current liabilities

 

 

16,443

 

 

 

12,932

 

Total current liabilities

 

 

68,711

 

 

 

71,995

 

Long-term debt

 

 

128,890

 

 

 

128,604

 

Non-current operating lease liabilities

 

 

5,842

 

 

 

6,146

 

Deferred income taxes

 

 

2,999

 

 

 

3,364

 

Other long-term liabilities

 

 

4,790

 

 

 

5,100

 

Total liabilities

 

 

211,232

 

 

 

215,209

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.10 par value (500,000,000 shares authorized; 18,084,522 and 18,081,538
   shares issued and outstanding as of October 1, 2023 and July 2, 2023, respectively)

 

 

1,808

 

 

 

1,808

 

Capital in excess of par value

 

 

69,130

 

 

 

68,901

 

Retained earnings

 

 

293,522

 

 

 

306,792

 

Accumulated other comprehensive loss

 

 

(59,431

)

 

 

(53,891

)

Total shareholders’ equity

 

 

305,029

 

 

 

323,610

 

Total liabilities and shareholders’ equity

 

$

516,261

 

 

$

538,819

 

 

See accompanying notes to condensed consolidated financial statements.

1


 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except per share amounts)

 

 

For the Three Months Ended

 

 

 

October 1, 2023

 

 

October 2, 2022

 

Net sales

 

$

138,844

 

 

$

179,519

 

Cost of sales

 

 

139,419

 

 

 

172,956

 

Gross (loss) profit

 

 

(575

)

 

 

6,563

 

Selling, general and administrative expenses

 

 

11,609

 

 

 

11,773

 

(Benefit) provision for bad debts

 

 

(209

)

 

 

174

 

Other operating expense (income), net

 

 

54

 

 

 

(689

)

Operating loss

 

 

(12,029

)

 

 

(4,695

)

Interest income

 

 

(581

)

 

 

(547

)

Interest expense

 

 

2,485

 

 

 

1,247

 

Equity in earnings of unconsolidated affiliates

 

 

(200

)

 

 

(295

)

Loss before income taxes

 

 

(13,733

)

 

 

(5,100

)

(Benefit) provision for income taxes

 

 

(463

)

 

 

2,734

 

Net loss

 

$

(13,270

)

 

$

(7,834

)

 

 

 

 

 

 

 

Net loss per common share:

 

Basic

 

$

(0.73

)

 

$

(0.44

)

Diluted

 

$

(0.73

)

 

$

(0.44

)

 

 

Comprehensive loss:

 

 

 

For the Three Months Ended

 

 

 

October 1, 2023

 

 

October 2, 2022

 

Net loss

 

$

(13,270

)

 

$

(7,834

)

Other comprehensive loss:

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(5,540

)

 

 

(5,908

)

Other comprehensive loss, net

 

 

(5,540

)

 

 

(5,908

)

Comprehensive loss

 

$

(18,810

)

 

$

(13,742

)

 

See accompanying notes to condensed consolidated financial statements.

2


 

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 July 2, 2023

 

 

18,081

 

 

$

1,808

 

 

$

68,901

 

 

$

306,792

 

 

$

(53,891

)

 

$

323,610

 

Options exercised

 

 

3

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

 

21

 

Conversion of equity units

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

209

 

 

 

 

 

 

 

 

 

209

 

Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,540

)

 

 

(5,540

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(13,270

)

 

 

 

 

 

(13,270

)

Balance at October 1, 2023

 

 

18,085

 

 

$

1,808

 

 

$

69,130

 

 

$

293,522

 

 

$

(59,431

)

 

$

305,029

 

 

 

 

 

Shares

 

 

Common Stock

 

 

Capital in Excess of Par Value

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Loss

 

 

Total Shareholders’ Equity

 

Balance at July 3, 2022

 

 

17,979

 

 

$

1,798

 

 

$

66,120

 

 

$

353,136

 

 

$

(59,605

)

 

$

361,449

 

Options exercised

 

 

3

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

17

 

Conversion of equity units

 

 

31

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

591

 

 

 

 

 

 

 

 

 

591

 

Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions

 

 

(1

)

 

 

 

 

 

(16

)

 

 

 

 

 

 

 

 

(16

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,908

)

 

 

(5,908

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,834

)

 

 

 

 

 

(7,834

)

Balance at October 2, 2022

 

 

18,012

 

 

$

1,801

 

 

$

66,709

 

 

$

345,302

 

 

$

(65,513

)

 

$

348,299

 

 

See accompanying notes to condensed consolidated financial statements.

3


 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

For the Three Months Ended

 

 

 

October 1, 2023

 

 

October 2, 2022

 

Cash and cash equivalents at beginning of period

 

$

46,960

 

 

$

53,290

 

Operating activities:

 

 

 

 

 

 

Net loss

 

 

(13,270

)

 

 

(7,834

)

Adjustments to reconcile net loss to net cash provided (used) by operating activities:

 

 

 

 

 

 

Equity in earnings of unconsolidated affiliates

 

 

(200

)

 

 

(295

)

Depreciation and amortization expense

 

 

7,026

 

 

 

6,740

 

Non-cash compensation expense

 

 

212

 

 

 

633

 

Deferred income taxes

 

 

(679

)

 

 

(373

)

Other, net

 

 

(62

)

 

 

324

 

Changes in assets and liabilities:

 

 

 

 

 

 

Receivables, net

 

 

4,111

 

 

 

13,800

 

Inventories

 

 

12,608

 

 

 

6,475

 

Other current assets

 

 

2,126

 

 

 

4,026

 

Income taxes

 

 

(1,148

)

 

 

(789

)

Accounts payable and other current liabilities

 

 

(3,432

)

 

 

(28,615

)

Other, net

 

 

(173

)

 

 

16

 

Net cash provided (used) by operating activities

 

 

7,119

 

 

 

(5,892

)

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(2,937

)

 

 

(11,198

)

Other, net

 

 

457

 

 

 

(222

)

Net cash used by investing activities

 

 

(2,480

)

 

 

(11,420

)

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

Proceeds from ABL Revolver

 

 

31,100

 

 

 

65,500

 

Payments on ABL Revolver

 

 

(27,500

)

 

 

(52,300

)

Payments on ABL Term Loan

 

 

(2,300

)

 

 

(2,500

)

Proceeds from construction financing

 

 

 

 

 

2,449

 

Payments on finance lease obligations

 

 

(713

)

 

 

(436

)

Other, net

 

 

17

 

 

 

 

Net cash provided by financing activities

 

 

604

 

 

 

12,713

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(688

)

 

 

(1,491

)

Net increase (decrease) in cash and cash equivalents

 

 

4,555

 

 

 

(6,090

)

Cash and cash equivalents at end of period

 

$

51,515

 

 

$

47,200

 

 

See accompanying notes to condensed consolidated financial statements.

4


 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Background

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

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

 

2. Basis of Presentation; Condensed Notes

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. As contemplated by the instructions of the SEC to Form 10-Q, the following notes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to UNIFI’s year-end audited consolidated financial statements and related notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended July 2, 2023 (the “2023 Form 10-K”).

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

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

The fiscal quarter for each of Unifi, Inc., its primary domestic operating subsidiaries and its subsidiary in El Salvador ended on October 1, 2023. Unifi, Inc.’s remaining material operating subsidiaries’ fiscal quarter ended on September 30, 2023. There were no significant transactions or events that occurred between Unifi, Inc.’s fiscal quarter end and such wholly owned subsidiaries’ fiscal quarter end. The three-month periods ended October 1, 2023 and October 2, 2022 both consisted of 13 weeks.

 

3. Recent Accounting Pronouncements

Based on UNIFI’s review of Accounting Standards Updates issued since the filing of the 2023 Form 10-K, there have been no newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a material impact on UNIFI’s consolidated financial statements.

5


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

4. Revenue

The following tables present net sales disaggregated by (i) classification of customer type and (ii) REPREVE® Fiber sales:

Third-Party Manufacturer

 

 

 

For the Three Months Ended

 

 

 

October 1, 2023

 

 

October 2, 2022

 

Third-party manufacturer

 

$

137,620

 

 

$

178,212

 

Service

 

 

1,224

 

 

 

1,307

 

Net sales

 

$

138,844

 

 

$

179,519

 

 

 

 

For the Three Months Ended

 

 

 

October 1, 2023

 

 

October 2, 2022

 

REPREVE® Fiber

 

$

42,461

 

 

$

49,179

 

All other products and services

 

 

96,383

 

 

 

130,340

 

Net sales

 

$

138,844

 

 

$

179,519

 

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

Service Revenue

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

REPREVE® Fiber

REPREVE® Fiber represents UNIFI's collection of fiber products on our recycled platform, with or without added technologies.

Variable Consideration

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

 

5. Long-Term Debt

Debt Obligations

The following table and narrative presents the detail of UNIFI’s debt obligations. Capitalized terms not otherwise defined within this Note shall have the meanings attributed to them in the Second Amended and Restated Credit Agreement, dated as of October 28, 2022 (the "2022 Credit Agreement").

 

 

 

 

Weighted Average

 

 

 

 

 

Scheduled

 

Interest Rate as of

 

Principal Amounts as of

 

 

 

Maturity Date

 

October 1, 2023

 

October 1, 2023

 

 

July 2, 2023

 

ABL Revolver

 

October 2027

 

 

7.7

%

 

 

$

21,700

 

 

$

18,100

 

ABL Term Loan

 

October 2027

 

 

6.9

%

 

 

 

108,100

 

 

 

110,400

 

Finance lease obligations

 

(1)

 

 

5.0

%

 

 

 

11,687

 

 

 

10,767

 

Construction financing

 

(2)

 

 

0.0

%

 

 

 

 

 

 

1,632

 

Total debt

 

 

 

 

 

 

 

 

141,487

 

 

 

140,899

 

Current ABL Term Loan

 

 

 

 

 

 

 

 

(9,200

)

 

 

(9,200

)

Current portion of finance lease obligations

 

 

 

 

 

 

 

 

(3,123

)

 

 

(2,806

)

Unamortized debt issuance costs

 

 

 

 

 

 

 

 

(274

)

 

 

(289

)

Total long-term debt

 

 

 

 

 

 

 

$

128,890

 

 

$

128,604

 

(1)
Scheduled maturity dates for finance lease obligations range from March 2025 to September 2028.
(2)
Refer to the discussion below under “Construction Financing” for further information.

ABL Facility and Amendments

There have been no changes to the 2022 Credit Agreement following the filing of the 2023 Form 10-K.

Construction Financing

In connection with the construction financing arrangement, UNIFI has borrowed a total of $9,755 and transitioned $9,755 of completed asset costs to finance lease obligations as of October 1, 2023.

6


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

6. Income Taxes

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

 

 

For the Three Months Ended

 

 

 

October 1, 2023

 

 

October 2, 2022

 

(Benefit) provision for income taxes

 

$

(463

)

 

$

2,734

 

Effective tax rate

 

 

3.4

%

 

 

(53.6

)%

Income Tax Expense

UNIFI’s (benefit) provision for income taxes for the three months ended October 1, 2023 and October 2, 2022 was calculated by applying the estimated annual effective tax rate to year-to-date pre-tax book income and adjusting for discrete items that occurred during the period.

The effective tax rate for the three months ended October 1, 2023 varied from the U.S. federal statutory rate primarily due to the U.S.-generated losses for which UNIFI does not expect to realize a future tax benefit.

During the three months ended October 1, 2023, the Internal Revenue Service (the “IRS”) audit of fiscal years 2014 through 2019 was concluded with a net refund of $1,248 which is yet to be received. The impact from the audit adjustments to the prior periods was insignificant.

The effective tax rate for the three months ended October 2, 2022 was lower than the U.S. federal statutory rate primarily due to an increase in the valuation allowance for deferred tax assets and current U.S. tax on global intangible low-tax income (“GILTI”).

Unrecognized Tax Benefits

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.

Following the conclusion of the IRS audit, UNIFI adjusted the uncertain tax positions for fiscal years 2014 through 2019 that were effectively settled. The impact from releasing the netted uncertain tax position liabilities was insignificant.

 

7. Shareholders’ Equity

On October 31, 2018, UNIFI announced that the Company's Board of Directors (the “Board”) approved a share repurchase program (the “2018 SRP”) under which UNIFI is authorized to acquire up to $50,000 of its common stock. The share repurchase authorization is discretionary and has no expiration date. No shares have been repurchased in fiscal 2023 and 2024 and $38,859 remains available for repurchase.

 

8. Stock-Based Compensation

On October 31, 2023, UNIFI’s shareholders approved a First Amendment (the "First Amendment") to the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (the “2020 Plan”). The 2020 Plan set the initial number of shares available for future issuance ("share reserve") pursuant to awards granted under the 2020 Plan to 850. The First Amendment increased the remaining share reserve by 1,100. No additional awards can be granted under prior plans; however, awards outstanding under a respective prior plan remain subject to that plan’s provisions.

 

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

Financial Instruments

For the three months ended October 1, 2023 and October 2, 2022, 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.

7


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

Grantor Trust

The UNIFI, Inc. Deferred Compensation Plan (the “DCP”), established in fiscal 2022, is an unfunded non-qualified deferred compensation plan in which certain key employees are eligible to participate. The fair values of the investment assets held by the grantor trust established in connection with the DCP were approximately $2,463 and $2,496 as of October 1, 2023 and July 2, 2023, respectively, and are classified as trading securities within Other non-current assets. The grantor trust assets have readily-available market values and are classified as Level 1 trading securities in the fair value hierarchy. Trading gains and losses associated with these investments are recorded to Other operating (income) expense, net. The associated DCP liability is recorded within Other long-term liabilities, and any increase or decrease in the liability is also recorded in Other operating expense (income), net. During the three months ended October 1, 2023 and October 2, 2022, we recorded net losses on investments held by the trust of $33 and $49, respectively.

 

10. Earnings Per Share

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

 

 

 

For the Three Months Ended

 

 

 

October 1, 2023

 

 

October 2, 2022

 

Net loss

 

$

(13,270

)

 

$

(7,834

)

Basic weighted average shares

 

 

18,084

 

 

 

18,001

 

Net potential common share equivalents

 

 

 

 

 

 

Diluted weighted average shares

 

 

18,084

 

 

 

18,001

 

Excluded from the calculation of common share equivalents:

 

 

 

 

 

 

Anti-dilutive common share equivalents

 

 

590

 

 

 

618

 

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.

 

11. Commitments and Contingencies

Collective Bargaining Agreements

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

 

12. Related Party Transactions

 

Related party balances and transactions are not material to the condensed consolidated financial statements and, accordingly, are not presented separately from other financial statement captions.

There were no related party receivables as of October 1, 2023 or July 2, 2023.

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

 

 

October 1, 2023

 

 

July 2, 2023

 

Accounts payable

 

$

516

 

 

$

457

 

Operating lease obligations

 

 

453

 

 

 

502

 

Finance lease obligations

 

 

3,356

 

 

 

3,677

 

Total related party payables

 

$

4,325

 

 

$

4,636

 

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

 

 

 

 

For the Three Months Ended

 

Affiliated Entity

 

Transaction Type

 

October 1, 2023

 

 

October 2, 2022

 

Salem Leasing Corporation

 

Payments for transportation equipment costs and finance lease debt service

 

$

1,209

 

 

$

1,199

 

 

8


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

13. Business Segment Information

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

UNIFI's three reportable segments are organized as follows:

The operations within the Americas Segment exhibit similar long-term economic characteristics and primarily sell into an economic trading zone covered by the USMCA and CAFTA-DR to similar customers utilizing similar methods of distribution. These operations derive revenues primarily from manufacturing synthetic and recycled textile products with sales primarily to yarn manufacturers, knitters, and weavers that produce yarn and/or fabric for the apparel, hosiery, automotive, home furnishings, industrial, medical, and other end-use markets principally in North and Central America. The Americas Segment consists of sales and manufacturing operations in the U.S., El Salvador, and Colombia.
The Brazil Segment primarily manufactures and sells polyester-based products to knitters and weavers that produce fabric for the apparel, automotive, home furnishings, industrial, and other end-use markets principally in Brazil. The Brazil Segment includes a manufacturing location and sales offices in Brazil.
The operations within the Asia Segment exhibit similar long-term economic characteristics and sell to similar customers utilizing similar methods of distribution primarily in Asia and Europe. The Asia Segment primarily sources synthetic and recycled textile products from third-party suppliers and sells to yarn manufacturers, knitters, and weavers that produce fabric for the apparel, automotive, home furnishings, industrial, and other end-use markets principally in Asia. The Asia Segment includes sales offices in China, Turkey, and Hong Kong.

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

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

Selected financial information is presented below:

 

 

For the Three Months Ended October 1, 2023

 

 

 

Americas

 

 

Brazil

 

 

Asia

 

 

Total

 

Net sales

 

$

81,573

 

 

$

29,909

 

 

$

27,362

 

 

$

138,844

 

Cost of sales

 

 

88,953

 

 

 

27,742

 

 

 

22,724

 

 

 

139,419

 

Gross (loss) profit

 

 

(7,380

)

 

 

2,167

 

 

 

4,638

 

 

 

(575

)

Segment depreciation expense

 

 

5,497

 

 

 

840

 

 

 

 

 

 

6,337

 

Segment (Loss) Profit

 

$

(1,883

)

 

$

3,007

 

 

$

4,638

 

 

$

5,762

 

 

 

 

For the Three Months Ended October 2, 2022

 

 

 

Americas

 

 

Brazil

 

 

Asia

 

 

Total

 

Net sales

 

$

107,644

 

 

$

38,879

 

 

$

32,996

 

 

$

179,519

 

Cost of sales

 

 

112,513

 

 

 

32,092

 

 

 

28,351

 

 

 

172,956

 

Gross (loss) profit

 

 

(4,869

)

 

 

6,787

 

 

 

4,645

 

 

 

6,563

 

Segment depreciation expense

 

 

5,480

 

 

 

470

 

 

 

 

 

 

5,950

 

Segment Profit

 

$

611

 

 

$

7,257

 

 

$