UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One) | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2023
OR
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☐ | 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)
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New York | | 11-2165495 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
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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:
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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.
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Large accelerated filer | ☐ | Accelerated filer | ☒ |
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Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
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| | 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 February 1, 2024, there were 18,158,306 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;
•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 AND SIX MONTHS ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
| | | | | | | | |
| | December 31, 2023 | | | July 2, 2023 | |
ASSETS | | | | | | |
Cash and cash equivalents | | $ | 35,979 | | | $ | 46,960 | |
Receivables, net | | | 69,583 | | | | 83,725 | |
Inventories | | | 135,676 | | | | 150,810 | |
Income taxes receivable | | | 2,421 | | | | 238 | |
Other current assets | | | 12,290 | | | | 12,327 | |
Total current assets | | | 255,949 | | | | 294,060 | |
Property, plant and equipment, net | | | 209,435 | | | | 218,521 | |
Operating lease assets | | | 7,094 | | | | 7,791 | |
Deferred income taxes | | | 4,812 | | | | 3,939 | |
Other non-current assets | | | 14,839 | | | | 14,508 | |
Total assets | | $ | 492,129 | | | $ | 538,819 | |
| | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
Accounts payable | | $ | 34,709 | | | $ | 44,455 | |
Income taxes payable | | | 2,263 | | | | 789 | |
Current operating lease liabilities | | | 1,733 | | | | 1,813 | |
Current portion of long-term debt | | | 12,357 | | | | 12,006 | |
Other current liabilities | | | 17,409 | | | | 12,932 | |
Total current liabilities | | | 68,471 | | | | 71,995 | |
Long-term debt | | | 120,144 | | | | 128,604 | |
Non-current operating lease liabilities | | | 5,515 | | | | 6,146 | |
Deferred income taxes | | | 2,526 | | | | 3,364 | |
Other long-term liabilities | | | 4,133 | | | | 5,100 | |
Total liabilities | | | 200,789 | | | | 215,209 | |
| | | | | | |
Commitments and contingencies | | | | | | |
| | | | | | |
Common stock, $0.10 par value (500,000,000 shares authorized; 18,150,602 and 18,081,538
shares issued and outstanding as of December 31, 2023 and July 2, 2023, respectively) | | | 1,815 | | | | 1,808 | |
Capital in excess of par value | | | 70,254 | | | | 68,901 | |
Retained earnings | | | 273,676 | | | | 306,792 | |
Accumulated other comprehensive loss | | | (54,405 | ) | | | (53,891 | ) |
Total shareholders’ equity | | | 291,340 | | | | 323,610 | |
Total liabilities and shareholders’ equity | | $ | 492,129 | | | $ | 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 | | | For the Six Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | | | December 31, 2023 | | | January 1, 2023 | |
Net sales | | $ | 136,917 | | | $ | 136,212 | | | $ | 275,761 | | | $ | 315,731 | |
Cost of sales | | | 135,281 | | | | 144,212 | | | | 274,700 | | | | 317,168 | |
Gross profit (loss) | | | 1,636 | | | | (8,000 | ) | | | 1,061 | | | | (1,437 | ) |
Selling, general and administrative expenses | | | 12,408 | | | | 11,748 | | | | 24,017 | | | | 23,521 | |
Provision (benefit) for bad debts | | | 1,289 | | | | (156 | ) | | | 1,080 | | | | 18 | |
Restructuring costs | | | 5,101 | | | | — | | | | 5,101 | | | | — | |
Other operating expense (income), net | | | 481 | | | | 226 | | | | 535 | | | | (463 | ) |
Operating loss | | | (17,643 | ) | | | (19,818 | ) | | | (29,672 | ) | | | (24,513 | ) |
Interest income | | | (697 | ) | | | (514 | ) | | | (1,278 | ) | | | (1,061 | ) |
Interest expense | | | 2,613 | | | | 1,889 | | | | 5,098 | | | | 3,136 | |
Equity in earnings of unconsolidated affiliates | | | (93 | ) | | | (86 | ) | | | (293 | ) | | | (381 | ) |
Loss before income taxes | | | (19,466 | ) | | | (21,107 | ) | | | (33,199 | ) | | | (26,207 | ) |
Provision (benefit) for income taxes | | | 380 | | | | (3,070 | ) | | | (83 | ) | | | (336 | ) |
Net loss | | $ | (19,846 | ) | | $ | (18,037 | ) | | $ | (33,116 | ) | | $ | (25,871 | ) |
| | | | | | | | | | | | |
Net loss per common share: | |
Basic | | $ | (1.10 | ) | | $ | (1.00 | ) | | $ | (1.83 | ) | | $ | (1.44 | ) |
Diluted | | $ | (1.10 | ) | | $ | (1.00 | ) | | $ | (1.83 | ) | | $ | (1.44 | ) |
Comprehensive loss:
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | | For the Six Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | | | December 31, 2023 | | | January 1, 2023 | |
Net loss | | $ | (19,846 | ) | | $ | (18,037 | ) | | $ | (33,116 | ) | | $ | (25,871 | ) |
Other comprehensive income (loss): | | | | | | | | | | | | |
Foreign currency translation adjustments | | | 5,026 | | | | 3,447 | | | | (514 | ) | | | (2,461 | ) |
Other comprehensive income (loss), net | | | 5,026 | | | | 3,447 | | | | (514 | ) | | | (2,461 | ) |
Comprehensive loss | | $ | (14,820 | ) | | $ | (14,590 | ) | | $ | (33,630 | ) | | $ | (28,332 | ) |
See accompanying notes to condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands)
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| | Shares | | | Common Stock | | | Capital in Excess of Par Value | | | Retained Earnings | | | Accumulated Other Comprehensive Loss | | | Total Shareholders’ Equity | |
Balance at October 1, 2023 | | | 18,085 | | | $ | 1,808 | | | $ | 69,130 | | | $ | 293,522 | | | $ | (59,431 | ) | | $ | 305,029 | |
Options exercised | | | 2 | | | | — | | | | 18 | | | | — | | | | — | | | | 18 | |
Conversion of equity units | | | 65 | | | | 7 | | | | (7 | ) | | | — | | | | — | | | | — | |
Stock-based compensation | | | 7 | | | | 1 | | | | 1,172 | | | | — | | | | — | | | | 1,173 | |
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions | | | (9 | ) | | | (1 | ) | | | (59 | ) | | | — | | | | — | | | | (60 | ) |
Other comprehensive income, net of tax | | | — | | | | — | | | | — | | | | — | | | | 5,026 | | | | 5,026 | |
Net loss | | | — | | | | — | | | | — | | | | (19,846 | ) | | | — | | | | (19,846 | ) |
Balance at December 31, 2023 | | | 18,150 | | | $ | 1,815 | | | $ | 70,254 | | | $ | 273,676 | | | $ | (54,405 | ) | | $ | 291,340 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | | 5 | | | | — | | | | 39 | | | | — | | | | — | | | | 39 | |
Conversion of equity units | | | 66 | | | | 7 | | | | (7 | ) | | | — | | | | — | | | | — | |
Stock-based compensation | | | 7 | | | | 1 | | | | 1,381 | | | | — | | | | — | | | | 1,382 | |
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions | | | (9 | ) | | | (1 | ) | | | (60 | ) | | | — | | | | — | | | | (61 | ) |
Other comprehensive loss, net of tax | | | — | | | | — | | | | — | | | | — | | | | (514 | ) | | | (514 | ) |
Net loss | | | — | | | | — | | | | — | | | | (33,116 | ) | | | — | | | | (33,116 | ) |
Balance at December 31, 2023 | | | 18,150 | | | $ | 1,815 | | | $ | 70,254 | | | $ | 273,676 | | | $ | (54,405 | ) | | $ | 291,340 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares | | | Common Stock | | | Capital in Excess of Par Value | | | Retained Earnings | | | Accumulated Other Comprehensive Loss | | | Total Shareholders’ Equity | |
Balance at October 2, 2022 | | | 18,012 | | | $ | 1,801 | | | $ | 66,709 | | | $ | 345,302 | | | $ | (65,513 | ) | | $ | 348,299 | |
Options exercised | | | — | | | | — | | | | 2 | | | | — | | | | — | | | | 2 | |
Conversion of equity units | | | 31 | | | | 4 | | | | (4 | ) | | | — | | | | — | | | | — | |
Stock-based compensation | | | 12 | | | | 1 | | | | 1,217 | | | | — | | | | — | | | | 1,218 | |
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions | | | (6 | ) | | | (1 | ) | | | (49 | ) | | | — | | | | — | | | | (50 | ) |
Other comprehensive income, net of tax | | | — | | | | — | | | | — | | | | — | | | | 3,447 | | | | 3,447 | |
Net loss | | | — | | | | — | | | | — | | | | (18,037 | ) | | | — | | | | (18,037 | ) |
Balance at January 1, 2023 | | | 18,049 | | | $ | 1,805 | | | $ | 67,875 | | | $ | 327,265 | | | $ | (62,066 | ) | | $ | 334,879 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | | | — | | | | 19 | | | | — | | | | — | | | | 19 | |
Conversion of equity units | | | 62 | | | | 7 | | | | (7 | ) | | | — | | | | — | | | | — | |
Stock-based compensation | | | 12 | | | | 1 | | | | 1,808 | | | | — | | | | — | | | | 1,809 | |
Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions | | | (7 | ) | | | (1 | ) | | | (65 | ) | | | — | | | | — | | | | (66 | ) |
Other comprehensive loss, net of tax | | | — | | | | — | | | | — | | | | — | | | | (2,461 | ) | | | (2,461 | ) |
Net loss | | | — | | | | — | | | | — | | | | (25,871 | ) | | | — | | | | (25,871 | ) |
Balance at January 1, 2023 | | | 18,049 | | | $ | 1,805 | | | $ | 67,875 | | | $ | 327,265 | | | $ | (62,066 | ) | | $ | 334,879 | |
See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| | | | | | | | |
| | For the Six Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | |
Cash and cash equivalents at beginning of period | | $ | 46,960 | | | $ | 53,290 | |
Operating activities: | | | | | | |
Net loss | | | (33,116 | ) | | | (25,871 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | |
Equity in earnings of unconsolidated affiliates | | | (293 | ) | | | (381 | ) |
Depreciation and amortization expense | | | 13,988 | | | | 13,478 | |
Non-cash compensation expense | | | 1,387 | | | | 1,976 | |
Recovery of income taxes | | | — | | | | (3,799 | ) |
Deferred income taxes | | | (1,714 | ) | | | (304 | ) |
Other, net | | | (120 | ) | | | 289 | |
Changes in assets and liabilities: | | | | | | |
Receivables, net | | | 14,367 | | | | 40,552 | |
Inventories | | | 15,081 | | | | 25,422 | |
Other current assets | | | (402 | ) | | | 5,525 | |
Income taxes | | | (727 | ) | | | (2,655 | ) |
Accounts payable and other current liabilities | | | (4,763 | ) | | | (47,599 | ) |
Other, net | | | (1,171 | ) | | | 639 | |
Net cash provided by operating activities | | | 2,517 | | | | 7,272 | |
| | | | | | |
Investing activities: | | | | | | |
Capital expenditures | | | (5,982 | ) | | | (23,950 | ) |
Other, net | | | 488 | | | | (576 | ) |
Net cash used by investing activities | | | (5,494 | ) | | | (24,526 | ) |
| | | | | | |
Financing activities: | | | | | | |
Proceeds from ABL Revolver | | | 80,600 | | | | 96,800 | |
Payments on ABL Revolver | | | (82,700 | ) | | | (82,200 | ) |
Payments on ABL Term Loan | | | (4,600 | ) | | | (2,500 | ) |
Proceeds from construction financing | | | — | | | | 4,900 | |
Payments on finance lease obligations | | | (1,440 | ) | | | (899 | ) |
Payments of debt financing fees | | | — | | | | (658 | ) |
Other, net | | | (27 | ) | | | (47 | ) |
Net cash (used) provided by financing activities | | | (8,167 | ) | | | 15,396 | |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | 163 | | | | (651 | ) |
Net decrease in cash and cash equivalents | | | (10,981 | ) | | | (2,509 | ) |
Cash and cash equivalents at end of period | | $ | 35,979 | | | $ | 50,781 | |
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.”). During the quarter ended December 31, 2023, UNIFI terminated the joint venture with operations in Israel.
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 December 31, 2023. Unifi, Inc.’s remaining material operating subsidiaries’ fiscal quarter ended on December 31, 2023. The three-month periods ended December 31, 2023 and January 1, 2023 both consisted of 13 weeks. The six-month periods ended December 31, 2023 and January 1, 2023 both consisted of 26 weeks.
3. Recent Accounting Pronouncements
Issued and Pending Adoption
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU No. 2023-07 expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The ASU is effective for UNIFI’s fiscal year 2025 for annual reporting and in the first quarter of fiscal 2026 for interim reporting, with early adoption permitted. UNIFI has not and does not expect to early adopt this standard. UNIFI does not expect this standard will have a material impact on its consolidated financial position, results of operations or cash flows.
Based on UNIFI’s review of ASUs issued since the filing of the 2023 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.
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 | | | For the Six Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | | | December 31, 2023 | | | January 1, 2023 | |
Third-party manufacturer | | $ | 135,841 | | | $ | 135,018 | | | $ | 273,461 | | | $ | 313,230 | |
Service | | | 1,076 | | | | 1,194 | | | | 2,300 | | | | 2,501 | |
Net sales | | $ | 136,917 | | | $ | 136,212 | | | $ | 275,761 | | | $ | 315,731 | |
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | | For the Six Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | | | December 31, 2023 | | | January 1, 2023 | |
REPREVE® Fiber | | $ | 45,725 | | | $ | 42,866 | | | $ | 88,186 | | | $ | 92,045 | |
All other products and services | | | 91,192 | | | | 93,346 | | | | 187,575 | | | | 223,686 | |
Net sales | | $ | 136,917 | | | $ | 136,212 | | | $ | 275,761 | | | $ | 315,731 | |
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 | | December 31, 2023 | | December 31, 2023 | | | July 2, 2023 | |
ABL Revolver | | October 2027 | | | 7.0 | % | | | $ | 16,000 | | | $ | 18,100 | |
ABL Term Loan | | October 2027 | | | 7.0 | % | | | | 105,800 | | | | 110,400 | |
Finance lease obligations | | (1) | | | 5.1 | % | | | | 10,960 | | | | 10,767 | |
Construction financing | | (2) | | | 0.0 | % | | | | — | | | | 1,632 | |
Total debt | | | | | | | | | 132,760 | | | | 140,899 | |
Current ABL Term Loan | | | | | | | | | (9,200 | ) | | | (9,200 | ) |
Current portion of finance lease obligations | | | | | | | | | (3,157 | ) | | | (2,806 | ) |
Unamortized debt issuance costs | | | | | | | | | (259 | ) | | | (289 | ) |
Total long-term debt | | | | | | | | $ | 120,144 | | | $ | 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 December 31, 2023. There were no borrowings outstanding on this financing arrangement as of December 31, 2023.
6
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
6. Income Taxes
The provision (benefit) for income taxes and effective tax rate were as follows:
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | | For the Six Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | | | December 31, 2023 | | | January 1, 2023 | |
Provision (benefit) for income taxes | | $ | 380 | | | $ | (3,070 | ) | | $ | (83 | ) | | $ | (336 | ) |
Effective tax rate | | | (2.0 | )% | | | 14.5 | % | | | 0.3 | % | | | 1.3 | % |
Income Tax Expense
UNIFI’s provision (benefit) for income taxes for the six months ended December 31, 2023 and January 1, 2023 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 and six months ended December 31, 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 six months ended December 31, 2023, the Internal Revenue Service (“IRS”) audit of fiscal years 2014 through 2019 was concluded with a refund of $1,275, which has been received along with $457 of interest on the overpayments. The impact from the IRS audit adjustments to the prior periods was insignificant.
The effective tax rates for the three and six months ended January 1, 2023 varied from the U.S. federal statutory rate primarily due to losses for which UNIFI does not expect to realize a future benefit and a discrete tax benefit related to the recovery of certain Brazilian income taxes paid in prior years.
Unrecognized Tax Benefits
UNIFI regularly assesses the outcomes of both completed and ongoing examinations to ensure that its provision for income taxes is sufficient.
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.
During the three months ended December 31, 2023, UNIFI released $853 accrued for interest and penalties after receiving the final assessment from the IRS.
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.
The following table provides information as of December 31, 2023 with respect to the number of securities remaining available for future issuance under the 2020 Plan:
| | | | |
Authorized under the 2020 Plan | | | 850 | |
Plus: Share reserve increase from First Amendment | | | 1,100 | |
Plus: Awards expired, forfeited or otherwise terminated unexercised | | | 48 | |
Less: Awards granted to employees | | | (1,083 | ) |
Less: Awards granted to non-employee directors | | | (197 | ) |
Available for issuance under the 2020 Plan | | | 718 | |
9. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities
Financial Instruments
For the six months ended December 31, 2023 and January 1, 2023, 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
7
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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.
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 $2,618 and $2,496 as of December 31, 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 expense (income), 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 six months ended December 31, 2023 and January 1, 2023, we recorded net gains on investments held by the trust of $122 and $11, respectively.
10. 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 31, 2023 | | | January 1, 2023 | | | December 31, 2023 | | | January 1, 2023 | |
Net loss | | $ | (19,846 | ) | | $ | (18,037 | ) | | $ | (33,116 | ) | | $ | (25,871 | ) |
Basic weighted average shares | | | 18,110 | | | | 18,034 | | | | 18,097 | | | | 18,017 | |
Net potential common share equivalents | | | — | | | | — | | | | — | | | | — | |
Diluted weighted average shares | | | 18,110 | | | | 18,034 | | | | 18,097 | | | | 18,017 | |
Excluded from the calculation of common share equivalents: | | | | | | | | | | | | |
Anti-dilutive common share equivalents | | | 577 | | | | 739 | | | | 577 | | | | 703 | |
Excluded from the calculation of diluted shares: | | | | | | | | | | | | |
Unvested stock options that vest upon achievement of certain market conditions | | | 333 | | | | 333 | | | | 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 December 31, 2023 and July 2, 2023.
Related party payables for Salem Leasing Corporation consisted of the following:
| | | | | | | | |
| | December 31, 2023 | | | July 2, 2023 | |
Accounts payable | | $ | 350 | | | $ | 457 | |
Operating lease obligations | | | 403 | | | | 502 | |
Finance lease obligations | | | 3,031 | | | | 3,677 | |
Total related party payables | | $ | 3,784 | | | $ | 4,636 | |
The following were the Company’s significant related party transactions:
| | | | | | | | | | | | | | | | | | |
| | | | For the Three Months Ended | | | For the Six Months Ended | |
Affiliated Entity | | Transaction Type | | December 31, 2023 | | | January 1, 2023 | | | December 31, 2023 | | | January 1, 2023 | |
Salem Leasing Corporation | | Payments for transportation equipment costs and finance lease debt service | | $ | 1,228 | | | $ | 1,184 | | | $ | 2,437 | | | $ | 2,383 | |
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 December 31, 2023 | |
| | Americas | | | Brazil | | | Asia | | | Total | |
Net sales | | $ | 80,549 | | | $ | 26,061 | | | $ | 30,307 | | | $ | 136,917 | |
Cost of sales | | | 87,287 | | | | 22,922 | | | | 25,072 | | | | 135,281 | |
Gross (loss) profit | | | (6,738 | ) | | | 3,139 | | | | 5,235 | | | | 1,636 | |
Segment depreciation expense | | | 5,508 | | | | 766 | | | | — | | | | 6,274 | |
Segment (Loss) Profit | | $ | (1,230 | ) | | $ | 3,905 | | | $ | 5,235 | | | $ | 7,910 | |
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended January 1, 2023 | |
| | Americas | | | Brazil | | | Asia | | | Total | |
Net sales | | $ | 85,242 | | | $ | 25,687 | | | $ | 25,283 | | | $ | 136,212 | |
Cost of sales | | | 98,326 | | | | 24,357 | | | | 21,529 | | | | 144,212 | |
Gross (loss) profit | | | (13,084 | ) | | | 1,330 | | | | 3,754 | | | | (8,000 | ) |
Segment depreciation expense | | | 5,542 | | | | 391 | | | | — | | | | 5,933 | |
Segment (Loss) Profit | | $ | (7,542 | ) | | $ | 1,721 | | | $ | 3,754 | | | $ | (2,067 | ) |
| | | | | | | | | | | | | | | | |
| | For the Six Months Ended December 31, 2023 | |
| | Americas | | | Brazil | | | Asia | | | Total | |
Net sales | | $ | 162,122 | | | $ | 55,970 | | | $ | 57,669 | | | $ | 275,761 | |
Cost of sales | | | 176,240 | | | | 50,664 | | | | 47,796 | | | | 274,700 | |
Gross (loss) profit | | | (14,118 | ) | | | 5,306 | | | | 9,873 | | | | 1,061 | |
Segment depreciation expense | | | 11,005 | | | | 1,606 | | | | — | | | | 12,611 | |
Segment (Loss) Profit | | $ | (3,113 | ) | | $ | 6,912 | | | $ | 9,873 | | | $ | 13,672 | |
| | | | | | | | | | | | | | | | |
| | For the Six Months Ended January 1, 2023 | |
| | Americas | | | Brazil | | | Asia | | | Total | |
Net sales | | $ | 192,886 | | | $ | 64,566 | | | $ | 58,279 | | | $ | 315,731 | |
Cost of sales | | | 210,839 | | | | 56,449 | | | | 49,880 | | | | 317,168 | |
Gross (loss) profit | | | (17,953 | ) | | | 8,117 | | | | 8,399 | | | | (1,437 | ) |
Segment depreciation expense | | | 11,022 | | | | 861 | | | | — | | | | 11,883 | |
Segment (Loss) Profit | | $ | (6,931 | ) | | $ | 8,978 | | | $ | 8,399 | | | $ | 10,446 | |
9
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The reconciliations of segment gross profit (loss) to consolidated loss before income taxes are as follows:
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | | For the Six Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | | | December 31, 2023 | | | January 1, 2023 | |
Americas | | $ | (6,738 | ) | | $ | (13,084 | ) | | $ | (14,118 | ) | | $ | (17,953 | ) |
Brazil | | | 3,139 | | | | 1,330 | | | | 5,306 | | | | 8,117 | |
Asia | | | 5,235 | | | | 3,754 | | | | 9,873 | | | | 8,399 | |
Segment gross profit (loss) | | | 1,636 | | | | (8,000 | ) | | | 1,061 | | | | (1,437 | ) |
Selling, general and administrative expenses | | | 12,408 | | | | 11,748 | | | | 24,017 | | | | 23,521 | |
Provision (benefit) for bad debts | | | 1,289 | | | | (156 | ) | | | 1,080 | | | | 18 | |
Restructuring costs | | | 5,101 | | | | — | | | | 5,101 | | | | — | |
Other operating expense (income), net | | | 481 | | | | 226 | | | | 535 | | | | (463 | ) |
Operating loss | | | (17,643 | ) | | | (19,818 | ) | | | (29,672 | ) | | | (24,513 | ) |
Interest income | | | (697 | ) | | | (514 | ) | | | (1,278 | ) | | | (1,061 | ) |
Interest expense | | | 2,613 | | | | 1,889 | | | | 5,098 | | | | 3,136 | |
Equity in earnings of unconsolidated affiliates | | | (93 | ) | | | (86 | ) | | | (293 | ) | | | (381 | ) |
Loss before income taxes | | $ | (19,466 | ) | | $ | (21,107 | ) | | $ | (33,199 | ) | | $ | (26,207 | ) |
There have been no material changes in segment assets during fiscal 2024.
14. Investments in Unconsolidated Affiliates
Included within Other non-current assets are UNIFI’s investments in unconsolidated affiliates: U.N.F. Industries, Ltd. (“UNF”) and UNF America LLC (“UNFA”).
U.N.F. Industries, Ltd.
In December 2023, UNIFI dissolved its interest in UNF under an agreement whereby UNIFI agreed to pay the former joint venture partner $2,750 and recorded it as an associated contract termination cost within Restructuring costs on the Condensed Consolidated Statements of Operations and Comprehensive Loss. UNIFI made a payment to the former joint venture partner of $1,200 in the second quarter of fiscal 2024 and the remaining $1,550 is included in Other current liabilities, expected to be paid in the third quarter of fiscal 2024. Accordingly, the balance sheet information presented below as of December 31, 2023 does not include any amounts related to UNF.
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 located in Ridgeway, Virginia. UNFA is treated as a partnership for its income tax reporting.
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 typically negotiated every six months, based on market rates. As of December 31, 2023, UNIFI’s open purchase orders related to this supply agreement, all with UNFA, were $571.
UNIFI’s raw material purchases under this supply agreement consisted of the following:
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | | For the Six Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | | | December 31, 2023 | | | January 1, 2023 | |
UNFA | | $ | 3,787 | | | $ | 5,390 | | | $ | 6,913 | | | $ | 12,791 | |
UNF | | | — | | | | — | | | | — | | | | 37 | |
Total | | $ | 3,787 | | | $ | 5,390 | | | $ | 6,913 | | | $ | 12,828 | |
As of December 31, 2023, UNIFI had accounts payable due to UNFA of $2,020, and as of July 2, 2023, UNIFI had combined accounts payable due to UNF and UNFA of $3,440.
UNIFI previously determined that UNF and UNFA were variable interest entities and also determined that UNIFI is the primary beneficiary of these entities, based on the terms of the supply agreement. As a result, these entities should be consolidated with UNIFI’s financial results. As (i) UNIFI purchases substantially all of the output from these entities and all intercompany sales would be eliminated in consolidation, (ii) the entities’ balance sheets constitute 5% or less of UNIFI’s current assets and total assets, 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 and instead is accounting for these entities as equity investments. 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 UNFA. As of December 31, 2023, UNIFI’s investment in UNFA was $3,101.
10
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Condensed balance sheet and income statement information for UNIFI’s unconsolidated affiliates (including reciprocal balances) are presented in the tables below.
| | | | | | | | |
| | December 31, 2023 | | | July 2, 2023 | |
Current assets | | $ | 9,363 | | | $ | 10,608 | |
Non-current assets | | | 473 | | | | 494 | |
Current liabilities | | | 3,634 | | | | 7,304 | |
Non-current liabilities | | | — | | | | — | |
Shareholders’ equity and capital accounts | | | 6,202 | | | | 3,798 | |
| | | | | | |
UNIFI’s portion of undistributed earnings | | | 3,042 | | | | 2,938 | |
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | | For the Six Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | | | December 31, 2023 | | | January 1, 2023 | |
Net sales | | $ | 4,368 | | | $ | 7,224 | | | $ | 9,109 | | | $ | 16,035 | |
Gross profit | | | 9 | | | | 444 | | | | 647 | | | | 933 | |
(Loss) income from operations | | | (467 | ) | | | 26 | | | | (271 | ) | | | 51 | |
Net (loss) income | | | (483 | ) | | | 14 | | | | (318 | ) | | | 29 | |
Depreciation and amortization | | | 7 | | | | 28 | | | | 21 | | | | 56 | |
| | | | | | | | | | | | |
Distributions received | | | — | | | | — | | | | — | | | | — | |
15. Supplemental Cash Flow Information
Cash payments for interest and taxes consist of the following:
| | | | | | | | |
| | For the Six Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | |
Interest, net of capitalized interest of $104 and $239, respectively | | $ | 4,740 | | | $ | 2,739 | |
Income tax payments, net | | | 2,606 | | | | 4,064 | |
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 31, 2023 and July 2, 2023, $621 and $1,137, respectively, were included in accounts payable for unpaid capital expenditures. As of January 1, 2023 and July 3, 2022, $1,594 and $2,456, respectively, were included in accounts payable for unpaid capital expenditures.
During the six months ended December 31, 2023 and January 1, 2023, UNIFI recorded non-cash activity relating to finance leases of $1,633 and $729, respectively.
In connection with the commencement of the 2022 Credit Agreement in October 2022, $52,500 of borrowings outstanding on the revolving credit facility were transferred to the term loan, such that revolver borrowings were reduced by $52,500 and term loan borrowings were increased by $52,500 with no flow of cash.
11
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
16. Other Financial Data
Select balance sheet information is presented in the following table.
| | | | | | | | |
| | December 31, 2023 | | | July 2, 2023 | |
Receivables, net: | | | | | | |
Customer receivables | | $ | 66,537 | | | $ | 79,174 | |
Allowance for uncollectible accounts | | | (2,452 | ) | | | (1,362 | ) |
Reserves for quality claims | | | (709 | ) | | | (682 | ) |
Net customer receivables | | | 63,376 | | | | 77,130 | |
Banker's acceptance notes | | | 5,446 | | | | 5,870 | |
Other receivables | | | 761 | | | | 725 | |
Total receivables, net | | $ | 69,583 | | | $ | 83,725 | |
| | | | | | |
Inventories: | | | | | | |
Raw materials | | $ | 58,448 | | | $ | 59,983 | |
Supplies | | | 11,871 | | | | 11,787 | |
Work in process | | | 7,077 | | | | 6,633 | |
Finished goods | | | 65,646 | | | | 78,032 | |
Gross inventories | | | 143,042 | | | | 156,435 | |
Net realizable value adjustment | | | (7,366 | ) | | | (5,625 | ) |
Total inventories | | $ | 135,676 | | | $ | 150,810 | |
| | | | | | |
Other current assets: | | | | | | |
Vendor deposits | | $ | 4,608 | | | $ | 3,863 | |
Prepaid expenses and other | | | 3,826 | | | | 2,584 | |
Value-added taxes receivable | | | 2,893 | | | | 3,398 | |
Contract assets | | | 769 | | | | 549 | |
Recovery of non-income taxes, net | | | 194 | | | | 1,933 | |
Total other current assets | | $ | 12,290 | | | $ | 12,327 | |
| | | | | | |
Property, plant and equipment, net: | | | | | | |
Land | | $ | 2,512 | | | $ | 2,512 | |
Land improvements | | | 16,445 | | | | 16,443 | |
Buildings and improvements | | | 168,231 | | | | 167,589 | |
Assets under finance leases | | | 18,030 | | | | 16,397 | |
Machinery and equipment | | | 659,553 | | | | 656,431 | |
Computers, software and office equipment | | | 25,370 | | | | 26,654 | |
Transportation equipment | | | 10,731 | | | | 10,710 | |
Construction in progress | | | 3,635 | | | | 10,003 | |
Gross property, plant and equipment | | | 904,507 | | | | 906,739 | |
Less: accumulated depreciation | | | (688,687 | ) | | | (682,768 | ) |
Less: accumulated amortization – finance leases | | | (6,385 | ) | | | (5,450 | ) |
Total property, plant and equipment, net | | $ | 209,435 | | | $ | 218,521 | |
| | | | | | |
Other non-current assets: | | | | | | |
Recovery of taxes | | $ | 6,156 | | | $ | 5,957 | |
Investments in unconsolidated affiliates | | | 3,101 | | | | 2,997 | |
Grantor trust | | | 2,618 | | | | 2,496 | |
Intangible assets, net | | | 736 | | | | 1,210 | |
Other | | | 2,228 | | | | 1,848 | |
Total other non-current assets | | $ | 14,839 | | | $ | 14,508 | |
| | | | | | |
Other current liabilities: | | | | | | |
Payroll and fringe benefits | | $ | 4,827 | | | $ | 6,981 | |
Severance (1) | | | 2,351 | | | | — | |
Incentive compensation | | | 1,856 | | | | 298 | |
Dissolution of joint venture | | | 1,550 | | | | — | |
Utilities | | | 1,476 | | | | 1,634 | |
Deferred revenue | | | 1,293 | | | | 1,441 | |
Property taxes, interest and other | | | 4,056 | | | | 2,578 | |
Total other current liabilities | | $ | 17,409 | | | $ | 12,932 | |
| | | | | | |
Other long-term liabilities: | | | | | | |
Nonqualified deferred compensation plan obligation | | $ | 2,675 | | | $ | 2,659 | |
Uncertain tax positions | | | 1,032 | | | | 1,973 | |
Other | | | 426 | | | | 468 | |
Total other long-term liabilities | | $ | 4,133 | | | $ | 5,100 | |
(1)During the second quarter of fiscal 2024, UNIFI recorded $2,351 of severance expenses related to a cost reduction plan intended to lower operating expenses for both production and administrative activities, included in Restructuring costs on the Condensed Consolidated Statements of Operations and Comprehensive Loss. Most of the restructuring expenses incurred impact the Americas Segment and UNIFI does not anticipate any additional, material restructuring costs at this time.
12
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 31, 2023, while a reference to the “prior period” refers to the three-month period ended January 1, 2023. A reference to the “current six-month period” refers to the six-month period ended December 31, 2023, while a reference to the “prior six-month period” refers to the six-month period ended January 1, 2023. Such references may be accompanied by certain phrases for added clarity. The current period and the prior period each consisted of 13 weeks. The current six-month period and the prior six-month period each consisted of 26 weeks.
Our discussions in this Item 2 focus on our results during, or as of, the three months ended December 31, 2023 and January 1, 2023, and, to the extent applicable, any material changes from the information discussed in the 2023 Form 10-K or other important intervening developments or information. These discussions should be read in conjunction with the 2023 Form 10-K for more detailed and background information about our business, operations, and financial condition.
Discussion of foreign currency translation is primarily associated with changes in the Brazilian Real (“BRL”) and changes in the Chinese Renminbi (“RMB”) versus the U.S. Dollar (“USD”). Weighted average exchange rates were as follows:
| | | | | | | | | | | | | | | |
| For the Three Months Ended | | | For the Six Months Ended | |
| December 31, 2023 | | | January 1, 2023 | | | December 31, 2023 | | | January 1, 2023 | |
BRL to USD | | 4.96 | | | | 5.26 | | | | 4.92 | | | | 5.25 | |
RMB to USD | | 7.22 | | | | 7.09 | | | | 7.23 | | | | 6.95 | |
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. Our strategic initiatives include (i) leveraging our competitive advantages to grow market share in each of the major geographies we serve, (ii) expanding our presence in non-apparel markets with additional REPREVE® products, (iii) advancing the development and commercialization of innovative and sustainable solutions, and (iv) increasing brand awareness for REPREVE®. We have increased our focus on sales opportunities beyond traditional apparel customers and continue to drive innovation throughout our portfolio to further diversify the business and enhance gross profit. We believe our strategic initiatives will increase revenue and profitability and generate improved cash flows from operations.
Current Economic Environment
The current economic environment and significant decrease in textile product demand adversely impacted our consolidated sales and profitability in fiscal 2023 and the first half of fiscal 2024. In addition to the current unfavorable economic environment and the inventory destocking measures taken by brands and retailers, the following pressures have been present: (i) the impact of inflation on consumer spending, (ii) rising interest rates for consumers and customers, including the impact on the carrying costs of customer inventories, (iii) the Russia-Ukraine conflict, and (iv) the conflict in the Middle East and the potential impacts to petroleum pricing and geopolitics. UNIFI will continue to monitor these and other aspects of the current economic environment and work closely with stakeholders to ensure business continuity and liquidity.
We recognize the disruption to global markets and supply chains caused by (i) Russia’s invasion of Ukraine and (ii) the conflict in the Middle East. While we had a raw material supplier based in Israel for which the recent supply levels have been insignificant, we have not been directly impacted by either conflict. Indirectly, we recognize that additional or prolonged impacts to the petroleum or other global markets could cause further inflationary pressures to our global raw material costs or unforeseen adverse impacts.
Input Costs and Global Production Volatility
Despite lowered input and freight costs and a marginally more stable labor pool during fiscal 2023 and 2024, the global demand volatility and uncertainty that existed in fiscal 2023 continued into fiscal 2024. The threat of recession and global tensions continue to create uncertainty. Such existing challenges and future uncertainty, particularly for rising input costs, labor productivity, and global demand, could worsen and/or continue for prolonged periods, materially impacting our consolidated sales and gross profit. Also, the need for future selling price adjustments in connection with inflationary costs could impact our ability to retain current customer programs and compete successfully for new programs in certain regions.
Cash Deposits and Financial Institution Risk
During fiscal 2023, certain regional bank crises and failures generated additional uncertainty and volatility in the financial and credit markets. UNIFI currently holds the vast majority of its cash deposits with large foreign banks in our associated operating regions, and management maintains the ability to repatriate cash to the U.S. relatively quickly when presently available. Accordingly, UNIFI has not modified its mix of financial institutions holding cash deposits, but UNIFI will continue to monitor the environment and current events to ensure any increase in concentration or credit risk is appropriately and timely addressed. If any of our lending counterparties are unable to perform on their commitments, our liquidity could be impacted. We actively monitor all lending counterparties, and none have indicated that they may be unable to perform on their commitments. In addition, we periodically review our lending counterparties, considering the stability of the institutions and other aspects of the relationships. Based on our monitoring activities, we currently believe our lending counterparties will be able to perform their commitments.
13
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 (loss) profit and gross margin for UNIFI and for each reportable segment;
•net loss and diluted EPS;
•Segment (Loss) Profit, which equals segment gross (loss) 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 loss before net interest expense, income tax expense, and depreciation and amortization expense;
•Adjusted EBITDA, which represents EBITDA adjusted to exclude, from time to time, certain other adjustments necessary to understand and compare the underlying results of UNIFI;
•Adjusted Net Loss, which represents net loss 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 Loss divided by UNIFI’s diluted weighted average common shares outstanding;
•Adjusted Working Capital, which equals receivables plus inventories and other current assets, less accounts payable and other current liabilities; and
•Net Debt, which represents debt principal less cash and cash equivalents.
EBITDA, Adjusted EBITDA, Adjusted Net Loss, 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 items (a) directly related to our asset base (primarily depreciation and amortization) and/or (b) 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.
Management uses Adjusted Net Loss 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.
14
Review of Results of Operations
Three Months Ended December 31, 2023 Compared to Three Months Ended January 1, 2023
Consolidated Overview
The below tables provide:
•the components of net loss and the percentage increase or decrease over the prior period amounts,
•a reconciliation from net loss to EBITDA and Adjusted EBITDA, and
following the tables is a discussion and analysis of the significant components of net loss.
Net loss
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | | | |
| | December 31, 2023 | | | January 1, 2023 | | | | |
| | | | | % of
Net Sales | | | | | | % of
Net Sales | | | %
Change | |
Net sales | | $ | 136,917 | | | | 100.0 | | | $ | 136,212 | | | | 100.0 | | | | 0.5 | |
Cost of sales | | | 135,281 | | | | 98.8 | | | | 144,212 | | | | 105.9 | | | | (6.2 | ) |
Gross profit (loss) | | | 1,636 | | | | 1.2 | | | | (8,000 | ) | | | (5.9 | ) | | | (120.5 | ) |
SG&A | | | 12,408 | | | | 9.1 | | | | 11,748 | | | | 8.6 | | | | 5.6 | |
Provision (benefit) for bad debts | | | 1,289 | | | | 0.9 | | | | (156 | ) | | | (0.1 | ) | | nm | |
Restructuring costs | | | 5,101 | | | | 3.7 | | | | — | | | | — | | | nm | |
Other operating expense, net | | | 481 | | | | 0.4 | | | | 226 | | | | 0.2 | | | | 112.8 | |
Operating loss | | | (17,643 | ) | | | (12.9 | ) | | | (19,818 | ) | | | (14.6 | ) | | | (11.0 | ) |
Interest expense, net | | | 1,916 | | | | 1.4 | | | | 1,375 | | | | 1.0 | | | | 39.3 | |
Equity in earnings of unconsolidated affiliates | | | (93 | ) | | | (0.1 | ) | | | (86 | ) | | | (0.1 | ) | | | 8.1 | |
Loss before income taxes | | | (19,466 | ) | | | (14.2 | ) | | | (21,107 | ) | | | (15.5 | ) | | | (7.8 | ) |
Provision (benefit) for income taxes | | | 380 | | | | 0.3 | | | | (3,070 | ) | | | (2.3 | ) | | | (112.4 | ) |
Net loss | | $ | (19,846 | ) | | | (14.5 | ) | | $ | (18,037 | ) | | | (13.2 | ) | | | 10.0 | |
nm = not meaningful
EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
The reconciliations of the amounts reported under GAAP for Net loss to EBITDA and Adjusted EBITDA were as follows:
| | | | | | | | |
| | For the Three Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | |
Net loss | | $ | (19,846 | ) | | $ | (18,037 | ) |
Interest expense, net | | | 1,916 | | | | 1,375 | |
Provision (benefit) for income taxes | | | 380 | | | | (3,070 | ) |
Depreciation and amortization expense (1) | | | 6,922 | | | | 6,693 | |
EBITDA | | | (10,628 | ) | | | (13,039 | ) |
| | | | | | |
Loss on joint venture dissolution (2) | | | 2,750 | | | | — | |
Severance (3) | | | 2,351 | | | | — | |
Adjusted EBITDA | | $ | (5,527 | ) | | $ | (13,039 | ) |
(1)Within this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are reflected in interest expense, net. Within the accompanying condensed consolidated statements of cash flows, amortization of debt issuance costs is reflected in depreciation and amortization expense.
(2)In the second quarter of fiscal 2024, UNIFI recorded a loss of $2,750 related to the dissolution of UNF.
(3)In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with overall cost reduction efforts in the U.S.
Adjusted Net Loss and Adjusted EPS (Non-GAAP Financial Measures)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended December 31, 2023 | | | For the Three Months Ended January 1, 2023 | |
| | Pre-tax Loss | | | Tax Impact | | | Net Loss | | | Diluted EPS | | | Pre-tax Loss | | | Tax Impact | | | Net Loss | | | Diluted EPS | |
GAAP results | | $ | (19,466 | ) | | $ | (380 | ) | | $ | (19,846 | ) | | $ | (1.10 | ) | | $ | (21,107 | ) | | $ | 3,070 | | | $ | (18,037 | ) | | $ | (1.00 | ) |
Loss on joint venture dissolution (1) | | | 2,750 | | | | — | | | | 2,750 | | | | 0.15 | | | | — | | | | — | | | | — | | | | — | |
Severance (2) | | | 2,351 | | | | — | | | | 2,351 | | | | 0.14 | | | | — | | | | — | | | | — | | | | — | |
Recovery of income taxes (3) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,799 | ) | | | (3,799 | ) | | | (0.21 | ) |
Adjusted results | | $ | (14,365 | ) | | $ | (380 | ) | | $ | (14,745 | ) | | $ | (0.81 | ) | | $ | (21,107 | ) | | $ | (729 | ) | | $ | (21,836 | ) | | $ | (1.21 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding | | | | 18,110 | | | | | | | | | | | | | 18,034 | |
15
(1)In the second quarter of fiscal 2024, UNIFI recorded a loss of $2,750 related to the dissolution of UNF.
(2)In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with overall cost reduction efforts in the U.S.
(3)In the second quarter of fiscal 2023, UNIFI recorded a recovery of income taxes in connection with filing amended tax returns in Brazil relating to certain income taxes paid in prior fiscal years.
Net Sales
Consolidated net sales for the current period increased by $705, or 0.5%, and consolidated sales volumes increased 13.0%, compared to the prior period. The increase was primarily due to improvements in volumes in all segments, however sales levels remain below historical averages, primarily due to lower global demand in connection with the weakness in apparel sector and inventory destocking efforts of major brands and retailers, especially those impacting the Americas and Asia Segments.
Consolidated weighted average sales prices decreased 13.5%, primarily attributable to lower selling prices in response to lower input costs, along with (a) competitive pricing pressures in Brazil and (b) a greater mix of Chip product sales in the Americas Segment.
REPREVE® Fiber products for the current period comprised 33%, or $45,725, of consolidated net sales, compared to 31%, or $42,866, for the prior period.
Gross Profit (Loss)
Gross profit for the current period improved by $9,636, or 120.5%, compared to the prior period. Gross profit improved as a result of (i) increased sales volumes, (ii) cost saving initiatives, and (iii) more stable raw material costs. However, gross profit continues to be negatively impacted by weak fixed cost absorption in the Americas Segment, where utilization and productivity remain below historical averages due to depressed demand.
•For the Americas Segment, gross loss improved due to (i) higher sales volumes, (ii) variable cost management efforts, and (iii) a more stable raw material cost environment, but remains adversely impacted by overall weak global demand and weak fixed cost absorption in connection with low production.
•For the Brazil Segment, gross profit increased primarily due to (i) improved underlying unit margins and (ii) higher sales volumes.
•For the Asia Segment, gross profit increased primarily due to (i) improved underlying margins and sales mix and (ii) higher sales volumes compared to the prior period despite continued weak global demand.
SG&A
SG&A for the current period increased compared to the prior period, primarily due to (i) higher compensation expenses prior to the cost reduction actions executed in the current period.
Provision (Benefit) for Bad Debts
The current period's provision reflects an increase for a specifically identified customer balance originating in the U.S. fiber market.
Restructuring Costs
Restructuring costs consisted of (i) a loss of $2,750 for the dissolution of UNF and (ii) severance charges of $2,351 in connection with overall cost reduction efforts in the U.S.
Other Operating Expense, Net
The current period and prior period include foreign currency transaction losses (gains) of $464 and ($78), respectively, with no other meaningful activity.
Interest Expense, Net
Interest expense, net increased in connection with higher debt principal and higher interest rates.
Equity in Earnings of Unconsolidated Affiliates
There was no material activity for the current period or the prior period.
Income Taxes
Provision (benefit) for income taxes and the effective tax rate were as follows:
| | | | | | | | |
| | For the Three Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | |
Provision (benefit) for income taxes | | $ | 380 | | | $ | (3,070 | ) |
Effective tax rate | | | (2.0 | )% | | | 14.5 | % |
16
The effective tax rate is subject to variation due to a number of factors, including: variability in pre-tax book income; the mix of income by jurisdiction; changes in deferred tax valuation allowances; and changes in statutes, regulations, and case law. Additionally, the impacts of discrete and other rate impacting items are more pronounced when income (loss) before income taxes is lower.
The decrease in the effective tax rate from the prior period to the current period is primarily attributable to a discrete tax benefit related to the recovery of certain Brazilian income taxes in the prior period.
Net Loss
The increase in net loss was primarily attributable to restructuring costs, higher bad debt expense, higher interest expense, net, and higher income tax expense, partially offset by improved gross profit.
Adjusted EBITDA and Adjusted EPS (Non-GAAP Financial Measures)
Adjusted EBITDA and Adjusted EPS increased primarily due to improved gross profit, partially offset by higher bad debt and SG&A expenses.
Segment Overview
Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for the current period.
Americas Segment
The components of Segment Loss, each component as a percentage of net sales and the percentage increase or decrease over the prior period amounts for the Americas Segment, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | | | |
| | December 31, 2023 | | | January 1, 2023 | | | | |
| | | | | % of
Net Sales | | | | | | % of
Net Sales | | | %
Change | |
Net sales | | $ | 80,549 | | | | 100.0 | | | $ | 85,242 | | | | 100.0 | | | | (5.5 | ) |
Cost of sales | | | 87,287 | | | | 108.4 | | | | 98,326 | | | | 115.3 | | | | (11.2 | ) |
Gross loss | | | (6,738 | ) | | | (8.4 | ) | | | (13,084 | ) | | | (15.3 | ) | | | (48.5 | ) |
Depreciation expense | | | 5,508 | | | | 6.9 | | | | 5,542 | | | | 6.5 | | | | (0.6 | ) |
Segment Loss | | $ | (1,230 | ) | | | (1.5 | ) | | $ | (7,542 | ) | | | (8.8 | ) | | | (83.7 | ) |
| | | | | | | | | | | | | | | |
Segment net sales as a percentage of
consolidated amounts | | | 58.8 | % | | | | | | 62.6 | % | | | | | | |
Segment Loss as a percentage of
consolidated amounts | | | (15.5 | )% | | | | | nm | | | | | | | |
The change in net sales for the Americas Segment was as follows:
| | | | |
Net sales for the prior period | | $ | 85,242 | |
Net change in average selling price and sales mix | | | (12,152 | ) |
Increase in sales volumes | | | 7,459 | |
Net sales for the current period | | $ | 80,549 | |
The change in net sales for the Americas Segment from the prior period to the current period was primarily attributable to (i) the net change in average selling price and sales mix that reflects both (a) lower input costs and (b) a larger proportion of lower-priced Chip sales in the current period and (ii) lower proportion of fiber sales volumes following continued weak global textile demand.
The change in Segment Loss for the Americas Segment was as follows:
| | | | |
Segment Loss for the prior period | | $ | (7,542 | ) |
Net increase in underlying margins | | | 6,972 | |
Change in sales volumes | | | (660 | ) |
Segment Loss for the current period | | $ | (1,230 | ) |
The improvement in Segment Loss for the Americas Segment from the prior period to the current period was primarily attributable to variable cost management efforts and more stable raw material costs in the current period, along with volume improvements. Segment Loss for the Americas Segment continued to be negatively impacted by weak fixed cost absorption as fiber production remains below historical averages. As fiber products carry a higher selling price and allocation of production costs versus Flake and Chip, lower fiber production drives weaker fixed cost absorption and adversely impacts gross profit and gross margin.
17
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 31, 2023 | | | January 1, 2023 | | | | |
| | | | | % of
Net Sales | | | | | | % of
Net Sales | | | %
Change | |
Net sales | | $ | 26,061 | | | | 100.0 | | | $ | 25,687 | | | | 100.0 | | | | 1.5 | |
Cost of sales | | | 22,922 | | | | 87.9 | | | | 24,357 | | | | 94.8 | | | | (5.9 | ) |
Gross profit | | | 3,139 | | | | 12.1 | | | | 1,330 | | | | 5.2 | | | | 136.0 | |
Depreciation expense | | | 766 | | | | 2.9 | | | | 391 | | | | 1.5 | | | | 95.9 | |
Segment Profit | | $ | 3,905 | | | | 15.0 | | | $ | 1,721 | | | | 6.7 | | | | 126.9 | |
| | | | | | | | | | | | | | | |
Segment net sales as a percentage of
consolidated amounts | | | 19.0 | % | | | | | | 18.9 | % | | | | | | |
Segment Profit as a percentage of
consolidated amounts | | | 49.4 | % | | | | | | (83.3 | )% | | | | | | |
The change in net sales for the Brazil Segment was as follows:
| | | | |
Net sales for the prior period | | $ | 25,687 | |
Increase in sales volumes | | | 3,782 | |
Favorable foreign currency translation effects | | | 1,522 | |
Decrease in average selling price | | | (4,930 | ) |
Net sales for the current period | | $ | 26,061 | |
The increase in net sales for the Brazil Segment from the prior period to the current period was primarily attributable to (i) higher sales volumes and (ii) favorable foreign currency translation effects, partially offset by selling price pressures from low-priced imports.
The change in Segment Profit for the Brazil Segment was as follows:
| | | | |
Segment Profit for the prior period | | $ | 1,721 | |
Increase in underlying unit margins | | | 1,848 | |
Increase in sales volumes | | | 251 | |
Favorable foreign currency translation effects | | | 85 | |
Segment Profit for the current period | | $ | 3,905 | |
The increase in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to an overall increase in underlying unit margins and improved sales volumes, partially offset by pressure on selling prices from low-priced import competition. We continue to prioritize innovation and differentiation to improve our portfolio and competitive position in Brazil.
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 31, 2023 | | | January 1, 2023 | | | | |
| | | | | % of
Net Sales | | | | | | % of
Net Sales | | | %
Change | |
Net sales | | $ | 30,307 | | | | 100.0 | | | $ | 25,283 | | | | 100.0 | | | | 19.9 | |
Cost of sales | | | 25,072 | | | | 82.7 | | | | 21,529 | | | | 85.2 | | | | 16.5 | |
Gross profit | | | 5,235 | | | | 17.3 | | | | 3,754 | | | | 14.8 | | | | 39.5 | |
Depreciation expense | | | — | | | | — | | | | — | | | | — | | | | — | |
Segment Profit | | $ | 5,235 | | | | 17.3 | | | $ | 3,754 | | | | 14.8 | | | | 39.5 | |
| | | | | | | | | | | | | | | |
Segment net sales as a percentage of
consolidated amounts | | | 22.1 | % | | | | | | 18.6 | % | | | | | | |
Segment Profit as a percentage of
consolidated amounts | | | 66.2 | % | | | | | | (181.6 | )% | | | | | | |
The change in net sales for the Asia Segment was as follows:
| | | | |
Net sales for the prior period | | $ | 25,283 | |
Net increase in sales volumes | | | 4,811 | |
Change in average selling price and sales mix | | | 592 | |
Unfavorable foreign currency translation effects | | | (379 | ) |
Net sales for the current period | | $ | 30,307 | |
18
The increase in net sales for the Asia Segment from the prior period to the current period was primarily attributable to (i) increase in sales volume compared to the prior period despite continued weak global demand during the current period and (ii) improved sales mix compared to the prior period, partially offset by unfavorable foreign currency translation effects due to the weakening of the RMB versus the USD.
The change in Segment Profit for the Asia Segment was as follows:
| | | | |
Segment Profit for the prior period | | $ | 3,754 | |
Change in underlying margins and sales mix | | | 836 | |
Increase in sales volumes | | | 712 | |
Unfavorable foreign currency translation effects | | | (67 | ) |
Segment Profit for the current period | | $ | 5,235 | |
The increase in Segment Profit for the Asia Segment from the prior period to the current period is attributable to (i) an improved gross margin rate associated with a strong sales mix of REPREVE products and (ii) the increase in sales volumes discussed above.
Six Months Ended December 31, 2023 Compared to Six Months Ended January 1, 2023
Consolidated Overview
The below tables provide:
•the components of net loss and the percentage increase or decrease over the prior period amounts,
•a reconciliation from net loss to EBITDA and Adjusted EBITDA, and
following the tables is a discussion and analysis of the significant components of net loss.
Net loss
| | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended | | | | |
| | December 31, 2023 | | | January 1, 2023 | | | | |
| | | | | % of
Net Sales | | | | | | % of
Net Sales | | | %
Change | |
Net sales | | $ | 275,761 | | | | 100.0 | | | $ | 315,731 | | | | 100.0 | | | | (12.7 | ) |
Cost of sales | | | 274,700 | | | | 99.6 | | | | 317,168 | | | | 100.5 | | | | (13.4 | ) |
Gross profit (loss) | | | 1,061 | | | | 0.4 | | | | (1,437 | ) | | | (0.5 | ) | | | (173.8 | ) |
SG&A | | | 24,017 | | | | 8.7 | | | | 23,521 | | | | 7.4 | | | | 2.1 | |
Provision for bad debts | | | 1,080 | | | | 0.4 | | | | 18 | | | | — | | | nm | |
Restructuring costs | | | 5,101 | | | | 1.8 | | | | — | | | | — | | | nm | |
Other operating expense (income), net | | | 535 | | | | 0.2 | | | | (463 | ) | | | (0.1 | ) | | nm | |
Operating loss | | | (29,672 | ) | | | (10.7 | ) | | | (24,513 | ) | | | (7.8 | ) | | | 21.0 | |
Interest expense, net | | | 3,820 | | | | 1.4 | | | | 2,075 | | | | 0.6 | | | | 84.1 | |
Equity in earnings of unconsolidated affiliates | | | (293 | ) | | | (0.1 | ) | | | (381 | ) | | | (0.1 | ) | | | (23.1 | ) |
Loss before income taxes | | | (33,199 | ) | | | (12.0 | ) | | | (26,207 | ) | | | (8.3 | ) | | | 26.7 | |
Benefit for income taxes | | | (83 | ) | | | — | | | | (336 | ) | | | (0.1 | ) | | | (75.3 | ) |
Net loss | | $ | (33,116 | ) | | | (12.0 | ) | | $ | (25,871 | ) | | | (8.2 | ) | | | 28.0 | |
nm = not meaningful
EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
The reconciliations of the amounts reported under GAAP for Net loss to EBITDA and Adjusted EBITDA were as follows:
| | | | | | | | |
| | For the Six Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | |
Net loss | | $ | (33,116 | ) | | $ | (25,871 | ) |
Interest expense, net | | | 3,820 | | | | 2,075 | |
Benefit for income taxes | | | (83 | ) | | | (336 | ) |
Depreciation and amortization expense (1) | | | 13,910 | | | | 13,390 | |
EBITDA | | | (15,469 | ) | | | (10,742 | ) |
| | | | | | |
Loss on joint venture dissolution (2) | | | 2,750 | | | | — | |
Severance (3) | | | 2,351 | | | | — | |
Adjusted EBITDA | | $ | (10,368 | ) | | $ | (10,742 | ) |
(1)Within this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are reflected in interest expense, net. Within the accompanying condensed consolidated statements of cash flows, amortization of debt issuance costs is reflected in depreciation and amortization expense.
(2)In the second quarter of fiscal 2024, UNIFI recorded a loss of $2,750 related to the dissolution of UNF.
(3)In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with overall cost reduction efforts in the U.S.
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Adjusted Net Loss and Adjusted EPS (Non-GAAP Financial Measures)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended December 31, 2023 | | | For the Six Months Ended January 1, 2023 | |
| | Pre-tax Loss | | | Tax Impact | | | Net Loss | | | Diluted EPS | | | Pre-tax Loss | | | Tax Impact | | | Net Loss | | | Diluted EPS | |
GAAP results | | $ | (33,199 | ) | | $ | 83 | | | $ | (33,116 | ) | | $ | (1.83 | ) | | $ | (26,207 | ) | | $ | 336 | | | $ | (25,871 | ) | | $ | (1.44 | ) |
Loss on joint venture dissolution (1) | | | 2,750 | | | | — | | | | 2,750 | | | | 0.15 | | | | — | | | | — | | | | — | | | | — | |
Severance (2) | | | 2,351 | | | | — | | | | 2,351 | | | | 0.13 | | | | — | | | | — | | | | — | | | | — | |
Recovery of income taxes (3) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,799 | ) | | | (3,799 | ) | | | (0.21 | ) |
Adjusted results | | $ | (28,098 | ) | | $ | 83 | | | $ | (28,015 | ) | | $ | (1.55 | ) | | $ | (26,207 | ) | | $ | (3,463 | ) | | $ | (29,670 | ) | | $ | (1.65 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding | | | | 18,097 | | | | | | | | | | | | | 18,017 | |
(1)In the second quarter of fiscal 2024, UNIFI recorded a loss of $2,750 related to the dissolution of UNF.
(2)In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with overall cost reduction efforts in the U.S.
(3)In the second quarter of fiscal 2023, UNIFI recorded a recovery of income taxes in connection with filing amended tax returns in Brazil relating to certain income taxes paid in prior fiscal years.
Net Sales
Consolidated net sales for the current six-month period decreased by $39,970, or 12.7%, while consolidated sales volumes increased 3.1%, compared to the prior six-month period. Despite modest sales volume improvements in each of the reportable segments, volumes remain depressed, particularly in the Americas and Asia Segments as a result of low global demand in connection with the apparel market.
Consolidated weighted average sales prices decreased 15.8% which drove the decrease in net sales. The decrease in sales price was primarily attributable to lower selling prices in response to lower input costs, along with (a) competitive pricing pressures in Brazil and (b) a greater mix of Chip and Flake product sales in the Americas Segment.
REPREVE® Fiber products for the current six-month period comprised 32%, or $88,186, of consolidated net sales, compared to 29%, or $92,045, for the prior six-month period.
Gross Profit (Loss)
Gross profit for the current six-month period improved by $2,498, or 173.8%, compared to the prior six-month period. Gross profit improved as a result of variable cost management efforts and more stable raw material costs, along with increased sales volume. Gross profit was negatively impacted by weak fixed cost absorption in the Americas Segment, where utilization and productivity are materially impactful to gross profit. Although raw material costs for the Americas Segment were stable in fiscal 2024, low production levels and weak demand were significantly adverse.
•For the Americas Segment, gross loss improved due to variable cost management efforts and more stable raw material costs in the current six-month period, partially offset by weak global demand and weak fixed cost absorption in connection with low production levels.
•For the Brazil Segment, gross profit decreased primarily due to decreasing market prices in Brazil due to low-cost import competition.
•For the Asia Segment, gross profit increased primarily due to (i) a strong sales mix and (ii) higher sales volumes compared to the period six-month period despite weak global demand.
SG&A
SG&A did not change meaningfully from the prior six-month period to the current period, nor did the change include any significant offsetting impacts.
Provision for Bad Debts
The current six-month period's provision reflects an increase for a specifically identified customer balance originating in the U.S. fiber market.
Restructuring Costs
Restructuring costs consisted of (i) a loss of $2,750 when UNIFI dissolved its interest in UNF under an agreement with its former joint venture partner and (ii) severance charges of $2,351 in connection with overall cost reduction efforts in the U.S.
Other Operating Expense (Income), Net
The current six-month period and prior six-month period include foreign currency transaction losses (gains) of $430 and ($803), respectively, with no other meaningful activity.
20
Interest Expense, Net
Interest expense, net increased in connection with higher debt principal and higher interest rates.
Equity in Earnings of Unconsolidated Affiliates
There was no material activity for the current six-month period or the prior six-month period.
Income Taxes
Benefit for income taxes and the effective tax rate were as follows:
| | | | | | | | |
| | For the Six Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | |
Benefit for income taxes | | $ | (83 | ) | | $ | (336 | ) |
Effective tax rate | | | 0.3 | % | | | 1.3 | % |
The effective tax rate is subject to variation due to a number of factors, including variability in pre-tax book income; the mix of income by jurisdiction; changes in deferred tax valuation allowances; and changes in statutes, regulations, and case law. Additionally, the impacts of discrete and other rate impacting items are more pronounced when income (loss) before income taxes is lower.
The decrease in the effective tax rate from the prior six-month period to the current six-month period is primarily attributable to a discrete tax benefit related to the recovery of certain Brazilian income taxes in the prior six-month period.
Net Loss
The increase in net loss was primarily attributable to restructuring costs, higher bad debt expense, and higher interest expense, net, partially offset by improved gross profit.
Adjusted EBITDA and Adjusted EPS (Non-GAAP Financial Measures)
Adjusted EBITDA and Adjusted EPS increased primarily due to improved gross profit, partially offset by higher bad debt expense and other operating expenses.
Segment Overview
Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for the current six-month period.
Americas Segment
The components of Segment Loss, each component as a percentage of net sales and the percentage increase or decrease over the prior six-month period amounts for the Americas Segment, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended | | | | |
| | December 31, 2023 | | | January 1, 2023 | | | | |
| | | | | % of
Net Sales | | | | | | % of
Net Sales | | | %
Change | |
Net sales | | $ | 162,122 | | | | 100.0 | | | $ | 192,886 | | | | 100.0 | | | | (15.9 | ) |
Cost of sales | | | 176,240 | | | | 108.7 | | | | 210,839 | | | | 109.3 | | | | (16.4 | ) |
Gross loss | | | (14,118 | ) | | | (8.7 | ) | | | (17,953 | ) | | | (9.3 | ) | | | (21.4 | ) |
Depreciation expense | | | 11,005 | | | 6.8 | | | | 11,022 | | | | 5.7 | | | | (0.2 | ) |
Segment Loss | | $ | (3,113 | ) | | | (1.9 | ) | | $ | (6,931 | ) | | | (3.6 | ) | | | (55.1 | ) |
| | | | | | | | | | | | | | | |
Segment net sales as a percentage of
consolidated amounts | | | 58.8 | % | | | | | | 61.1 | % | | | | | | |
Segment Loss as a percentage of
consolidated amounts | | | (22.8 | )% | | | | | | (66.4 | )% | | | | | | |
The change in net sales for the Americas Segment was as follows:
| | | | |
Net sales for the prior six-month period | | $ | 192,886 | |
Net change in average selling price and sales mix | | | (35,980 | ) |
Increase in sales volumes | | | 5,216 | |
Net sales for the current six-month period | | $ | 162,122 | |
The change in net sales for the Americas Segment from the prior six-month period to the current six-month period was primarily attributable to (i) the net change in average selling price and sales mix that reflects both (a) lower input costs and (b) a larger proportion of lower-priced Chip and Flake sales in the current six-month period and (ii) lower fiber sales volumes following weaker global textile demand.
21
The change in Segment Loss for the Americas Segment was as follows:
| | | | |
Segment Loss for the prior six-month period | | $ | (6,931 | ) |
Change in underlying margins and sales mix | | | 4,005 | |
Change in sales volumes | | | (187 | ) |
Segment Loss for the current six-month period | | $ | (3,113 | ) |
The improvement in Segment Loss for the Americas Segment from the prior six-month period to the current six-month period was primarily attributable to variable cost management efforts and more stable raw material costs in the current six-month period. Segment Loss for the Americas Segment continued to be negatively impacted by low fiber sales volumes. As fiber products carry a higher selling price and allocation of production costs versus Chip and Flake, lower fiber production drives weaker fixed cost absorption and adversely impacts gross profit and gross margin.
Brazil Segment
The components of Segment Profit, each component as a percentage of net sales and the percentage increase or decrease over the prior six-month period amounts for the Brazil Segment, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended | | | | |
| | December 31, 2023 | | | January 1, 2023 | | | | |
| | | | | % of
Net Sales | | | | | | % of
Net Sales | | | %
Change | |
Net sales | | $ | 55,970 | | | | 100.0 | | | $ | 64,566 | | | | 100.0 | | | | (13.3 | ) |
Cost of sales | | | 50,664 | | | | 90.5 | | | | 56,449 | | | | 87.4 | | | | (10.2 | ) |
Gross profit | | | 5,306 | | | | 9.5 | | | | 8,117 | | | | 12.6 | | | | (34.6 | ) |
Depreciation expense | | | 1,606 | | | | 2.8 | | | | 861 | | | | 1.3 | | | | 86.5 | |
Segment Profit | | $ | 6,912 | | | | 12.3 | | | $ | 8,978 | | | | 13.9 | | | | (23.0 | ) |
| | | | | | | | | | | | | | | |
Segment net sales as a percentage of
consolidated amounts | | | 20.3 | % | | | | | | 20.4 | % | | | | | | |
Segment Profit as a percentage of
consolidated amounts | | | 50.6 | % | | | | | | 85.9 | % | | | | | | |
The change in net sales for the Brazil Segment was as follows:
| | | | |
Net sales for the prior six-month period | | $ | 64,566 | |
Decrease in average selling price and change in sales mix | | | (15,632 | ) |
Favorable foreign currency translation effects | | | 4,409 | |
Increase in sales volumes | | | 2,627 | |
Net sales for the current six-month period | | $ | 55,970 | |
The decrease in net sales for the Brazil Segment from the prior six-month period to the current six-month period was primarily attributable to selling price pressures from low-priced imports, partially offset by favorable foreign currency translation effects and an improvement in sales volumes.
The change in Segment Profit for the Brazil Segment was as follows:
| | | | |
Segment Profit for the prior six-month period | | $ | 8,978 | |
Decrease in underlying margins | | | (3,044 | ) |
Favorable foreign currency translation effects | | | 613 | |
Increase in sales volumes | | | 365 | |
Segment Profit for the current six-month period | | $ | 6,912 | |
The decrease in Segment Profit for the Brazil Segment from the prior six-month period to the current six-month period was primarily attributable to an overall decrease in gross margin mainly due to pressure on selling prices from low-priced import competition. We continue to prioritize innovation and differentiation to improve our portfolio and competitive position in Brazil.
22
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:
| | | | | | | | | | | | | | | | | | | | |
| | For the Six Months Ended | | | | |
| | December 31, 2023 | | | January 1, 2023 | | | | |
| | | | | % of
Net Sales | | | | | | % of
Net Sales | | | %
Change | |
Net sales | | $ | 57,669 | | | | 100.0 | | | $ | 58,279 | | | | 100.0 | | | | (1.0 | ) |
Cost of sales | | | 47,796 | | | | 82.9 | | | | 49,880 | | | | 85.6 | | | | (4.2 | ) |
Gross profit | | | 9,873 | | | | 17.1 | | | | 8,399 | | | | 14.4 | | | | 17.5 | |
Depreciation expense | | | — | | | | — | | | | — | | | | — | | | | — | |
Segment Profit | | $ | 9,873 | | | | 17.1 | | | $ | 8,399 | | | | 14.4 | | | | 17.5 | |
| | | | | | | | | | | | | | | |
Segment net sales as a percentage of
consolidated amounts | | | 20.9 | % | | | | | | 18.5 | % | | | | | | |
Segment Profit as a percentage of
consolidated amounts | | | 72.2 | % | | | | | | 80.4 | % | | | | | | |
The change in net sales for the Asia Segment was as follows:
| | | | |
Net sales for the prior six-month period | | $ | 58,279 | |
Unfavorable foreign currency translation effects | | | (2,040 | ) |
Change in average selling price and sales mix | | | (277 | ) |
Net increase in sales volumes | | | 1,707 | |
Net sales for the current six-month period | | $ | 57,669 | |
The nominal change in net sales for the Asia Segment from the prior six-month period to the current six-month period was primarily attributable to (i) unfavorable foreign currency translation effects due to the weakening of the RMB versus the USD, offset by an improvement in sales volume compared to the prior six-month period despite continued weak global demand and inventory destocking by brands and retailers, particularly for apparel.
The change in Segment Profit for the Asia Segment was as follows:
| | | | |
Segment Profit for the prior six-month period | | $ | 8,399 | |
Change in underlying margins and sales mix | | | 1,550 | |
Increase in sales volumes | | | 245 | |
Unfavorable foreign currency translation effects | | | (321 | ) |
Segment Profit for the current six-month period | | $ | 9,873 | |
The increase in Segment Profit for the Asia Segment from the prior six-month period to the current six-month period is attributable to (i) an improved gross margin rate associated with a strong sales mix of REPREVE products and (ii) the increase in sales volumes discussed above, offset by unfavorable foreign currency translation effects.
Liquidity and Capital Resources
Note 5, “Long-Term Debt” to the condensed consolidated financial statements includes the detail of UNIFI’s debt obligations and terms and conditions thereof. Further discussion and analysis of liquidity and capital resources follow.
UNIFI’s primary capital requirements are for working capital, capital expenditures, debt service, and share repurchases. UNIFI’s primary sources of capital are cash generated from operations, borrowings available under the 2022 Credit Agreement, and asset financing arrangements. For the current six-month period, cash provided by operations was $2,517, and, at December 31, 2023, availability under the ABL Revolver was $43,082.
As of December 31, 2023, all of UNIFI’s $132,760 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, while nearly all of UNIFI’s cash and cash equivalents were held by its foreign subsidiaries. Cash and cash equivalents held by foreign subsidiaries may not be presently available to fund UNIFI’s domestic capital requirements, including its domestic debt obligations. UNIFI employs a variety of strategies to ensure that its worldwide cash is available in the locations where it is needed.
The following table presents a summary of cash and cash equivalents, borrowings available under financing arrangements, liquidity, working capital, and total debt obligations as of December 31, 2023 for domestic operations compared to foreign operations:
| | | | | | | | | | | | |
| | Domestic | | | Foreign | | | Total | |
Cash and cash equivalents | | $ | 25 | | | $ | 35,954 | | | $ | 35,979 | |
Borrowings available under financing arrangements | | | 43,082 | | | | — | | | | 43,082 | |
Liquidity | | $ | 43,107 | | | $ | 35,954 | | | $ | 79,061 | |
| | | | | | | | | |
Working capital | | $ | 73,768 | | | $ | 113,710 | | | $ | 187,478 | |
Total debt obligations | | $ | 132,760 | | | $ | — | | | $ | 132,760 | |
23
UNIFI’s primary cash requirements, in addition to normal course operating activities (e.g. working capital and payroll), primarily include (i) capital expenditures that generally have commitments of up to 12 months, (ii) contractual obligations that support normal course ongoing operations and production, (iii) operating leases and finance leases, (iv) debt service, and (v) share repurchases.
Liquidity Considerations
Following the establishment of the 2022 Credit Agreement, UNIFI’s global cash and liquidity positions are sufficient to sustain its operations and meet its growth needs. Additionally, UNIFI considers opportunities to repatriate existing cash to reduce debt and preserve or enhance liquidity. However, further degradation in the macroeconomic environment could introduce additional liquidity risk and require UNIFI to limit cash outflows for discretionary activities while further utilizing available and additional forms of credit.
We do not currently anticipate that any adverse events or circumstances will place critical pressure on our liquidity position or our ability to fund our operations and expected business growth. Should global demand, economic activity, or input availability decline considerably for an even longer period of time, UNIFI maintains the ability to (i) seek additional credit or financing arrangements and/or (ii) re-implement cost reduction initiatives to preserve cash and secure the longevity of the business and operations. Management continues to (i) explore cost savings opportunities and (ii) prioritize repayment of debt in the current operating environment.
When business levels increase, we expect to use cash in support of working capital needs.
The following outlines the attributes relating to our credit facility as of December 31, 2023:
•UNIFI was in compliance with all applicable financial covenants in the 2022 Credit Agreement;
•excess availability before the Trigger Level (as defined in the 2022 Credit Agreement) under the ABL Revolver was $21,002;
•the Trigger Level was $22,080; and
•$0 of standby letters of credit were outstanding.
In addition to making payments in accordance with the scheduled maturities of debt required under its existing debt obligations, UNIFI may, from time to time, elect to repay additional amounts borrowed under the ABL Facility. Funds to make such repayments may come from the operating cash flows of the business or other sources and will depend upon UNIFI’s strategy, prevailing market conditions, liquidity requirements, contractual restrictions, and other factors.
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 credit facility will enable UNIFI to meet its foreseeable liquidity requirements. Domestically, UNIFI’s cash balances, cash provided by operating activities, and borrowings available under the ABL Revolver continue to be sufficient to fund UNIFI’s domestic operating activities as well as cash commitments for its investing and financing activities. For its foreign operations, UNIFI expects its existing cash balances, cash provided by operating activities, and available financing arrangements will provide the needed liquidity to fund the associated operating activities and investing activities, such as future capital expenditures. UNIFI’s operations in Asia and Brazil are in a position to obtain local country financing arrangements due to the operating results of each subsidiary.
Net Debt (Non-GAAP Financial Measure)
The reconciliations for Net Debt are as follows:
| | | | | | | | |
| | December 31, 2023 | | | July 2, 2023 | |
Long-term debt | | $ | 120,144 | | | $ | 128,604 | |
Current portion of long-term debt | | | 12,357 | | | | 12,006 | |
Unamortized debt issuance costs | | | 259 | | | | 289 | |
Debt principal | | | 132,760 | | | | 140,899 | |
Less: cash and cash equivalents | | | 35,979 | | | | 46,960 | |
Net Debt | | $ | 96,781 | | | $ | 93,939 | |
The increase in Net Debt primarily reflects capital expenditures during the fiscal year, partially offset by the generation of operating cash flows during fiscal 2024.
24
Working Capital and Adjusted Working Capital (Non-GAAP Financial Measure)
The following table presents the components of working capital and the reconciliation of working capital to Adjusted Working Capital:
| | | | | | | | |
| | December 31, 2023 | | | July 2, 2023 | |
Cash and cash equivalents | | $ | 35,979 | | | $ | 46,960 | |
Receivables, net | | | 69,583 | | | | 83,725 | |
Inventories | | | 135,676 | | | | 150,810 | |
Income taxes receivable | | | 2,421 | | | | 238 | |
Other current assets | | | 12,290 | | | | 12,327 | |
Accounts payable | | | (34,709 | ) | | | (44,455 | ) |
Other current liabilities | | | (17,409 | ) | | | (12,932 | ) |
Income taxes payable | | | (2,263 | ) | | | (789 | ) |
Current operating lease liabilities | | | (1,733 | ) | | | (1,813 | ) |
Current portion of long-term debt | | | (12,357 | ) | | | (12,006 | ) |
Working capital | | $ | 187,478 | | | $ | 222,065 | |
| | | | | | |
Less: Cash and cash equivalents | | | (35,979 | ) | | | (46,960 | ) |
Less: Income taxes receivable | | | (2,421 | ) | | | (238 | ) |
Less: Income taxes payable | | | 2,263 | | | | 789 | |
Less: Current operating lease liabilities | | | 1,733 | | | | 1,813 | |
Less: Current portion of long-term debt | | | 12,357 | | | | 12,006 | |
Adjusted Working Capital | | $ | 165,431 | | | $ | 189,475 | |
Adjusted Working Capital decreased $24,044 from July 2, 2023 to December 31, 2023.
The decrease in receivables, net was primarily due to a decrease in sales and the timing of cash receipts. The decrease in inventories was primarily attributable to lower weighted average costs in the current six-month period and lower units on hand. The decrease in accounts payable followed the decrease in inventories and production activity in the current six-month period. The increase in other current liabilities primarily reflects the liabilities recorded in the current period for severance and the dissolution of UNF. The change in income taxes receivable reflects the foreign tax payments made in the current six-month period. The change in income taxes payable reflects the impact of the interim tax provision. The changes in other current assets, current operating lease liabilities, and current portion of long-term debt were insignificant.
Operating Cash Flows
The significant components of net cash provided by operating activities are summarized below.
| | | | | | | | |
| | For the Six Months Ended | |
| | December 31, 2023 | | | January 1, 2023 | |
Net loss | | $ | (33,116 | ) | | $ | (25,871 | ) |
Equity in earnings of unconsolidated affiliates | | | (293 | ) | | | (381 | ) |
Depreciation and amortization expense | | | 13,988 | | | | 13,478 | |
Recovery of income taxes | | | — | | | | (3,799 | ) |
Non-cash compensation expense | | | 1,387 | | | | 1,976 | |
Deferred income taxes | | | (1,714 | ) | | | (304 | ) |
Subtotal | | | (19,748 | ) | | | (14,901 | ) |
| | | | | | |
Receivables, net | | | 14,367 | | | | 40,552 | |
Inventories | | | 15,081 | | | | 25,422 | |
Accounts payable and other current liabilities | | | (4,763 | ) | | | (47,599 | ) |
Other changes | | | (2,420 | ) | | | 3,798 | |
Net cash provided by operating activities | | $ | 2,517 | | | $ | 7,272 | |
The decrease in operating cash flows was primarily due to weaker earnings in the current six-month period compared to the prior six-month period.
Investing Cash Flows
Investing activities primarily includes $5,982 for capital expenditures. UNIFI expects recent and future capital projects to provide benefits to future profitability. The additional assets from these capital projects consist primarily of machinery and equipment.
Financing Cash Flows
Financing activities primarily include net payments on the ABL Revolver and payments on the ABL Term Loan.
Share Repurchase Program
As described in Note 7, “Shareholders’ Equity,” no share repurchases have been completed in fiscal 2024.
25
Contractual Obligations
UNIFI incurs various financial obligations and commitments in the ordinary 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 under the heading “Contractual Obligations” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2023 Form 10-K, except for the capital purchase obligations are approximately $6,000, $0 and $19,000 for fiscal years 2024, 2025 and 2026, respectively.
Off-Balance Sheet Arrangements
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
UNIFI’s critical accounting policies are discussed in the 2023 Form 10-K. There have been no changes to UNIFI’s critical accounting policies in fiscal 2024.
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 31, 2023, UNIFI had borrowings under its ABL Facility that totaled $121,800. UNIFI’s sensitivity analysis indicates that a 50-basis point interest rate increase as of December 31, 2023 would result in an increase in annual interest expense of approximately $600.
Foreign Currency Exchange Rate Risk
A complete discussion of foreign currency exchange rate risk is included in the 2023 Form 10-K and is supplemented by the following disclosures.
As of December 31, 2023, UNIFI had no outstanding foreign currency forward contracts. As of December 31, 2023, foreign currency exchange rate risk positions included the following:
| | | | |
| | Approximate
Amount or
Percentage | |
Percentage of total consolidated assets held by UNIFI's subsidiaries outside the U.S. whose functional currency
is not the USD | | | 29.9 | % |
| | | |
Cash and cash equivalents held outside the U.S.: | | | |
Denominated in USD | | $ | 13,259 | |
Denominated in RMB | | | 6,707 | |
Denominated in BRL | | | 14,789 | |
Denominated in other foreign currencies | | | 256 | |
Total cash and cash equivalents held outside the U.S. | | $ | 35,011 | |
Percentage of total cash and cash equivalents held outside the U.S. | | | 97.3 | % |
| | | |
Cash and cash equivalents held inside the U.S. in USD by foreign subsidiaries | | $ | 943 | |
Raw Material and Commodity Cost Risks
A complete discussion of raw material and commodity cost risks is included in the 2023 Form 10-K.
Other Risks
UNIFI is also exposed to geopolitical 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.
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Item 4. Controls and Procedures
As of December 31, 2023, 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 31, 2023 that have materially affected, or are reasonably likely to materially affect, UNIFI’s internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
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)). |
| | |
10.1 | | Employment Agreement by and between Unifi, Inc. and Brian D. Moore, effective as of January 22, 2024. |
| | |
10.2 | | Employment Agreement by and between Unifi, Inc. and Meredith S. Boyd, effective as of January 22, 2024. |
| | |
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++ | | Certifications of Principal Executive Officer and 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 With Embedded Linkbases Document |
| | |
104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| | |
+ Filed herewith.
++ Furnished herewith.
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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 7, 2024 | | By: | /s/ ANDREW J. EAKER |
| | | Andrew J. Eaker |
| | | Executive Vice President & Chief Financial Officer Treasurer |
| | | (Principal Financial Officer and Principal Accounting Officer) |
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