UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 25, 2017
OR
(cid:4) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission file number: 1-10542
UNIFI, INC.
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of
incorporation or organization)
11-2165495
(I.R.S. Employer
Identification No.)
7201 West Friendly Avenue
Greensboro, North Carolina 27410
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (336) 294-4410
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.10 per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:4) No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:4) No (cid:3)
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 (cid:3) No (cid:4)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted 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 and post such files). Yes (cid:3) No (cid:4)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. (cid:4)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
(cid:3)
Non-accelerated filer
(cid:3) (Do not check if a smaller reporting company)
Accelerated filer
(cid:4)
Smaller reporting company (cid:3)
Emerging growth company (cid:3)
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. (cid:4)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:4) No (cid:3)
As of December 23, 2016, the aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant was
approximately $513,765,262. The registrant has no non-voting stock.
As of August 23, 2017, the number of shares of the registrant’s common stock outstanding was 18,250,743.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2017
Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K to the extent described herein.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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 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 economic 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 products;
• the financial condition of the Company’s customers;
• the loss of a significant customer;
• the success of the Company’s strategic business initiatives;
• volatility of financial and credit markets;
• the ability to service indebtedness and fund capital expenditures and strategic initiatives;
• 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;
• employee relations;
• the impact of environmental, health and safety regulations;
• the operating performance of joint ventures and other equity investments;
• the accurate financial reporting of information from equity method investees; and
• other factors discussed below in “Item 1A. Risk Factors” or the Company’s other periodic reports and
information filed with the Securities and Exchange Commission.
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 law.
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.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 25, 2017
TABLE OF CONTENTS
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
PART I
Business.....................................................................................................................................................
Risk Factors...............................................................................................................................................
Unresolved Staff Comments .....................................................................................................................
Properties...................................................................................................................................................
Legal Proceedings .....................................................................................................................................
Mine Safety Disclosures............................................................................................................................
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ..............................................................................................................................................
Selected Financial Data.............................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations ...................
Quantitative and Qualitative Disclosures About Market Risk ..................................................................
Financial Statements and Supplementary Data.........................................................................................
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ..................
Controls and Procedures............................................................................................................................
Other Information......................................................................................................................................
PART III
Directors, Executive Officers and Corporate Governance........................................................................
Executive Compensation...........................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters .................................................................................................................................................
Certain Relationships and Related Transactions, and Director Independence..........................................
Principal Accountant Fees and Services ...................................................................................................
PART IV
Exhibits and Financial Statement Schedules.............................................................................................
Form 10-K Summary...............................................................................................................................
Signatures ..................................................................................................................................................
Consolidated Financial Statements ...........................................................................................................
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Fiscal Year
The fiscal year end for Unifi, Inc. and its subsidiary in El Salvador ends on the last Sunday in June. Unifi, Inc.’s
fiscal 2017, 2016 and 2015 ended on June 25, 2017, June 26, 2016 and June 28, 2015, respectively. Unifi, Inc.’s
Brazilian, Chinese, Colombian and Sri Lankan subsidiaries’ fiscal years end on June 30th. There were no significant
transactions or events that occurred between the fiscal year ends of Unifi, Inc. and its wholly owned subsidiaries.
Unifi, Inc.’s fiscal 2017, 2016 and 2015 all consisted of 52 fiscal weeks.
Presentation
All amounts, except per share amounts, are presented in thousands (000s), unless otherwise noted.
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Item 1.
Business
PART I
Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, “UNIFI,” the “Company,” “we,”
“us” or “our”), is a multi-national company that manufactures and sells innovative synthetic and recycled products
made from polyester and nylon primarily to other yarn manufacturers and knitters and weavers that produce fabric
for the apparel, hosiery, home furnishings, automotive, industrial and other end-use markets. UNIFI’s polyester
products include plastic bottle flake, polyester polymer beads (“Chip”), partially oriented yarn (“POY”), and
textured, solution and package dyed, twisted, beamed and draw wound yarns. Each yarn product is available in
virgin or recycled varieties, where the recycled varieties are made from both pre-consumer and post-consumer
waste, including plastic bottles. UNIFI’s nylon products include textured, solution dyed and spandex covered yarns.
UNIFI maintains one of the textile industry’s most comprehensive yarn product offerings that include specialized
yarns, premium value-added (“PVA”) yarns and commodity yarns, with principal geographic markets in the
Americas and Asia.
UNIFI has manufacturing operations in four countries and participates in joint ventures in Israel and the United
States, the most significant of which is a 34% non-controlling partnership interest in Parkdale America, LLC
(“PAL”), a significant unconsolidated affiliate that produces cotton and synthetic yarns for sale to the global textile
industry and apparel market. We believe the investment in PAL provides strategic diversification for UNIFI’s
overall business in response to global textile trends. PAL is a limited liability company treated as a partnership for
income tax reporting purposes.
UNIFI has three reportable segments:
• The Polyester Segment sells polyester-based products primarily to other yarn manufacturers and knitters and
weavers that produce yarn and/or fabric for the apparel, hosiery, home furnishings, automotive, industrial
and other end-use markets. The Polyester Segment consists of sales and manufacturing operations in the
United States and El Salvador.
• The Nylon Segment sells nylon-based products to knitters and weavers that produce fabric primarily for the
apparel and hosiery markets. The Nylon Segment consists of sales and manufacturing operations in the
United States and Colombia.
• The International Segment sells polyester-based products to knitters and weavers that produce fabric for the
apparel, home furnishings, automotive, industrial and other end-use markets primarily in South America and
Asia. The International Segment includes a manufacturing location in Brazil and sales offices in Brazil,
China and Sri Lanka.
Other information for UNIFI’s reportable segments is provided in Note 25, “Business Segment Information,” to the
accompanying consolidated financial statements. In addition to UNIFI’s reportable segments, UNIFI conducts
certain ancillary operations that include for-hire transportation services, which comprise an All Other category. The
ancillary operations classified within All Other are immaterial to UNIFI’s consolidated financial statements.
Operating and Strategic Overview
UNIFI reported net income of $32,875, or $1.81 per basic share, for fiscal 2017. Such results reflect growth in sales
of PVA products, especially in the International Segment, which was partially offset by (i) a difficult domestic
environment, (ii) increased selling, general and administrative (“SG&A”) expenses for strategic planning, talent
acquisition and commercial expansion and (iii) lower earnings from equity affiliates. Additionally, in fiscal 2017,
UNIFI faced periods of fluctuating virgin polyester raw material costs, temporarily depressing the Polyester
Segment’s gross margins, but benefited from (a) the recognition of a benefit for bad debts, (b) a lower effective tax
rate and (c) favorable foreign currency exchange rates. The International Segment continued strong performance and
growth due to the global success of UNIFI’s PVA portfolio, along with the shutdown of a competitor in Brazil in
early calendar 2016. The Polyester and Nylon Segments both experienced a difficult domestic environment,
challenged by weak retail selling seasons and cautious ordering patterns from brands and retailers.
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We believe UNIFI’s successful performance during recent fiscal years reflects the strength of our global initiative to
deliver PVA products and solutions to customers and brand partners throughout the world. Our supply chain has
been developed and enhanced in multiple regions of the globe, particularly in the Americas and Asia, allowing us to
deliver a diverse range of synthetic fibers and polymers to key customers in the markets we serve, especially
apparel. These polyester and nylon products are supported by quality assurance, product development and other
customer service teams across UNIFI’s operating subsidiaries. We have developed this successful operating
platform by: improving operational and business processes; enriching the product mix by growing sales of higher-
margin PVA products; and deriving value from sustainability-based initiatives, including polyester and nylon
recycling.
This platform has provided favorable results and growth in our core operations during recent fiscal years, and has
been augmented by significant capital investments that support the production and delivery of sustainable and
innovative solutions. In order to achieve further growth, UNIFI is committed to investing in four strategic and
synergistic initiatives:
1. Commercial expansion;
2. Technology and innovation;
3. Strategic partnerships; and
4. People and teams.
Growth in commercial expansion involves capitalizing on the existing operational excellence and brand partnerships
that underlie UNIFI’s core competencies. We believe that increasing the awareness for recycled solutions in
applications across fibers and polymers, particularly with performance and aesthetic characteristics, and furthering
sustainability-based initiatives with like-minded brand partners will be key to our future success. With leading
technology for performance yarns and recycling that satisfies today’s consumers, UNIFI intends to continue to grow
its commercial capabilities across global markets.
Establishing the existing portfolio of technologies and capabilities was a significant accomplishment, allowing
REPREVE® to grow into a premier synthetic fiber. We believe that further commercial expansion will require a
continued stream of new technology and innovation that generates products with consumer-meaningful benefits.
Along with REPREVE®, the Company has significant yarn technologies that provide optimal performance
characteristics for today’s marketplace, including moisture management, temperature moderation, and fire
retardation. To achieve further growth, UNIFI plans to invest in expanding technology and innovation, bringing to
market the next wave of fibers and polymers for tomorrow’s applications.
Growth will also require strategic partnerships. With a changing retail landscape and a dynamic consumer, brands
are demanding fast fashion and localized supply chains. In order to capitalize on these shifts, we expect to identify,
qualify and execute partnerships that expand our global footprint in strategic regions. As Central America and Asia
remain significant components of the global supply chain, UNIFI will be diligent in exploring partnerships that
advance our existing growth platform in these regions.
Properly executing on these initiatives will require investment in UNIFI’s people and teams. With a strong culture of
quality and operational excellence, UNIFI will work to further train, develop and expand its teams in order to
properly support growth initiatives for future success. We expect this to result in increased SG&A expenses as we
invest across the organization and global subsidiaries.
Executing on these initiatives is expected to drive expansion in gross margins and should lead to an increase in
revenue and profitability.
Further discussion of the significant components of UNIFI’s recent success and its capital allocation strategies is
included in this Annual Report on Form 10-K (this “Annual Report”).
PVA Products and REPREVE®
UNIFI remains committed to growing the business for its PVA products and believes its research and development
work with brands and retailers continues to create new worldwide sales opportunities. UNIFI’s goal is to continue
to increase its global PVA sales by more than 10% per year to generate overall mix enrichment and margin gains.
UNIFI’s PVA products represented approximately 40% of consolidated net sales in fiscal 2017. The Company’s
strategy of enhancing its product mix through a focus on PVA products has helped establish UNIFI as an innovation
leader in its core markets and provides some insulation from the pressures of low-priced commodity yarn imports.
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REPREVE®, the flagship brand in UNIFI’s PVA portfolio, is also our fastest growing PVA product line. As part of
our efforts to expand consumer brand recognition of REPREVE®, UNIFI has developed recycling-focused
sponsorships with various franchises and entities that span across sporting, music and outdoor events. The increasing
success and awareness of the REPREVE® brand continues to provide new opportunities for growth, allowing us to
expand into new end-uses and markets for REPREVE®, as well as continuing to grow the brand with current
customers. UNIFI has gained traction with global brands and retailers who obtain value and lasting consumer
interest from the innovation and sustainability aspects that REPREVE® provides.
PVA Expansion and Capital Investments
Beginning in fiscal 2015, UNIFI began a significant three-year capital investment plan to increase its PVA
capabilities and capacity, expand its technological foundation and customize its asset base to improve its ability to
deliver small-lot and high-value solutions.
During fiscal 2017, we invested approximately $40,000 in capital projects (including amounts funded by a
construction financing agreement). The most significant project was the completion of the REPREVE® Bottle
Processing Center at UNIFI’s existing facility in Reidsville, North Carolina. This bottle processing plant is expected
to convert 2 billion plastic bottles into 75 million pounds of plastic bottle flake annually, to support our growing
focus on recycling and sustainability, especially with the REPREVE® brand and its expanding portfolio. In addition
to ongoing maintenance, UNIFI also made investments towards (i) completing the fourth REPREVE® Recycling
Center production line, (ii) installing bi-component spinning machinery to produce specialized high-value yarns and
(iii) additional machinery modifications to meet the ever-changing demands of the market, in support of the PVA
product portfolio. These investments were primarily for the Polyester Segment.
In fiscal 2018, UNIFI expects to invest an additional $35,000 in capital projects, which include (i) placing
equipment in Asia in support of our expanding product portfolio and growth opportunities in that region, (ii)
completing the fourth production line in the REPREVE® Recycling Center, (iii) making further improvements in
production capabilities and technology enhancements in the Americas and (iv) annual maintenance capital
expenditures.
UNIFI intends to ensure maintenance capital expenditures are sufficient to allow continued high-efficiency
production. Our goal for the REPREVE® Bottle Processing Center is to continue support of REPREVE® by securing
a stream of high-quality raw materials. This, combined with technology advancements in recycling that will be
incorporated into the REPREVE® Recycling Center, will enhance our ability to continue to grow REPREVE® into
other markets, such as nonwovens, carpet fiber and packaging.
In addition to UNIFI’s recent three-year capital investment plan, PAL completed two business combinations in
fiscal 2015, in an effort to increase its regional manufacturing capacity and expand its product offerings and
customer base.
• In August 2014, PAL paid $10,125 to acquire the remaining 50% ownership interest in a yarn manufacturer
based in Mexico in which PAL was historically a 50% holder. PAL recorded acquired net assets of
approximately $23,600 from the transaction.
• In February 2015, PAL purchased two U.S. manufacturing facilities, plus inventory, for approximately
$13,000 in cash, and entered into a yarn supply agreement with the seller. PAL recorded acquired net assets
of approximately $19,400 from the transaction.
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Stock Repurchases
In addition to capital investments, UNIFI may utilize excess cash for strategic stock repurchases. Pursuant to an
initial $50,000 stock repurchase program approved by UNIFI’s Board of Directors (the “Board”) in January 2013,
UNIFI began periodic strategic repurchases of its common stock. That $50,000 repurchase program was completed
in March 2014. In April 2014, the Board approved a second $50,000 stock repurchase program. As of June 25,
2017, UNIFI had repurchased a total of 3,147 shares, at an average price of $23.01, under these programs, and
$27,603 remained available for repurchases under the current program. UNIFI will continue to evaluate
opportunities to use excess cash flow from operations or existing borrowings to repurchase additional stock, while
maintaining sufficient liquidity to support its operational needs and fund future strategic growth opportunities.
Developments in Principal Markets
Leading up to fiscal 2017, apparel production experienced multi-year growth in the regions covered by the North
American Free Trade Agreement (“NAFTA”) and the Dominican Republic—Central America Free Trade
Agreement (“CAFTA-DR”), which comprise the principal markets for UNIFI’s Polyester and Nylon Segments. The
share of synthetic apparel production for these regions as a percentage of U.S. retail stabilized at approximately 17%
to 18%, while retail consumption grew, especially for apparel made with synthetic yarns. The CAFTA-DR region,
which continues to be a competitive alternative to Asian supply chains for textile products, maintained its share of
synthetic apparel supply to U.S. retailers. The share of synthetic apparel versus cotton apparel increased and
provided growth for the consumption of synthetic yarns within the CAFTA-DR region.
In fiscal 2017, UNIFI’s operations in the NAFTA and CAFTA-DR regions experienced demand declines as the
retail and apparel markets experienced difficult conditions characterized by reduced retail traffic, a weak winter
selling season and growth in online sales channels. These factors combined to cause bankruptcies, store closures and
other transformations for traditional retail enterprises. As consumers demand fast fashion, personalized experiences
and omni-channel outlets, the retail market and its supply chain is expected to change. Transformational
requirements for the supply chain are not yet clear but will be an integral part of UNIFI’s initiatives going forward.
UNIFI’s Brazilian subsidiary is primarily impacted by price pressures from imported fiber, fabric and finished
goods, the inflation rate in Brazil and changes in the value of the Brazilian Real. In Brazil, UNIFI continues to (i)
aggressively pursue mix enrichment by working with customers to develop programs using our differentiated
products and our PVA yarns and (ii) implement process improvements and manufacturing efficiency gains to help
lower per-unit costs.
UNIFI’s Asian operations remain an important part of UNIFI’s global PVA strategy, enhancing our ability to service
customers with global supply chains. Interest and demand for UNIFI’s PVA products in Asia have helped support
strong sales volumes in recent years. We are encouraged by programs undertaken with key brands and retailers that
benefit from the diversification and innovation of our global PVA solutions. UNIFI’s operations in China and Sri
Lanka experienced strong performance and growth in fiscal 2017. Looking ahead, certain brand partners have
expressed additional interest in sourcing UNIFI’s products in Vietnam.
As we expand our global operations, we will continue to evaluate the level of capital investment required to support
the needs of our customers and intend to appropriately allocate our resources accordingly.
Industry Overview
UNIFI operates in the textile industry and, within that broad category, the respective markets for yarns, fabrics,
fibers and end-use products, such as apparel and hosiery, automotive, industrial products and home furnishings.
Even though the textile industry is global, there are several distinctive regional or other geographic markets that
often shape the business strategies and operations of participants in the industry. Because of free trade agreements
and other trade regulations entered into by the U.S. government, the U.S. textile industry, which is otherwise a
distinctive geographic market on its own, is often considered in conjunction with other geographic markets or
regions in North, South and Central America, such as the regions covered by NAFTA and CAFTA-DR. The
Company’s principal markets for its domestic operations are in the regions covered by NAFTA and CAFTA-DR,
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which together include the countries of Canada, Mexico, Costa Rica, Guatemala, Honduras, El Salvador, Nicaragua,
the Dominican Republic and the United States.
According to data compiled by PCI Xylenes & Polyesters, a global leader in research and analysis for the polyester
and raw materials markets, global demand for polyester yarns, which includes both filament and staple yarns, has
grown steadily since 1980, and, in calendar year 2003, polyester replaced cotton as the fiber with the largest
percentage of worldwide sales. In calendar year 2016, global polyester consumption accounted for an estimated
55% of global fiber consumption, and global demand is projected to increase by approximately 3% to 4% annually
through 2020. In calendar year 2016, global nylon consumption accounted for an estimated 5% of global fiber
consumption. Softness in the U.S. retail markets during fiscal 2017 had an unfavorable impact on UNIFI’s Nylon
Segment. Additionally, due to the higher cost of nylon, the industry may transition certain products from nylon to
polyester. The polyester and nylon fiber sectors together accounted for approximately 62% of North American
textile consumption during calendar year 2016.
According to the National Council of Textile Organizations, the U.S. textile industry’s total shipments were
approximately $61.8 billion for calendar year 2016. During that period, the U.S. textile and apparel industry
exported nearly $26.3 billion of textile and apparel products, and exports have grown by approximately 30% since
2009, an increase of over $6.1 billion. The U.S. textile industry remains a large manufacturing employer in the
United States.
Trade Regulation and Rules of Origin
The duty rate on imports into the United States of finished apparel categories that utilize polyester and nylon yarns
generally range from 16% to 32%. For many years, imports of fabric and finished goods into the United States have
increased significantly from countries that do not participate in free trade agreements or trade preference programs,
despite duties charged on those imports. The primary drivers for that growth were lower overseas operating costs,
foreign government subsidization of textile industries, increased overseas sourcing by U.S. retailers, the entry of
China into the World Trade Organization and the staged elimination of all textile and apparel quotas. Although
global apparel imports represent a significant percentage of the U.S. market, Regional FTAs (as defined below),
which follow general “yarn forward” rules of origin, provide duty free advantages for apparel made from regional
fibers, yarns and fabrics, allowing UNIFI opportunities to participate in this growing market.
A significant number of UNIFI’s customers in the apparel market produce finished goods that meet the eligibility
requirements for duty-free treatment in the regions covered by NAFTA, CAFTA-DR, and the Colombia and Peru
free trade agreements (collectively, the “Regional FTAs”). These Regional FTAs contain rules of origin
requirements in order for covered products to be eligible for duty-free treatment. In the case of textiles such as
fabric, yarn (such as POY), fibers (filament and staple) and certain garments made from them, the products are
generally required to be fully formed within the respective regions. UNIFI is the largest filament yarn manufacturer,
and one of the few producers of qualifying synthetic yarns, in the regions covered by these agreements. On May 18,
2017, the Trump Administration formally notified Congress of its intent to renegotiate NAFTA. The United States
has a positive trade balance in the textile and apparel sector in NAFTA and the Company anticipates any
modifications or updates to the agreement in this sector will not significantly impact textile and apparel trade in the
NAFTA region.
U.S. legislation commonly referred to as the “Berry Amendment” stipulates that certain textile and apparel articles
purchased by the U.S. Department of Defense must be manufactured in the United States and must consist of yarns
and fibers produced in the United States. UNIFI is the largest producer of synthetic yarns for Berry Amendment
compliant purchasing programs.
UNIFI refers to fibers sold with specific rules of origin requirements under the Regional FTAs and the Berry
Amendment, as “Compliant Yarns.” Approximately two-thirds of UNIFI’s sales within the Polyester and Nylon
Segments are sold as Compliant Yarns under the terms of the Regional FTAs or the Berry Amendment.
UNIFI believes the requirements of the rules of origin and the associated duty-free cost advantages in the Regional
FTAs, together with the Berry Amendment and the growing demand for supplier responsiveness and improved
inventory turns, will ensure that a portion of the existing textile industry will remain based in the Americas. UNIFI
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expects that the NAFTA and CAFTA-DR regions will continue to maintain their share of apparel production as a
percentage of U.S. retail. UNIFI believes the remaining synthetic apparel production within these regional markets
is more specialized and defensible, and, in some cases, apparel producers are bringing programs back to the regions
as part of a balanced sourcing strategy for some brands and retailers. Because UNIFI is the largest of only a few
significant producers of Compliant Yarns under these Regional FTAs, one of UNIFI’s business strategies is to
continue to leverage its eligibility status for duty-free processing to increase its share of business with regional and
domestic fabric producers who ship their products into these regions.
Over the longer term, the textile industry in the NAFTA and CAFTA-DR regions is expected to continue to be
impacted by Asian supply chains where costs are much lower and regulation is limited. However, during fiscal
2017, one of the first acts of the Trump Administration was to withdraw from the Trans-Pacific Partnership
Agreement, a free trade agreement that could have resulted in significant pressure on the Regional FTA supply
chain.
Competition
The industry in which UNIFI operates is global and highly competitive. UNIFI competes not only as a global yarn
producer, but also as part of a regional supply chain for certain textile products. For sales of Compliant Yarns,
UNIFI competes with a limited number of foreign and domestic producers of polyester and nylon yarns. For sales
of non-Compliant Yarns, UNIFI competes with a larger number of foreign and domestic producers of polyester and
nylon yarns who can meet the required customer specifications of quality, reliability and timeliness. UNIFI is
affected by imported textile, apparel and hosiery products, which adversely impact demand for UNIFI’s polyester
and nylon products in certain of its markets. Several foreign competitors in UNIFI’s supply chain have significant
competitive advantages, including lower wages, raw material costs and capital costs, and favorable foreign currency
exchange rates against the U.S. Dollar, any of which could make UNIFI’s products, or the related supply chains, less
competitive. While competitors have traditionally focused on high-volume commodity products, they are now
increasingly focused on specialty and PVA products that UNIFI historically has been able to leverage to generate
higher margins.
UNIFI’s major competitors for polyester yarns are O’Mara, Inc. and NanYa Plastics Corp. of America (“NanYa”) in
the United States; AKRA, S.A. de C.V. in the NAFTA region; and C S Central America S.A. de C.V. in the
CAFTA-DR region. UNIFI’s major competitor in Brazil is Avanti Industria Comercio Importacao e Exportacao
Ltda., among other traders of imported yarns and fibers. UNIFI’s operations in Asia face competition from multiple
yarn manufacturers in that region and identification of them is not feasible. However, almost all of our portfolio in
that region is advantaged by PVA products.
UNIFI’s major competitors for nylon yarns are Sapona Manufacturing Company, Inc. and McMichael Mills, Inc. in
the United States.
Raw Materials, Suppliers and Sourcing
The primary raw material supplier for the Polyester Segment of Chip and POY is NanYa. For the International
Segment, Reliance Industries, Ltd. is the main supplier of POY. The primary suppliers of POY for the Nylon
Segment are HN Fibers, Ltd., U.N.F. Industries Ltd. (“UNF”), UNF America, LLC (“UNFA”), Invista S.a.r.l.
(“INVISTA”), Universal Premier Fibers, LLC and Nilit US (“Nilit”). Each of UNF and UNFA is a 50/50 joint
venture between UNIFI and Nilit. Currently, there are multiple domestic and foreign suppliers available to fulfill
UNIFI’s sourcing requirements for its recycled products.
UNIFI produces and buys certain of its raw material fibers for Compliant Yarns from a variety of sources in both the
United States and Israel. UNIFI produces a portion of its Chip requirements in its REPREVE® Recycling Center
and purchases the remainder of its requirements from external suppliers for use in its spinning facility to produce
POY. In addition, UNIFI purchases nylon and polyester products for resale from various suppliers. Although
UNIFI does not generally have difficulty obtaining its raw material requirements, UNIFI has, in the past,
experienced interruptions or limitations in the supply of certain raw materials.
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In addition to the expected benefits to UNIFI’s financial results, the bottle processing facility in Reidsville, North
Carolina now provides a high-quality source of plastic bottle flake for the REPREVE® Recycling Center as well as
for sale to external parties. Combined with recent technology advancements in recycling, we believe the bottle flake
produced at the bottle processing facility will enhance our ability to grow REPREVE® into other markets, such as
nonwovens, carpet fiber and packaging.
The prices of the principal raw materials used by UNIFI continuously fluctuate, and it is difficult, and often
impossible, to predict trends or upcoming developments. During fiscal 2017, UNIFI operated during a
predominantly increasing virgin polyester raw material cost environment. During fiscal 2016, UNIFI experienced a
general decline in raw material prices. UNIFI believes that polyester raw material cost fluctuations during most of
fiscal 2017 were a result of volatility in the crude oil markets. The continuing volatility in global crude oil prices is
likely to impact UNIFI’s polyester and nylon raw material costs, but it is not possible to predict the timing or
amount of the impact or whether the movement in crude oil prices will stabilize, continue or reverse. In any event,
UNIFI monitors these dynamic factors closely.
Products, Technologies and Related Markets
UNIFI manufactures polyester yarn and related products in the United States, El Salvador and Brazil, and nylon
yarns in the United States and Colombia, for a wide range of end-uses. In addition, UNIFI purchases certain yarns
and staple fiber for resale to its customers around the globe. PVA products comprised approximately 40%, 35% and
30% of consolidated net sales for fiscal 2017, 2016 and 2015, respectively. UNIFI provides products to a variety of
end-use markets, principally apparel, industrial, furnishings and automotive.
The domestic apparel market, which includes hosiery, represents approximately 61% of UNIFI’s domestic sales.
Apparel retail sales, supply chain inventory levels and strength of the regional supply base are vital to this market.
The domestic industrial market represents approximately 18% of UNIFI’s domestic sales. This market includes
medical, belting, tapes, filtration, ropes, protective fabrics and awnings.
The domestic furnishings market, which includes both contract and home furnishings, represents approximately 9%
of UNIFI’s domestic sales. Furnishings sales are largely dependent upon the housing market, which in turn is
influenced by consumer confidence and credit availability.
The domestic automotive market represents approximately 7% of UNIFI’s domestic sales and has been less
susceptible to import penetration because of the exacting specifications and quality requirements often imposed on
manufacturers of automotive fabrics, along with just-in-time delivery requirements. Effective customer service and
prompt response to customer feedback are logistically more difficult for an importer to provide.
UNIFI also adds value to the overall supply chain for textile products, and increases consumer demand for UNIFI’s
own products, through the development and introduction of branded yarns and technologies that provide unique
sustainability, performance, comfort and aesthetic advantages. UNIFI’s branded portion of its yarn portfolio
continues to provide product differentiation to brands, retailers and consumers, and it includes products such as:
•
•
•
REPREVE®, a family of eco-friendly products made from recycled materials. Since its introduction in
2006, REPREVE® has been UNIFI’s most successful branded product. UNIFI’s recycled fibers may
also be enhanced, similarly to virgin products, to provide certain performance and/or functional
properties to various types of fabrics and end products.
Sorbtek®, a permanent moisture management yarn primarily used in performance base-layer
applications, compression apparel, athletic bras, sports apparel, socks and other non-apparel related
items.
Reflexx®, a family of stretch yarns that can be found in a wide array of end-use applications, from home
furnishings to performance wear and from hosiery and socks to work wear and denim.
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•
•
•
XS, yarns that take advantage of a non-traditional cross-section construction created during the spinning
process. The cross-section is able to provide certain performance and/or functional characteristics in
multiple end-uses due to its resulting chemical and physical attributes.
Cotton-like®, a soft, lofty yarn that looks and feels like cotton, but offers the superior performance of
synthetic fibers and no fading.
A.M.Y. ®, a yarn with permanent antimicrobial properties for odor control.
UNIFI’s branded yarns can be found in a variety of products of well-known brands, retailers and department stores,
including Ford, Haggar, Polartec, The North Face, Patagonia, Quiksilver, Roxy, Volcom, Perry Ellis, General
Motors, Pottery Barn, adidas, Reebok, Nike, New Era, MJ Soffe, Abercrombie & Fitch, Levi’s, H&M, TARGET,
Express, Costco Wholesale, REI, Cabela’s, JCPenney, Macy’s, Kohl’s and Belk.
In addition to the above brands and products, UNIFI combines its research and development efforts with the
demands of customers and markets to develop innovative technologies that enhance yarn characteristics. Application
of these technologies allows for various, separate benefits, including, among other things, water repellency, flame
retardation, thermal regulation, enhanced color-fastness achieved with less water use and protection from ultra-violet
rays.
Customers
UNIFI’s Polyester Segment has approximately 350 customers, its Nylon Segment has approximately 140 customers
and its International Segment has approximately 700 customers, all in a variety of geographic markets. UNIFI’s
products are manufactured according to customer specifications and are shipped based upon customer order
requirements. Customer payment terms are generally consistent across the segments and are based on prevailing
industry practices for the sale of yarn domestically or internationally.
UNIFI’s consolidated net sales are not materially dependent on a single customer and no single customer accounts
for 10% or more of UNIFI’s consolidated net sales. UNIFI’s top 10 customers accounted for approximately 32% of
consolidated net sales for fiscal 2017 and approximately 32% of receivables as of June 25, 2017. UNIFI’s net sales
within its Nylon Segment are materially dependent upon a domestic customer that accounted for approximately 35%
of the Nylon Segment’s net sales for fiscal 2017.
Sales and Marketing
UNIFI employs an internal sales force of approximately 50 persons operating out of sales offices in the United
States, Brazil, China, Sri Lanka, El Salvador, Colombia and Switzerland. UNIFI relies on independent sales agents
for sales in several other countries. UNIFI seeks to create strong customer relationships and to build and strengthen
those relationships throughout the supply chain. Through frequent communications with customers, partnering with
customers in product development and engaging key downstream brands and retailers, UNIFI has created significant
pull-through sales and brand recognition for its products. For example, UNIFI works with brands and retailers to
educate and create demand for its PVA products, such as recent engagements involving REPREVE® at multiple
events and venues in the United States. UNIFI then works with key fabric mill partners to develop specific fabrics
for those brands and retailers utilizing its PVA products. In many of these regards, UNIFI draws upon and
integrates the resources of its research and development personnel. In addition, UNIFI is enhancing co-branding
activations with integrated point-of-sale and online marketing with popular brands and retailers to further enable
consumers to find REPREVE® and other PVA brands in multiple retail channels. Based on the establishment of
many commercial and branded programs, this strategy has been successful for UNIFI.
Product Customization and Manufacturing Processes
UNIFI uses advanced production processes to manufacture its high-quality products cost-effectively in North
America, Central America and South America. UNIFI believes that its flexibility and know-how in producing
specialty polyester and nylon products provides important development and commercialization advantages, in
addition to the recent ability to vertically integrate with post-industrial and post-consumer materials.
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UNIFI produces plastic bottle flake, polyester Chip and polyester POY using recycled materials. In addition to its
yarns manufactured from virgin polyester and nylon, UNIFI sells its recycled products externally or further
processes them internally to add value for customers seeking recycled components. The REPREVE® Bottle
Processing Center in Reidsville, North Carolina produces plastic bottle flake that can be sold externally, or further
processed internally using our REPREVE® Recycling Center in Yadkinville, North Carolina. Recycled polyester
Chip output from the REPREVE® Recycling Center can be sold externally, or further processed internally into
polyester POY.
Additional processing of UNIFI’s polyester yarn products includes texturing, package dyeing, twisting, beaming and
draw winding. The texturing process, which is common to both polyester and nylon, involves the use of high-speed
machines to draw, heat and false-twist POY to produce yarn with different physical characteristics, depending on its
ultimate end-use. Texturing gives the yarn greater bulk, strength, stretch, consistent dye-ability and a softer feel,
thereby making it suitable for use in the knitting and weaving of fabric. Package dyeing allows for matching of
customer-specific color requirements for yarns sold into the automotive fabrics, home furnishings and apparel
markets. Twisting incorporates real twist into filament yarns, which can be sold for a variety of uses, such as sewing
thread, home furnishings and apparel. Beaming places both textured and covered yarns onto beams to be used by
customers in warp knitting and weaving applications. The draw winding process utilizes heat and draws POY to
produce mid-tenacity, flat yarns.
Additional processing of UNIFI’s nylon yarn products primarily includes covering and texturing. Covering involves
the wrapping or air entangling of filament or spun yarn around a core yarn, primarily spandex. This process
enhances a fabric’s ability to stretch, recover its original shape and resist wrinkles while maintaining a softer feel.
UNIFI’s subsidiaries in Asia offer the same high-quality and innovative PVA products and technologies through
contract manufacturing arrangements with local manufacturers. This asset-light model allows for seamless
integration of our products into the global supply chain of our customers. As we expand our Asian operations to
meet the needs of our global customers, we will continue to leverage the asset-light model where the existing Asian
infrastructure can accommodate our highly technical processes, while continually evaluating the need for additional
UNIFI assets in response to ever-changing market dynamics.
Research and Development
UNIFI employs approximately 90 persons who work closely with UNIFI’s customers and others to develop a variety
of new yarns as well as improvements to the performance properties of existing yarns and fabrics. Among other
things, UNIFI evaluates trends and uses the latest technology to create innovative specialty and PVA yarns that meet
the needs of evolving consumer preferences. Most of UNIFI’s branded yarns discussed above, including its flagship
REPREVE® brand, were derived from its research and development initiatives.
UNIFI also includes, as part of its research and development initiatives, the use of continuous improvement
methodologies to increase its manufacturing and other operational efficiencies, both to enhance product quality and
to derive cost savings.
For fiscal 2017, 2016 and 2015, UNIFI incurred $7,177, $6,907 and $8,113, respectively, in costs for research and
development (including salaries and benefits of the personnel involved in those efforts). In fiscal 2016, a portion of
the activities traditionally attributed to research and development were allocated to certain of the significant, highly
technical capital projects undertaken during that fiscal year.
Intellectual Property
UNIFI has numerous U.S. registered trademarks. Due to its current brand recognition and potential growth
opportunities, UNIFI believes that REPREVE® is its most significant trademark. Ownership rights in U.S.
registered trademarks do not expire if the trademarks are continued in use and properly protected.
UNIFI licenses certain trademarks, including Dacron® and Softec™, from INVISTA.
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Employees
As of June 25, 2017, UNIFI had approximately 3,000 employees, along with approximately 150 individuals working
under temporary labor contracts. The number of employees in the Polyester Segment, Nylon Segment, International
Segment and corporate office were approximately 1,800, 600, 500 and 100, respectively, at June 25, 2017. 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. UNIFI believes that it has a
good relationship with its employees.
Geographic Data
Geographic information reported in conformance with generally accepted accounting principles is included in Note
25, “Business Segment Information,” to the accompanying consolidated financial statements. Information regarding
risks attendant to UNIFI’s foreign operations is included in “Item 1A. Risk Factors” in this Annual Report.
Seasonality
UNIFI is not significantly impacted by seasonality; however, UNIFI typically experiences (i) its highest sales
volumes in the third and fourth quarters of its fiscal years and (ii) its lowest gross margins in the first quarter of its
fiscal years. Excluding the effects of fiscal years with 53 weeks rather than 52 weeks, the most significant effects on
UNIFI’s results of operations for particular periods during a year are due to planned manufacturing shutdowns by
either UNIFI or its customers for certain holiday or traditional shutdown periods, which are not concentrated in any
one particular season.
Backlog
UNIFI’s level of unfilled orders is affected by many factors, including the timing of specific orders and the delivery
time for specific products, as well as a customer’s ability or inability to cancel the related order. As such, UNIFI
does not consider the amount of unfilled orders, or backlog, to be a meaningful indicator of expected levels of future
sales or to be material to an understanding of UNIFI’s business as a whole.
Working Capital
UNIFI funds its working capital requirements through cash flows generated from operations, which it supplements
with short-term borrowings, as needed. For more detailed information, see “Liquidity and Capital Resources” in
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual
Report.
Inflation
UNIFI expects costs to continue to rise for certain consumables used to produce and ship its products, as well as for
its utilities and certain employee costs and benefits. While UNIFI attempts to mitigate the impacts of such rising
costs through increased operational efficiencies and increased selling prices, inflation could become a factor that
negatively impacts UNIFI’s profitability.
Environmental Matters
UNIFI is subject to various federal, state and local environmental laws and regulations limiting the use, storage,
handling, release, discharge and disposal of a variety of hazardous substances and wastes used in or resulting from
its operations (and to potential remediation obligations thereunder). These laws include the Federal Water Pollution
Control Act, the Clean Air Act, the Resource Conservation and Recovery Act (including provisions relating to
underground storage tanks) and the Comprehensive Environmental Response, Compensation, and Liability Act,
commonly referred to as “Superfund” or “CERCLA,” and various state counterparts to such laws. UNIFI’s
operations are also governed by laws and regulations relating to workplace safety and worker health, principally the
Occupational Safety and Health Act and regulations issued thereunder, which, among other things, establish
11
exposure standards regarding hazardous materials and noise standards, and regulate the use of hazardous chemicals
in the workplace.
UNIFI believes that it has obtained, and is in compliance in all material respects with, all significant permits
required to be issued by federal, state or local law in connection with the operation of its business. UNIFI also
believes that the operation of its production facilities and its disposal of waste materials are substantially in
compliance with applicable federal, state and local laws and regulations, and that there are no material ongoing or
anticipated capital expenditures associated with environmental control facilities necessary to remain in compliance
with such provisions. UNIFI incurs normal operating costs associated with the discharge of materials into the
environment, but does not believe that these costs are material or inconsistent with those of its domestic competitors.
On September 30, 2004, UNIFI completed its acquisition of polyester filament manufacturing assets located in
Kinston, North Carolina from INVISTA. The land for the Kinston site was leased pursuant to a 99-year ground
lease (the “Ground Lease”) with E.I. DuPont de Nemours (“DuPont”). Since 1993, DuPont has been investigating
and cleaning up the Kinston site under the supervision of the U.S. Environmental Protection Agency and the North
Carolina Department of Environmental Quality (“DEQ”) pursuant to the Resource Conservation and Recovery Act
Corrective Action program. The program requires DuPont to identify all potential areas of environmental concern
(“AOCs”), assess the extent of containment at the identified AOCs and remediate the AOCs to comply with
applicable regulatory standards. Effective March 20, 2008, UNIFI entered into a lease termination agreement
associated with conveyance of certain assets at the Kinston site to DuPont. This agreement terminated the Ground
Lease and relieved UNIFI of any future responsibility for environmental remediation, other than participation with
DuPont, if so called upon, with regard to UNIFI’s period of operation of the Kinston site, which was from 2004 to
2008. At this time, UNIFI has no basis to determine if or when it will have any responsibility or obligation with
respect to the AOCs or the extent of any potential liability for the same.
UNIFI continues to own property acquired in the 2004 transaction with INVISTA that has contamination from
DuPont’s operations and is monitored by DEQ. This site has been remediated by DuPont, and DuPont has received
authority from DEQ to discontinue further remediation, other than natural attenuation. Prior to transfer of
responsibility to UNIFI, DuPont has a duty to monitor and report the environmental status of the site to DEQ. UNIFI
expects to assume that responsibility in fiscal 2018 and will be entitled to receive from DuPont seven years of
monitoring and reporting costs, less certain adjustments. At that time, UNIFI expects to assume responsibility for
any future remediation of the site. At this time, UNIFI has no basis to determine if or when it will have any
obligation to perform further remediation or the potential cost thereof.
Joint Ventures and Unconsolidated Affiliates
In addition to its 34% ownership in PAL, UNIFI participates in two joint ventures that supply raw materials to the
Nylon Segment, with one located in the United States and one in Israel. As of June 25, 2017, UNIFI had $119,513
recorded for these investments in unconsolidated affiliates. For fiscal 2017, $4,230 of UNIFI’s $43,275 of income
before income taxes was generated from its investments in these unconsolidated affiliates, of which $2,723 was
attributable to PAL. Other information regarding UNIFI’s unconsolidated affiliates is provided in “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 22,
“Investments in Unconsolidated Affiliates and Variable Interest Entities,” to the accompanying consolidated
financial statements in this Annual Report.
On December 23, 2016, UNIFI, through a wholly owned foreign subsidiary, sold its 60% equity ownership interest
in Repreve Renewables, LLC (“Renewables”), an entity focused on the development, production and
commercialization of miscanthus grass for use in multiple potential markets, to its existing third-party joint venture
partner for $500 in cash and release of certain debt obligations. UNIFI had no continuing involvement in the
operations of Renewables subsequent to December 23, 2016. The corresponding results of Renewables, up through
the date of sale, are reflected in continuing operations within the accompanying consolidated financial statements.
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Available Information
UNIFI’s website is www.unifi.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as proxy statements and other
information we file with, or furnish to, the Securities and Exchange Commission (the “SEC”) are available free of
charge on our website. We make these documents available as soon as reasonably practicable after we electronically
transmit them to the SEC. Except as otherwise stated in these documents, the information on our website is not a
part of this Annual Report and is not incorporated by reference in this Annual Report or any of our other filings with
the SEC. In addition, many of our corporate governance documents are available on our website, including our
Audit Committee Charter, Compensation Committee Charter, Corporate Governance and Nominating Committee
Charter, Corporate Governance Guidelines, Code of Business Conduct and Ethics, and Ethical Business Conduct
Policy Statement. Copies of such materials, as well as any of our SEC reports, may also be obtained without charge
by writing to Unifi, Inc., 7201 West Friendly Avenue, Greensboro, North Carolina 27410, Attention: Office of the
Secretary.
Item 1A. Risk Factors
Many of the factors that affect UNIFI’s business and operations involve risk and uncertainty. The factors described
below are some of the risks that could materially negatively affect UNIFI’s business, financial condition, results of
operations and cash flows. You should consider all such risks in evaluating UNIFI or making any investment
decision involving UNIFI.
UNIFI faces intense competition from a number of domestic and foreign yarn producers and importers of textile
and apparel products. Because UNIFI and the supply chains in which UNIFI operates do not typically operate
on the basis of long-term contracts with textile and apparel customers, these competitive factors could cause
UNIFI’s customers to shift rapidly to other producers.
UNIFI competes not only against domestic and foreign yarn producers, but also against importers of foreign-sourced
fabric and apparel into the United States and other countries in which UNIFI does business (particularly in Brazil
with respect to commodity yarn products). The primary competitive factors in the textile industry include price,
quality, product styling and differentiation, brand reputation, flexibility of production and finishing, delivery time
and customer service. The needs of certain customers and the characteristics of particular products determine the
relative importance of these various factors. A large number of UNIFI’s foreign competitors have significant
competitive advantages that may include lower labor and raw materials costs, government subsidies and favorable
foreign currency exchange rates against the U.S. Dollar. If any of these advantages increase, or if new and/or larger
competitors emerge in the future, or if UNIFI’s brand reputation is detrimentally impacted, then UNIFI’s products
could become less competitive, and its sales and profits may decrease as a result. In particular, devaluation of the
Chinese currency against the U.S. Dollar could result in UNIFI’s products becoming less competitive from a pricing
standpoint and/or could result in the regions covered by NAFTA and CAFTA-DR losing market share to Chinese
imports, thereby adversely impacting UNIFI’s sales and profits. Also, while these foreign competitors have
traditionally focused on commodity production, they are now increasingly focused on PVA products, where UNIFI
has been able to generate higher margins. UNIFI may not be able to continue to compete effectively with imported
foreign-made textile and apparel products, which would materially adversely affect its business, financial condition,
results of operations or cash flows.
Significant price volatility of UNIFI’s raw materials and rising energy costs may result in increased production
costs, which UNIFI may not be able to pass on to its customers or may only be able to pass on with a time lag that
adversely affects UNIFI during one or more periods.
A significant portion of UNIFI’s raw materials are derived from petroleum-based chemicals. The prices for
petroleum and petroleum-related products and energy costs are volatile and dependent on global supply and demand
dynamics, including geo-political risks. While UNIFI enters into raw material supply agreements from time to time,
these agreements typically provide index pricing based on quoted market prices. Therefore, supply agreements
provide only limited protection against price volatility. While UNIFI has, at times in the past, been able to increase
13
sales prices in response to increased raw material costs, UNIFI has not always been able to do so. UNIFI has lost in
the past (and expects that it may lose in the future) customers to its competitors as a result of price increases. In
addition, competitors may be able to obtain raw materials at a lower cost due to market regulations that favor local
producers in certain foreign locations where UNIFI operates, and certain other market regulations that favor UNIFI
over other producers may be amended or repealed. Additionally, inflation can have a long-term impact by increasing
the costs of materials, labor and/or energy, any of which costs may adversely impact UNIFI’s ability to maintain
satisfactory margins. If UNIFI is not able to fully pass on such cost increases to customers in a timely manner (or if
it loses a large number of customers to competitors as a result of price increases), the result could be material and
adverse to its business, financial condition, results of operations or cash flows.
Depending on the price volatility of UNIFI’s petroleum-based raw materials, the price gap between virgin raw
materials and recycled bottle flake could make virgin raw materials more cost-effective than recycled raw materials,
which could result in an adverse effect on UNIFI’s ability to sell its REPREVE® brand recycled products profitably.
UNIFI depends upon limited sources for certain of its raw materials, and interruptions in supply could increase
its costs of production, cause production inefficiencies or lead to a halt in production.
UNIFI depends on a limited number of third parties for certain raw material supplies, such as POY, Chip and
recycled plastic bottles. Although alternative sources of raw materials exist, UNIFI may not be able to obtain
adequate supplies of such materials on acceptable terms, or at all, from other sources. UNIFI is dependent on
NAFTA, CAFTA-DR and Berry Amendment qualified suppliers of raw materials for the production of Compliant
Yarns. These suppliers are also at risk with their raw material supply chains. Any significant disruption or
curtailment in the supply of any of its raw materials could cause UNIFI to reduce or cease its production for an
extended period, or require UNIFI to increase its pricing, any of which could have a material adverse effect on its
business, financial condition, results of operations or cash flows.
UNIFI has significant foreign operations, and its consolidated results of operations may be adversely affected by
the risks associated with doing business in foreign locations, including the risk of fluctuations in foreign
currency exchange rates.
UNIFI has operations in Brazil, China, Colombia, El Salvador and Sri Lanka, and participates in a joint venture
located in Israel. UNIFI serves customers throughout the Americas and Asia, as well as various countries in Europe.
UNIFI’s foreign operations are subject to certain political, tax, economic and other uncertainties not encountered by
its domestic operations that can materially impact UNIFI’s supply chains or other aspects of its foreign operations.
The risks of international operations include trade barriers, duties, exchange controls, national and regional labor
strikes, social and political unrest, general economic risks, compliance with a variety of foreign laws (including tax
laws), the difficulty of enforcing agreements and collecting receivables through foreign legal systems, taxes on
distributions or deemed distributions to UNIFI or any of its U.S. subsidiaries, maintenance of minimum capital
requirements, and import and export controls. UNIFI’s results of operations and business could be adversely
affected as a result of a significant adverse development with respect to any of these risks.
Through its foreign operations, UNIFI is also exposed to foreign currency exchange rate fluctuations. Fluctuations in
foreign currency exchange rates will impact period-to-period comparisons of UNIFI’s reported results. Additionally,
UNIFI operates in countries with foreign exchange controls. These controls may limit UNIFI’s ability to transfer
funds from its international operations and joint venture or otherwise to convert local currencies into U.S. Dollars.
These limitations could adversely affect UNIFI’s ability to access cash from these operations.
In addition, due to its foreign operations, a risk exists that UNIFI’s employees, contractors or agents could engage in
business practices prohibited by U.S. laws applicable to the Company, such as the Foreign Corrupt Practices Act, or
the laws and regulations of other countries, such as the Brazilian Clean Companies Act. UNIFI maintains policies
prohibiting these practices, but it remains subject to the risk that one or more of its employees, contractors or agents,
specifically ones based in or from countries where such practices are customary, will engage in business practices in
violation of these laws and regulations. Any such violations, even if in breach of UNIFI’s policies, could adversely
affect its business or financial performance.
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UNIFI’s future success will depend in part on its ability to protect its intellectual property rights, and UNIFI’s
inability to enforce these rights could cause it to lose sales, reduce any competitive advantage it has developed or
otherwise harm its business.
UNIFI’s success depends in part upon its ability to protect and preserve its rights in the trademarks and other
intellectual property it owns or licenses, including its proprietary know-how, methods and processes, and the
intellectual property related to its REPREVE® brand. UNIFI relies on the trademark, copyright and trade secret laws
of the United States and other countries, as well as nondisclosure and confidentiality agreements, to protect its
intellectual property rights. However, UNIFI may be unable to prevent third parties, employees or contractors from
using its intellectual property without authorization, breaching nondisclosure or confidentiality agreements, or
independently developing technology that is similar to UNIFI’s. The use of UNIFI’s intellectual property by others
without authorization may reduce any competitive advantage UNIFI has developed, cause it to lose sales or
otherwise harm its business.
UNIFI has investments in less than 100% owned affiliates that it does not control, which subjects UNIFI to
uncertainties about the operating performance and quality of financial reporting of these affiliates.
The most significant of these investments is UNIFI’s 34% minority interest in PAL. While this investment is
designed to provide industry diversity for UNIFI, UNIFI does not have majority voting control of PAL or the ability
otherwise to control PAL’s policies, management or affairs. The interests of persons who control PAL may differ
from UNIFI’s, and those persons may cause PAL to take actions that are not in UNIFI’s best interest. Among other
things, UNIFI’s inability to control PAL may adversely affect its ability to receive distributions from PAL or to fully
implement its business plan. The incurrence of debt or entry into other agreements by PAL may result in restrictions
or prohibitions on PAL’s ability to make distributions to UNIFI. Even where PAL is not restricted by contract or by
law from making distributions, UNIFI may not be able to influence the timing or amount of such distributions. In
addition, if the controlling investor in PAL fails to observe its commitments, PAL may not be able to operate
according to its business plan, or UNIFI may need to increase its level of investment commitment. If any of these
events were to occur, UNIFI’s business, financial condition, results of operations or cash flows could be materially
adversely affected.
UNIFI also relies on accurate financial reporting from PAL for preparation of UNIFI’s quarterly and annual
consolidated financial statements. Errors in the financial information reported by PAL could be material to UNIFI
and may require us to restate past financial statements. Any such restatements could have a material adverse effect
on UNIFI or the market price of our common stock.
PAL receives economic adjustment payments from the Commodity Credit Corporation under the Economic
Adjustment Assistance to Users of Upland Cotton. The economic assistance received under this program must be
used to acquire, construct, install, modernize, develop, convert or expand land, plant, buildings, equipment or
machinery directly attributable to the purpose of manufacturing upland cotton into eligible cotton products in the
United States. Should PAL no longer meet the criteria to receive economic assistance under the program, or should
the program be discontinued, PAL’s business and profitability could be significantly impacted, which would
adversely affect UNIFI.
UNIFI requires cash to service its indebtedness and fund capital expenditures and strategic initiatives, and its
ability to generate sufficient cash for those purposes depends on many factors beyond its control.
UNIFI’s principal sources of liquidity are cash flows generated from operations and borrowings under its credit
facility. UNIFI’s ability to make payments on its indebtedness and to fund planned capital expenditures and strategic
initiatives will depend on its ability to generate future cash flows from operations. This ability, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond UNIFI’s
control. The business may not generate sufficient cash flows from operations, and future borrowings may not be
available to UNIFI in amounts sufficient, to enable UNIFI to pay its indebtedness and to fund its other liquidity
needs. Any such development would have a material adverse effect on UNIFI.
15
A decline in general economic or political conditions, and changes in consumer spending, could cause a decline
in demand for textile products, including UNIFI’s products.
UNIFI’s products are used in the production of fabric primarily for the apparel, hosiery, home furnishings,
automotive, industrial and other end-use markets. Demand for furniture and other durable goods is often affected
significantly by economic conditions that have global or regional industry-wide consequences. Demand for a
number of categories of apparel also tends to be tied to economic cycles and customer preferences that affect the
textile industry in general. Demand for textile products, therefore, tends to vary with the business cycles of the
United States and other economies, as well as changes in global trade flows, and economic and political conditions.
Additionally, prolonged economic downturns that negatively impact UNIFI’s results of operations and cash flows
could result in future material impairment charges to write-down the carrying value of certain assets, including
amortizable intangible assets and equity affiliates.
Changes in consumer spending, customer preferences, fashion trends and end-uses for UNIFI’s products could
weaken UNIFI’s competitive position and cause UNIFI’s products to become less competitive, and its sales and
profits may decrease as a result. Additionally, the end-consumer retail and apparel markets may continue to
experience difficult conditions characterized by reduced retail traffic and growth in online sales channels, which
may cause bankruptcies, store closures and other transformations for traditional retail enterprises, which could have
an adverse effect on UNIFI’s business and financial condition.
Historic trends indicate weakening performance in the nylon sector on a global basis. If the decline is significant in
any one year, the impact could have a material adverse effect on UNIFI’s business, financial condition, results of
operations or cash flows.
Unfavorable changes in trade policies and/or violations of existing trade policies could weaken UNIFI’s
competitive position significantly and have a material adverse effect on its business.
A number of markets within the textile industry in which UNIFI sells its products, particularly the apparel, hosiery
and home furnishings markets, are subject to intense foreign competition. Other markets within the textile industry
in which UNIFI sells its products may in the future become subject to more intense foreign competition. There are
currently a number of trade regulations and duties in place to protect the U.S. textile industry against competition
from low-priced foreign producers, such as those in China and Vietnam. Changes in such trade regulations or duties
may make the price of UNIFI’s products less attractive than the goods of its competitors or the finished products of
a competitor in the supply chain, which could have a material adverse effect on UNIFI’s business, financial
condition, results of operations or cash flows.
According to industry experts and trade associations, there has been a significant amount of illegal transshipments of
apparel products into the United States and into certain other countries in the NAFTA and CAFTA-DR regions in
which UNIFI competes. Illegal transshipment involves circumventing duties by falsely claiming that textiles and
apparel are products of a particular country of origin (or include yarn of a particular country of origin) to avoid
paying higher duties or to receive benefits from regional free trade agreements, such as NAFTA and CAFTA-DR. If
illegal transshipments are not monitored, and if enforcement is not effective to limit them, these shipments could
have a material adverse effect on UNIFI’s business, financial condition, results of operations or cash flows.
In January 2017, the United States withdrew from the Trans-Pacific Partnership Agreement, an evolving trade
agreement that included Vietnam, a major textile and apparel exporting country whose duty-free benefits under the
agreement could have had an adverse effect on UNIFI’s business in the long term. In May 2017, the Trump
administration formally notified Congress of its intent to renegotiate NAFTA. The United States has a positive trade
balance in the textile and apparel sector in NAFTA and UNIFI anticipates any modifications to the agreement in this
sector will not significantly impact textile and apparel trade in the region.
Item 1B.
Unresolved Staff Comments
None.
16
Item 2.
Properties
The following table contains information about the principal properties owned or leased by UNIFI as of June 25,
2017:
Location
Polyester Segment
Domestic
Yadkinville, North Carolina
Reidsville, North Carolina
Foreign
Ciudad Arce, El Salvador
Nylon Segment
Domestic
Madison, North Carolina
Foreign
Bogota, Colombia
Description
Five plants (1) and five warehouses (2)
Two plants (1)
One plant (1) and one warehouse (3)
One plant (1) and one warehouse (1)
One plant (1)
International Segment
Foreign
Alfenas, Brazil
Sao Paulo, Americana and Blumenau, Brazil
Suzhou, China
Colombo, Sri Lanka
One plant (1) and one warehouse (1)
One corporate office (3) and two sales offices (3)
One sales office (3) and one warehouse (3)
One sales office (3)
(1) Owned in fee simple.
(2)
(3)
Three warehouses are owned in fee simple and two warehouses are leased.
Leased.
In addition to the above properties, UNIFI owns property located at 7201 West Friendly Avenue in Greensboro,
North Carolina, which includes a building that serves as UNIFI’s corporate headquarters and administrative offices
for all of its segments and a sales office. Such property consists of a tract of land containing approximately nine
acres, and the building contains approximately 120,000 square feet.
As of June 25, 2017, UNIFI owned approximately 4.8 million square feet of manufacturing, warehouse and office
space. Management believes all of UNIFI’s operating properties are well-maintained and in good condition. In
fiscal 2017, UNIFI’s plants in the Polyester, Nylon and International Segments operated below capacity.
Management does not perceive any capacity constraints in the foreseeable future.
Item 3.
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 4.
Mine Safety Disclosures
Not applicable.
17
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
UNIFI’s common stock is listed for trading on the New York Stock Exchange (“NYSE”) under the symbol “UFI.”
The following table sets forth the closing, high and low sales prices of the common stock for UNIFI’s two most
recent fiscal years.
Fiscal 2017:
Fourth quarter ended June 25, 2017
Third quarter ended March 26, 2017
Second quarter ended December 25, 2016
First quarter ended September 25, 2016
Fiscal 2016:
Fourth quarter ended June 26, 2016
Third quarter ended March 27, 2016
Second quarter ended December 27, 2015
First quarter ended September 27, 2015
Close
High
Low
$
$
28.92 $
26.99
32.85
29.20
26.29 $
22.74
28.66
29.35
30.74 $
33.78
34.70
29.69
27.99 $
28.96
32.99
34.80
26.38
26.03
26.55
24.82
20.71
20.85
25.76
25.75
As of August 23, 2017, there were 141 record holders of UNIFI’s common stock. A significant number of the
outstanding shares of common stock that are beneficially owned by individuals and entities are registered in the
name of Cede & Co. Cede & Co. is a nominee of The Depository Trust Company, a securities depository for banks
and brokerage firms. UNIFI estimates that there are approximately 5,000 beneficial owners of its common stock.
No dividends were paid in the past two fiscal years, and UNIFI does not intend to pay cash dividends in the
foreseeable future. UNIFI’s current debt obligations contain certain restricted payment and restricted investment
provisions, including a restriction on the payment of dividends and share repurchases should the borrowing capacity
fall below certain thresholds. Information regarding UNIFI’s debt obligations is provided in Note 12, “Long-Term
Debt,” to the accompanying consolidated financial statements.
Purchases of Equity Securities
On January 22, 2013, UNIFI announced a stock repurchase program (the “2013 SRP”) to acquire up to $50,000 of
its common stock. UNIFI completed its repurchase of shares under the 2013 SRP in March 2014.
On April 23, 2014, UNIFI announced a new stock repurchase program (the “2014 SRP”) to acquire up to an
additional $50,000 of UNIFI’s common stock with no expiration. Under the 2014 SRP (as was the case under the
2013 SRP), purchases may be completed in accordance with SEC regulations at prevailing market prices, through
open market purchases or privately negotiated transactions, at such times and prices and in such manner as
determined by management, subject to market conditions, applicable legal requirements, contractual obligations and
other factors. Repurchases, if any, are expected to be financed through cash generated from operations and
borrowings, and are subject to applicable limitations and restrictions as set forth in the credit agreement governing
UNIFI’s debt obligations. UNIFI may discontinue repurchases at any time that management determines additional
purchases are not beneficial or advisable.
Through June 25, 2017, UNIFI had repurchased 3,147 shares of its common stock at a total cost of $72,438,
including all associated commission costs, since the inception of the 2013 SRP and the 2014 SRP.
UNIFI did not purchase any of its common stock during fiscal 2017. As of June 25, 2017, $27,603 remained
available for repurchases under the 2014 SRP.
18
PERFORMANCE GRAPH - SHAREHOLDER RETURN ON COMMON STOCK
The below graphic comparison assumes the investment of $100 in each of UNIFI common stock, the S&P SmallCap
600 Index (a benchmark index containing inclusion characteristics closely associated with UNIFI) and the NYSE
Composite Index (a broad equity market index), all at June 22, 2012. The resulting cumulative total return assumes
that dividends, if any, were reinvested. Past performance is not indicative of future performance.
Unifi, Inc.
S&P SmallCap 600
NYSE Composite
June 22, 2012 June 28, 2013 June 27, 2014 June 26, 2015 June 24, 2016 June 23, 2017
241.20
$
200.32
174.67
219.27 $
162.67
147.78
172.39 $
129.07
123.54
100.00 $
100.00
100.00
283.07 $
172.41
156.13
228.52 $
158.37
151.21
19
Item 6.
Selected Financial Data
The following table presents selected historical consolidated financial data. The data should be read in conjunction
with UNIFI’s historical consolidated financial statements for each of the fiscal years presented, as well as “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.
Number of fiscal weeks
Operations Data:
Net sales
Gross profit
Selling, general and administrative expenses
Operating income
Interest expense
Equity in earnings of unconsolidated affiliates (1)
Income from continuing operations before income
taxes
Provision for income taxes (2)
Income from continuing operations, net of tax
Net income attributable to Unifi, Inc. (3)
Per common share:
Net income attributable to Unifi, Inc.
Basic
Diluted
Cash Flow Data:
Net cash provided by operating activities
Depreciation and amortization expenses
Capital expenditures
Distributions received from unconsolidated
affiliates
Cash paid for share repurchases
Cash dividends declared per common share
Balance Sheet Data:
Cash and cash equivalents
Property, plant and equipment, net
Total assets
Total debt (4)
Total shareholders’ equity
For the Fiscal Year Ended
June 25, 2017 June 26, 2016 June 28, 2015 June 29, 2014 June 30, 2013
53
52
52
52
52
$ 647,270 $ 643,637 $ 687,121 $ 687,902 $ 713,962
73,104
47,386
22,463
4,489
(11,444)
90,705
49,672
38,486
4,025
(19,475)
83,262
46,203
31,483
4,329
(19,063)
94,164
50,829
43,768
3,578
(4,230)
93,632
47,502
42,198
3,528
(8,963)
43,275
10,898
32,377
32,875
48,243
15,073
33,170
34,415
53,812
13,346
40,466
42,151
47,881
20,161
27,720
28,823
29,014
13,344
15,670
16,635
$
$
$
$
1.81 $
1.78 $
1.93 $
1.87 $
2.32 $
2.24 $
1.52 $
1.47 $
0.84
0.80
46,062 $
20,368
33,190
55,975 $
17,528
52,337
38,903 $
18,043
25,966
56,357 $
17,896
19,091
2,322
—
— $
4,732
6,211
— $
3,718
10,360
— $
13,214
36,551
— $
50,509
24,584
8,809
14,940
19,315
—
June 25, 2017 June 26, 2016 June 28, 2015 June 29, 2014 June 30, 2013
$
35,425 $
203,388
571,503
128,442
360,806
16,646 $
185,101
525,442
121,591
326,945
10,013 $
136,222
474,761
102,499
299,093
15,907 $
123,802
466,588
97,394
286,738
8,755
115,164
452,909
95,635
286,480
(1)
(2)
Equity in earnings of unconsolidated affiliates for fiscal 2015 includes two bargain purchase gains recognized
by PAL for a combined benefit to UNIFI of $4,696.
Provision for income taxes for fiscal 2017 includes, among other items, a $1,500 benefit for the recognition of
research and development credits relating to previously filed tax returns that were amended in fiscal 2017.
Provision for income taxes for fiscal 2015 includes, among other items, the reversal of $7,639 for the deferred
tax liability related to UNIFI’s indefinite reinvestment assertion, a $3,008 impact related to certain
intercompany foreign currency transactions that originated in prior fiscal years and were settled in fiscal 2015,
the release of $3,009 from the valuation allowance primarily in connection with an unconsolidated affiliate,
renewable energy credits of $1,036 and net expense recognized for uncertain tax positions of $2,879.
20
During fiscal 2014, UNIFI increased the valuation allowance for certain deferred tax assets, generating
additional tax expense of $1,925.
During fiscal 2013, UNIFI increased the valuation allowance for certain deferred tax assets, generating
additional tax expense of $3,243.
(3) Net income attributable to Unifi, Inc. (“Net Income”):
•
•
•
for fiscal 2017 includes a loss on the divestiture of a non-core business of $1,662, after tax;
for fiscal 2016 includes key employee transition costs of $1,493, after tax; and
for fiscal 2015 includes a loss on extinguishment of debt of $676, after tax.
(4)
Total debt reflects principal outstanding less unamortized debt issuance costs.
21
Item 7.
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
consolidated financial statements. Management’s discussion and analysis should be read in conjunction with the
remainder of this Annual Report, with the understanding that “forward-looking statements” may be present. A
reference to a “note” refers to the accompanying notes to consolidated financial statements.
Overview
UNIFI sells polyester-based and nylon-based products primarily to other yarn manufacturers and knitters and
weavers that produce fabric for the apparel, hosiery, home furnishings, automotive, industrial and other end-use
markets. Polyester yarns include POY, textured, solution and package dyed, twisted, beamed and draw wound yarns,
and each is available in virgin or recycled varieties. Recycled solutions, made from both pre-consumer and post-
consumer waste, include plastic bottle flake and Chip. Nylon products include textured, solution dyed and spandex
covered yarns.
UNIFI maintains one of the textile industry’s most comprehensive yarn product offerings that include specialized
yarns, PVA yarns and commodity yarns, with principal geographic markets in the Americas and Asia.
UNIFI has manufacturing operations in four countries and participates in joint ventures in Israel and the United
States, the most significant of which is a 34% non-controlling partnership interest in PAL, a significant
unconsolidated affiliate that produces cotton and synthetic yarns for sale to the global textile industry and apparel
market. We believe the investment in PAL provides strategic diversification for our overall business in response to
global textile trends.
UNIFI has three reportable segments - the Polyester Segment, the Nylon Segment and the International Segment –
as well as certain ancillary operations that include for-hire transportation services, which comprise an All Other
category. The ancillary operations classified within All Other are insignificant for all periods presented; therefore,
our discussion and analysis of those activities is generally limited to their impact on consolidated results, where
appropriate.
UNIFI reported net income of $32,875, or $1.81 per basic share, for fiscal 2017. Such results reflect growth in sales
of PVA products, especially in the International Segment, which was partially offset by (i) a difficult domestic
environment, (ii) increased SG&A expenses for strategic planning, talent acquisition and commercial expansion and
(iii) lower earnings from equity affiliates. Additionally, in fiscal 2017, UNIFI faced periods of fluctuating virgin
polyester raw material costs, temporarily depressing the Polyester Segment’s gross margins, but benefited from
(a) the recognition of a benefit for bad debts, (b) a lower effective tax rate and (c) favorable foreign currency
exchange rates. The International Segment continued strong performance and growth due to the global success of
UNIFI’s PVA portfolio, along with the shutdown of a competitor in Brazil in early calendar 2016. The Polyester
and Nylon Segments both experienced a difficult domestic environment, challenged by weak retail selling seasons
and cautious ordering patterns from brands and retailers.
Significant Developments and Trends
UNIFI’s operations in fiscal 2017 were focused on enhancing the global supply chain, growing the market for its
PVA products and using cash flow from operations to fund select capital projects and strategic growth opportunities.
This focus led to the continuing increase in UNIFI’s PVA sales as a percentage of its overall sales, with net sales
from PVA products representing approximately 40% of consolidated net sales for fiscal 2017. This continues a
growth trend of between 10% and 15% over the past several fiscal years. UNIFI’s strategy of enriching its product
mix through a focus on PVA products helps insulate it from the pressures of low-priced commodity yarn imports
and helps to establish UNIFI as an innovation leader in its core markets. UNIFI’s innovative and sustainable
products achieved growth in overseas markets, continuing to meet the demands of premier brands and retailers
worldwide.
22
UNIFI’s flagship REPREVE® brand continued as our fastest growing PVA solution during fiscal 2017. The
increasing success and awareness of the REPREVE® brand continues to provide new opportunities for growth,
allowing for expansion into new end-uses and markets for REPREVE®, as well as continuing to grow the brand with
current customers. Both brands and consumers are demanding more sustainable solutions that provide better
performance characteristics, and REPREVE® is positioned to benefit from this trend.
Fiscal 2017 marked the third year of a three-year $135,000 capital investment plan. Beginning with fiscal 2015,
UNIFI invested approximately $35,000 in capital projects, adding machinery to support expansion of its draw-
textured and air-jet textured businesses, launching its third production line in the REPREVE® Recycling Center and
installing a 1-megawatt capacity solar farm. In fiscal 2016, UNIFI invested approximately $60,000 in capital
projects, including the bottle processing facility, commencing another REPREVE® Recycling Center expansion and
enhancing automation systems and existing machinery to handle the increasingly complex product mix. UNIFI
invested approximately $40,000 in capital projects in fiscal 2017, completing construction of its bottle processing
facility, nearing completion of the fourth production line in the REPREVE® Recycling Center, and completing
construction of assets for production of specialized fibers in partnership with Eastman Chemical Company, along
with additional enhancements to existing assets for customized and small-lot solutions.
To appropriately leverage the significant investments made in machinery and equipment in recent years, UNIFI
expects to make additional investments in certain growth initiatives, including commercial expansion; technology
and innovation; strategic partnerships; and people and teams. When executed with synergy, these initiatives are
expected to increase the returns from UNIFI’s core competencies by utilizing a premier supply chain and state-of-
the-art equipment to deliver technology-driven solutions backed by innovation and sustainability to like-minded
customers worldwide. These initiatives are expected to increase net sales, gross margins and operating income while
causing SG&A expenses to increase correspondingly.
Raw material components represent a significant portion of UNIFI’s manufactured products. The prices for the
principal raw materials used by UNIFI continually fluctuate, and it is difficult, and often impossible, to predict
trends or upcoming developments. During fiscal 2017, UNIFI operated in a predominantly increasing virgin
polyester raw material cost environment. UNIFI believes those costs were a result of volatility in the crude oil
markets. During fiscal 2016 and 2015, UNIFI operated in a predominantly declining virgin polyester raw material
cost environment. UNIFI believes that costs during most of that two-year period were impacted by lower crude oil
values, a lack of major unplanned raw material capacity outages and soft global demand for polyester raw materials.
The continuing volatility in global crude oil prices is likely to impact UNIFI’s polyester and nylon raw material
costs. While it is not possible to predict the timing or amount of the impact or whether the decline in crude oil
prices will stabilize, continue or reverse, UNIFI monitors these dynamic factors closely.
UNIFI is also impacted by significant fluctuations in the value of the Brazilian Real, the local currency for our
largest foreign operation. In fiscal 2017, the Brazilian Real strengthened versus the U.S. Dollar. Such appreciation of
the Brazilian Real improves our net sales and other performance metrics when the results of our Brazilian subsidiary
are translated into U.S. Dollars at comparatively favorable rates. During fiscal 2016 and 2015, UNIFI was
negatively impacted by relative weakening of the Brazilian Real. Specifically, the Brazilian Real declined
approximately 40% in relation to the U.S. Dollar in fiscal 2015. UNIFI expects continued volatility in the value of
the Brazilian Real to impact our key performance metrics, although the magnitude of the impact is dependent upon
the significance of the volatility.
23
Results of Operations
Fiscal 2017, 2016 and 2015 all consisted of 52 weeks. The following table presents a summary of Net Income:
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
(Benefit) provision for bad debts
Other operating (income) expense, net
Operating income
Interest expense, net
Loss on sale of business
Loss on extinguishment of debt
Equity in earnings of unconsolidated affiliates
Income before income taxes
Provision for income taxes
Net income including non-controlling interest
Less: net loss attributable to non-controlling interest
Net income attributable to Unifi, Inc.
For the Fiscal Year Ended
June 26, 2016
June 25, 2017
$
647,270 $
553,106
94,164
50,829
(123)
(310)
43,768
3,061
1,662
—
(4,230)
43,275
10,898
32,377
(498)
32,875 $
643,637 $
550,005
93,632
47,502
1,684
2,248
42,198
2,918
—
—
(8,963)
48,243
15,073
33,170
(1,245)
34,415 $
June 28, 2015
687,121
596,416
90,705
49,672
947
1,600
38,486
3,109
—
1,040
(19,475)
53,812
13,346
40,466
(1,685)
42,151
$
See Note 25, “Business Segment Information,” to the accompanying consolidated financial statements for
reconciliations and detail regarding UNIFI’s reportable segments, discussion and analysis of which follows below.
Key Performance Indicators and Non-GAAP Financial Measures
UNIFI continuously reviews performance indicators to measure its success. These performance indicators form the
basis of management’s discussion and analysis included below:
•
•
•
•
•
•
•
•
•
sales volume and revenue for UNIFI and for each reportable segment;
gross profit and gross margin for UNIFI and for each reportable segment;
net income and earnings per share;
Segment Profit (Loss), which equals segment gross profit plus segment depreciation expense;
unit conversion margin, which represents unit net sales price less unit raw material costs, for UNIFI and
for each reportable segment;
working capital, which represents current assets less current liabilities;
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), which represents Net
Income before net interest expense, income tax expense and depreciation and amortization expense;
Adjusted EBITDA, which represents EBITDA adjusted to exclude equity in earnings of PAL, key
employee transition costs, loss on sale of business and certain other adjustments necessary to understand
and compare the underlying results of UNIFI;
Adjusted Net Income, which excludes certain amounts which management believes do not reflect the
ongoing operations and performance of UNIFI, such as key employee transition costs and loss on sale
of business. Adjusted Net Income represents Net Income calculated under U.S. generally accepted
accounting principles (“GAAP”), adjusted to exclude the approximate after-tax impact of certain
income or expense items (as well as specific impacts to the provision for income taxes) necessary to
understand and compare the underlying results of UNIFI;
24
•
•
Adjusted EPS (earnings per share), which represents Adjusted Net Income divided by UNIFI’s basic
weighted average common shares outstanding; and
Adjusted Working Capital (receivables plus inventory, less accounts payable and accrued expenses),
which is an indicator of UNIFI’s production efficiency and ability to manage inventory and receivables.
EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted EPS and Adjusted Working Capital (collectively, the
“non-GAAP financial measures”) are not determined in accordance with GAAP and should not be considered a
substitute for performance measures determined in accordance with GAAP. The calculations of the non-GAAP
financial measures are subjective, based on management’s belief as to which items should be included or excluded
in order to provide the most reasonable and comparable view of the underlying operating performance of the
business. We may, from time to time, modify the amounts used to determine our non-GAAP financial measures.
When applicable, management’s discussion and analysis includes specific consideration for items that comprise the
reconciliations of its non-GAAP financial measures.
We believe that these non-GAAP financial measures better reflect UNIFI’s underlying operations and performance
and that their use, as operating performance measures, provides investors and analysts with a measure of operating
results unaffected by differences in capital structures, capital investment cycles and ages of related assets, among
otherwise comparable companies.
Management uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in
comparing our operating performance on a consistent basis, as it removes the impact of (a) items directly related to
our asset base (primarily depreciation and amortization) and (b) items that we would not expect to occur as a part of
our normal business on a regular basis; (ii) for planning purposes, including the preparation of our annual operating
budget; (iii) as a valuation measure for evaluating our operating performance and our capacity to incur and service
debt, fund capital expenditures and expand our business; and (iv) as one measure in determining the value of other
acquisitions and dispositions. Adjusted EBITDA is a key performance metric utilized in the determination of
variable compensation. We also believe Adjusted EBITDA is an appropriate supplemental measure of debt service
capacity, because it serves as a high-level proxy for cash generated from operations and is relevant to our fixed
charge coverage ratio. Equity in earnings of PAL is excluded from Adjusted EBITDA because such earnings do not
reflect our operating performance.
Management uses Adjusted Net Income and Adjusted EPS (i) as measurements of net operating performance
because they assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items
that we would not expect to occur as a part of our normal business on a regular basis and (b) components of the
provision for income taxes that we would not expect to occur as a part of our underlying taxable operations; (ii) for
planning purposes, including the preparation of our annual operating budget; and (iii) as measures in determining the
value of other acquisitions and dispositions.
Historically, EBITDA, Adjusted EBITDA, Adjusted Net Income and Adjusted EPS aimed to exclude the impact of
the non-controlling interest in Renewables, while the consolidated amounts for such entity were required to be
included in UNIFI’s financial amounts reported under GAAP.
See “—Non-GAAP Reconciliations” below for reconciliations of non-GAAP metrics to the most directly
comparable GAAP metric.
25
Non-GAAP Reconciliations
EBITDA and Adjusted EBITDA
The reconciliations of the amounts reported under GAAP for Net Income to EBITDA and Adjusted EBITDA are as
follows:
Net income attributable to Unifi, Inc.
Interest expense, net
Provision for income taxes
Depreciation and amortization expense
EBITDA
Equity in earnings of PAL
EBITDA excluding PAL
Loss on sale of business
Key employee transition costs
Loss on extinguishment of debt
Adjusted EBITDA
For the Fiscal Year Ended
June 26, 2016
June 25, 2017
$
32,875 $
3,030
10,898
19,851
66,654
34,415 $
2,884
15,073
16,893
69,265
June 28, 2015
42,151
3,109
13,346
17,367
75,973
(2,723)
63,931
(6,074)
63,191
(17,403)
58,570
1,662
—
—
65,593 $
—
2,166
—
65,357 $
—
—
1,040
59,610
$
Amounts presented in the reconciliation above may not be consistent with amounts included in UNIFI’s
consolidated financial statements due to the impact of the non-controlling interest in Renewables.
Adjusted Net Income and Adjusted EPS
The tables below set forth reconciliations of (i) Income before income taxes (“Pre-tax Income”), Provision for
income taxes (“Tax Impact”) and Net Income to Adjusted Net Income and (ii) Basic EPS to Adjusted EPS.
GAAP results
Loss on sale of business (1)
Adjusted results
$
$
43,275 $
1,662
44,937 $
(10,898) $
—
(10,898) $
32,875 $
1,662
34,537 $
Basic EPS
1.81
0.09
1.90
Fiscal 2017
Pre-tax
Income
Tax Impact
Net Income
Weighted average common shares outstanding
18,136
GAAP results
Key employee transition costs (2)
Adjusted results
$
$
48,243 $
2,330
50,573 $
(15,073) $
(673)
(15,746) $
34,415 $
1,493
35,908 $
Basic EPS
1.93
0.08
2.01
Fiscal 2016
Pre-tax
Income
Tax Impact
Net Income
Weighted average common shares outstanding
17,857
26
GAAP results
Change in deferred tax liability for unremitted foreign
earnings assertion
Change in deferred tax asset for certain foreign
currency transactions
Change in uncertain tax positions
Renewable energy tax credits
Bargain purchase gains for an equity affiliate (3)
Loss on extinguishment of debt
Adjusted results
Weighted average common shares outstanding
Fiscal 2015
Pre-tax
Income
Tax Impact
Net Income
$
53,812 $
(13,346) $
42,151 $
Basic EPS
2.32
—
(7,639)
(7,639)
(0.42)
—
—
—
(4,696)
1,040
50,156 $
3,008
2,879
(1,036)
—
(364)
(16,498) $
3,008
2,879
(1,036)
(4,696)
676
35,343 $
$
0.17
0.16
(0.06)
(0.26)
0.03
1.94
18,207
(1)
(2)
(3)
For the fiscal year ended June 25, 2017, the Company incurred a loss on the sale of its investment in
Renewables of $1,662. There is no tax impact for this transaction as the loss is non-deductible.
For the fiscal year ended June 26, 2016, the Company incurred key employee transition costs of $2,330,
before tax, for transactions in the United States. The Company estimates the tax benefit of these costs was
$673, using a 35% tax rate, with no significant deferred tax components. Including transactions for
Renewables, the amounts reflected here consider impacts to the valuation allowances and non-controlling
interest.
The bargain purchase gains recognized for an equity affiliate did not generate a tax impact for purposes of this
reconciliation as the corresponding change in deferred tax expense is offset by a change in the valuation
allowance for UNIFI’s investment in the equity affiliate.
27
Review of Fiscal 2017 Results of Operations Compared to Fiscal 2016
Consolidated Overview
The components of Net Income, each component as a percentage of net sales and the percentage increase or
decrease over the prior fiscal year amounts are presented in the table below. Fiscal 2017 and 2016 both are
comprised of 52 weeks.
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
(Benefit) provision for bad debts
Other operating (income) expense, net
Operating income
Interest expense, net
Loss on sale of business
Earnings from unconsolidated affiliates
Income before income taxes
Provision for income taxes
Net income including non-controlling interest
Less: net loss attributable to non-controlling
interest
Net income attributable to Unifi, Inc.
Consolidated Net Sales
% of Net Sales
$ 647,270
553,106
94,164
50,829
(123)
(310)
43,768
3,061
1,662
(4,230)
43,275
10,898
32,377
100.0 $ 643,637
85.5 550,005
93,632
14.5
47,502
7.9
1,684
—
2,248
(0.1)
42,198
6.7
2,918
0.5
0.2
—
(8,963)
(0.7)
48,243
6.7
15,073
1.7
33,170
5.0
% of Net Sales % Change
0.6
100.0
0.6
85.5
0.6
14.5
7.0
7.4
(107.3)
0.2
(113.8)
0.3
3.7
6.6
4.9
0.5
100.0
—
(52.8)
(1.4)
(10.3)
7.5
(27.7)
2.4
(2.4)
5.1
(498)
$ 32,875
(0.1)
(1,245)
5.1 $ 34,415
(0.2)
5.3
(60.0)
(4.5)
Consolidated net sales for fiscal 2017 increased by $3,633, or 0.6%, as compared to fiscal 2016.
Consolidated sales volumes increased 11.3%, attributable to continued growth in sales of PVA products in the
International Segment and sales of polyester Chip and plastic bottle flake in the Polyester Segment. In Brazil,
despite a volatile economic and political environment, we capitalized on expansion of the synthetic yarn market
coupled with market share gain due to the shutdown of a competitor in early calendar 2016. In Asia, the business
has grown as brands and retail partners continue to utilize our global model, providing differentiation and innovation
of our PVA products to support customers’ global supply chains. The increase in International Segment sales
volumes was partially offset by softness in the retail markets covered by NAFTA and CAFTA-DR, which adversely
impacted the Polyester and Nylon Segments. As store closures and other business transformations plagued the retail
industry, domestic apparel brands and retailers continued a cautious ordering level throughout fiscal 2017, which led
to sales volume declines for our domestic operations compared to the prior period.
We believe the difficult domestic retail environment has become a pervasive and disruptive issue for the textile
supply chain, and although the unfavorable conditions were present in both fiscal 2016 and 2017, we have not
identified this issue as a long-term trend.
Consolidated average sales prices decreased 10.6%, attributable to (i) a mix impact within the Polyester Segment
due to a higher proportion of lower-priced polyester product sales, (ii) a mix impact from relative volume weakness
for nylon products that typically carry a higher selling price and (iii) an increase in product sales in the International
Segment (where the products carry a lower average selling price when compared to domestic programs). The
decrease in consolidated sales pricing was partially offset by increased sales of PVA products and a benefit from net
favorable foreign currency translation compared to the prior fiscal year of approximately $9,800, primarily
associated with the comparative increase in value of the Brazilian Real. PVA products at the end of fiscal 2017
comprised 40% of net sales, up from 35% for fiscal 2016.
28
Consolidated Gross Profit
Gross profit for fiscal 2017 increased by $532, or 0.6%, as compared to fiscal 2016, primarily due to (i) the increase in
PVA product sales in the International Segment, (ii) an improvement in per-unit manufacturing costs for our subsidiary
in Brazil due to increased volumes and (iii) net favorable foreign currency translation of approximately $1,800. These
benefits were partially offset as gross profit for the Polyester and Nylon Segments decreased due to (a) lower sales
volumes in the Nylon Segment, (b) start-up costs (primarily depreciation) associated with the new REPREVE® Bottle
Processing Center in Reidsville, North Carolina and (c) a lag in implementing selling price adjustments for customers
in connection with periodic increases in virgin polyester raw material costs.
Further details regarding the changes in net sales and gross profit from fiscal 2016 to fiscal 2017, by reportable
segment, follow.
Polyester Segment
The components of Segment Profit, each component as a percentage of net sales and the percentage increase or
decrease over the prior period amounts for the Polyester Segment are as follows:
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
Net sales
Cost of sales
Gross profit
Depreciation expense
Segment Profit
$ 355,740
315,655
40,085
13,921
$ 54,006
The change in net sales for the Polyester Segment is as follows:
Net sales for fiscal 2016
Decrease in average selling price and change in sales mix
Increase in sales volumes
Net sales for fiscal 2017
% of Net Sales
100.0 $ 383,167
88.7 333,638
49,529
11.3
3.9
11,188
15.2 $ 60,717
% of Net Sales % Change
(7.2)
100.0
(5.4)
87.1
(19.1)
12.9
24.4
2.9
(11.1)
15.8
$
$
383,167
(33,651)
6,224
355,740
The decrease in net sales for the Polyester Segment was attributable to lower sales prices primarily as a result of an
unfavorable change in sales mix due to lower sales volumes of higher-priced textured, dyed and beamed yarns and
higher sales volumes of lower-priced plastic bottle flake, Chip and POY.
The change in Segment Profit for the Polyester Segment is as follows:
Segment Profit for fiscal 2016
Net decrease in underlying margins
Increase in sales volumes
Segment Profit for fiscal 2017
$
$
60,717
(7,697)
986
54,006
The decrease in Segment Profit for the Polyester Segment was attributable to (i) the impact of an unfavorable
change in sales mix, as described in the net sales analysis above and (ii) the impact of periodic increases in virgin
polyester raw material costs with an inherent delay in selling price adjustments, despite an increase in sales volumes.
Polyester Segment net sales and Segment Profit as a percentage of total consolidated amounts were 55.0% and
48.2%, respectively, for fiscal 2017, compared to 59.5% and 56.0%, respectively, for fiscal 2016.
29
Nylon Segment
The components of Segment Profit, each component as a percentage of net sales and the percentage increase or
decrease over the prior period amounts for the Nylon Segment are as follows:
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
Net sales
Cost of sales
Gross profit
Depreciation expense
Segment Profit
$ 112,704
100,633
12,071
2,125
$ 14,196
The change in net sales for the Nylon Segment is as follows:
Net sales for fiscal 2016
Decrease in sales volumes
Decrease in average selling price and change in sales mix
Net sales for fiscal 2017
% of Net Sales
100.0 $ 131,715
89.3 113,906
17,809
10.7
1.9
1,899
12.6 $ 19,708
% of Net Sales % Change
(14.4)
100.0
(11.7)
86.5
(32.2)
13.5
11.9
1.5
(28.0)
15.0
$
$
131,715
(15,973)
(3,038)
112,704
The decrease in net sales for the Nylon Segment was attributable to (i) lower sales volumes as a result of soft
domestic market conditions in which nylon socks, ladies hosiery and intimates have experienced demand declines
and (ii) the transition of certain PVA programs from the Nylon Segment to the International Segment to meet
customer-specific supply chain requirements. The shift of PVA sales to the International Segment also adversely
impacted the average selling price and sales mix.
The change in Segment Profit for the Nylon Segment is as follows:
Segment Profit for fiscal 2016
Decrease in underlying margins
Decrease in sales volumes
Segment Profit for fiscal 2017
$
$
19,708
(3,122)
(2,390)
14,196
The decrease in Segment Profit for the Nylon Segment was attributable to (i) the shift of higher-margin PVA sales to
the International Segment and (ii) the impact of lower sales on production volumes, driving higher unit
manufacturing costs due to lower capacity utilization.
Nylon Segment net sales and Segment Profit as a percentage of total consolidated amounts were 17.4% and 12.7%,
respectively, for fiscal 2017, compared to 20.5% and 18.2%, respectively, for fiscal 2016.
International 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 International Segment are as follows:
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
Net sales
Cost of sales
Gross profit
Depreciation expense
Segment Profit
$ 173,686
131,087
42,599
1,119
$ 43,718
30
% of Net Sales
100.0 $ 122,554
95,666
75.5
26,888
24.5
0.7
885
25.2 $ 27,773
% of Net Sales % Change
41.7
100.0
37.0
78.1
58.4
21.9
26.4
0.8
57.4
22.7
The change in net sales for the International Segment is as follows:
Net sales for fiscal 2016
Increase in sales volumes
Net favorable foreign currency translation effects (Brazilian Real and Chinese Renminbi)
Decrease in average selling price and change in sales mix
Net sales for fiscal 2017
$
$
122,554
50,235
9,636
(8,739)
173,686
The increase in net sales for the International Segment was attributable to (i) higher sales volumes at our Brazilian
subsidiary due to increased demand for synthetic yarns, including air-covered PVA products for use in applications
such as stretch denim, (ii) higher sales volumes at our Chinese subsidiary, which benefited from growth of PVA
sales and the transition of certain programs from the Nylon Segment and (iii) favorable foreign currency translation
due to the strengthening of the Brazilian Real (using a weighted average exchange rate of 3.22 Real/U.S. Dollar and
3.67 Real/U.S. Dollar for fiscal 2017 and 2016, respectively). These benefits were partially offset by a decrease in
the average selling price in China due to (a) a greater mix of lower-priced staple fiber sales to several yarn
manufacturers for a PVA apparel program and (b) unfavorable foreign currency translation from the Chinese
Renminbi.
The change in Segment Profit for the International Segment is as follows:
Segment Profit for fiscal 2016
Increase in sales volumes
Improvements in underlying margins
Net favorable foreign currency translation effects (Brazilian Real and Chinese Renminbi)
Segment Profit for fiscal 2017
$
$
27,773
11,349
2,664
1,932
43,718
The increase in Segment Profit for the International Segment was attributable to (i) increased sales volumes, as
described in the net sales analysis above, (ii) improved margins in Brazil due to a mix of higher-margin
manufactured products (including PVA products) and improved cost efficiency associated with greater production
volumes and (iii) net favorable foreign currency translation effects due to the strengthening of the Brazilian Real
versus the U.S. Dollar.
International Segment net sales and Segment profit as a percentage of total consolidated amounts were 26.8% and
39.0%, respectively, for fiscal 2017, compared to 19.0% and 25.6%, respectively, for fiscal 2016.
Consolidated Selling, General & Administrative Expenses
The change in SG&A expenses is as follows:
SG&A expenses for fiscal 2016
Net increase for external service providers
Increase in supplemental retirement plan expenses
Increase due to foreign currency translation
Increase in incentive compensation expenses
Decrease in sales, franchise and property taxes
Other net decreases
SG&A expenses for fiscal 2017
$
$
47,502
2,386
640
465
410
(533)
(41)
50,829
Total SG&A expenses were higher for fiscal 2017 compared to fiscal 2016, primarily as a result of (i) a net increase
in fees paid to external service providers, including audit, legal, tax, consulting, marketing and branding services,
many of which related to strategic planning, talent acquisition and commercial expansion, (ii) an increase in
supplemental retirement plan expenses driven by comparatively stronger performance of the equity index
31
benchmark, (iii) an increase in foreign currency translation primarily due to the strengthening of the Brazilian Real
versus the U.S. Dollar and (iv) an increase in incentive compensation expenses due to favorable performance against
established targets, partially offset by a decrease in non-income related taxes and other net decreases.
UNIFI expects SG&A expenses to further increase from fiscal 2017 to fiscal 2018 due to planned spending on
commercial expansion, additional technology and innovation, new partnerships and talent acquisition.
Consolidated (Benefit) Provision for Bad Debts
(Benefit) provision for bad debts changed favorably from a provision of $1,684 for fiscal 2016 to a benefit of $123
for fiscal 2017. The benefit to fiscal 2017 reflects a net decrease in the reserve against specifically identified
customer balances in the Polyester and International Segments.
Consolidated Other Operating (Income) Expense, Net
Other operating (income) expense, net changed favorably from $2,248 of expense for fiscal 2016 to $310 of income
for fiscal 2017. Other operating (income) expense, net for fiscal 2017 primarily includes favorable foreign currency
exchange rates, while the total for fiscal 2016 primarily includes key employee transition costs.
Consolidated Interest Expense, Net
Interest expense, net increased from $2,918 for fiscal 2016 to $3,061 for fiscal 2017, and reflected the following
components:
Interest and fees on the ABL Facility
Other interest
Subtotal of interest on debt obligations
Amortization of debt financing fees
Mark-to-market adjustment for interest rate swap
Reclassification adjustment for interest rate swap
Interest capitalized to property, plant and equipment, net
Subtotal of other components of interest expense
Total interest expense
Interest income
Interest expense, net
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
$
$
3,032 $
1,021
4,053
390
(260)
70
(675)
(475)
3,578
(517)
3,061 $
2,903
885
3,788
407
(20)
77
(724)
(260)
3,528
(610)
2,918
Interest on debt obligations increased from fiscal 2016 to fiscal 2017 in connection with an increase in the weighted
average interest rate and an increase in capital lease obligations.
The change in other components of interest expense from the prior period is primarily attributable to a favorable
change in the mark-to-market adjustment for the historical interest rate swap.
Interest income in each period includes earnings recognized on cash equivalents held globally.
Loss on Sale of Business
On December 23, 2016, UNIFI, through a wholly owned foreign subsidiary, entered into an agreement to sell its
60% equity ownership interest in Renewables to its existing third-party joint venture partner for $500 in cash and
release of certain debt obligations. In connection with the transaction, UNIFI recognized a loss on sale of business of
$1,662.
32
Consolidated Earnings from Unconsolidated Affiliates
The components of earnings from unconsolidated affiliates are as follows:
Earnings from PAL
Earnings from nylon joint ventures
Total equity in earnings of unconsolidated affiliates
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
$
$
(2,723) $
(1,507)
(4,230) $
(6,074)
(2,889)
(8,963)
As a percentage of consolidated income before income taxes
9.8%
18.6%
UNIFI’s 34% share of PAL’s earnings decreased from $6,074 in fiscal 2016 to $2,723 in fiscal 2017. The decrease
is primarily attributable to lower volumes and operating margins, mostly as a result of a challenging domestic cotton
market. The earnings from the nylon joint ventures experienced a decrease primarily due to higher raw material
costs and softness in the nylon markets.
Consolidated Income Taxes
The change in consolidated income taxes is as follows:
Income before income taxes
Provision for income taxes
Effective tax rate
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
$
43,275
10,898
$
25.2%
48,243
15,073
31.2%
The effective tax rate for fiscal 2017 benefited from, among other things, (i) a lower overall effective tax rate for
UNIFI’s foreign earnings (reflecting free-trade zone sales in El Salvador and lower statutory tax rates in both Brazil
and China), (ii) increased research and development credits, (iii) a decrease in the valuation allowance reflecting the
recognition of lower taxable income versus book income for UNIFI’s investment in PAL (for which UNIFI
maintains a full valuation allowance) and (iv) a reduction in the valuation allowance related to foreign net operating
losses utilized in 2017. Such favorable impacts to the fiscal 2017 effective tax rate were partially offset by (a) a
reduction in the domestic production activities deduction due to the carryback of certain losses, (b) a change in
uncertain tax positions and (c) withholding taxes on repatriation of foreign earnings.
The effective tax rate for fiscal 2016 benefited from, among other things, (i) a lower overall effective tax rate for
UNIFI’s foreign earnings (reflecting free-trade zone sales in El Salvador and lower statutory tax rates in both Brazil
and China), (ii) a decrease in the valuation allowance reflecting the recognition of lower taxable income versus book
income for UNIFI’s investment in PAL (for which UNIFI maintains a full valuation allowance) and (iii) a reduction
in the valuation allowance related to foreign tax credits utilized in 2016. Such favorable impacts to the fiscal 2016
effective tax rate were partially offset by (a) utilization of foreign tax credits, (b) an increase in the valuation
allowance for net operating losses, including Renewables, for which no tax benefit could be recognized, (c) state and
local taxes net of the assumed federal benefit and (d) a change in uncertain tax positions.
The favorable change in the effective tax rate from fiscal 2016 to fiscal 2017 is primarily attributable to both a
greater mix of foreign earnings and increased research and development credits in fiscal 2017.
33
Consolidated Net Income Attributable to Unifi, Inc.
Net Income for fiscal 2017 was $32,875, or $1.81 per basic share, compared to $34,415, or $1.93 per basic share, for
fiscal 2016. The decrease was primarily attributable to (i) lower earnings from equity affiliates and (ii) an increase
in SG&A expenses, partially offset by (a) the recognition of a benefit for bad debts, (b) a lower effective tax rate and
(c) favorable foreign currency exchange rates. Gross profit improved slightly versus the prior fiscal year due to
growth in sales of PVA products, especially in the International Segment, which was partially offset by a difficult
domestic environment and fluctuating virgin polyester raw material costs temporarily depressing domestic gross
margins.
Consolidated Adjusted EBITDA
From fiscal 2016 to fiscal 2017, Adjusted EBITDA increased from $65,357 to $65,593. The increase is primarily
attributable to growth in sales of PVA products, a benefit for bad debts, and favorable foreign currency exchange
rates, partially offset by certain volume declines attributable to a difficult domestic retail environment and higher
SG&A expenses.
Review of Fiscal 2016 Results of Operations Compared to Fiscal 2015
Consolidated Overview
The components of Net Income, each component as a percentage of net sales and the percentage increase or
decrease over the prior fiscal year amounts are presented in the table below. Fiscal 2016 and 2015 both were
comprised of 52 weeks.
For the Fiscal Year Ended
June 26, 2016
June 28, 2015
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Provision for bad debts
Other operating expense, net
Operating income
Interest expense, net
Loss on extinguishment of debt
Earnings from unconsolidated affiliates
Income before income taxes
Provision for income taxes
Net income including non-controlling interest
Less: net loss attributable to non-controlling
interest
Net income attributable to Unifi, Inc.
Consolidated Net Sales
% of Net Sales
$ 643,637
550,005
93,632
47,502
1,684
2,248
42,198
2,918
—
(8,963)
48,243
15,073
33,170
100.0 $ 687,121
85.5 596,416
90,705
14.5
49,672
7.4
0.2
947
1,600
0.3
38,486
6.6
3,109
0.5
1,040
—
(19,475)
(1.4)
53,812
7.5
13,346
2.4
40,466
5.1
% of Net Sales % Change
(6.3)
100.0
(7.8)
86.8
3.2
13.2
(4.4)
7.2
77.8
0.2
40.5
0.2
9.6
5.6
(6.1)
0.4
(100.0)
0.2
(54.0)
(2.8)
(10.3)
7.8
12.9
1.9
(18.0)
5.9
(1,245)
$ 34,415
(0.2)
(1,685)
5.3 $ 42,151
(0.2)
6.1
(26.1)
(18.4)
Consolidated net sales for fiscal 2016 decreased by $43,484, or 6.3%, as compared to fiscal 2015.
Consolidated sales volumes decreased 0.7%, concentrated in the Polyester and Nylon Segments, while volumes in
the International Segment increased. The slight overall decline in sales volumes was attributable to (i) UNIFI’s
strategic exiting of specific low-margin business and (ii) domestic market softness and supply chain adjustments,
partially offset by increased global demand for our PVA yarns.
Consolidated sales pricing declined 5.6%, primarily due to (i) the devaluation of certain foreign currencies versus
the U.S. Dollar (approximately $31,000), (ii) a lower proportion of nylon in our product mix and (iii) lower pricing
34
in the Polyester and Nylon Segments as a result of lower raw material costs, partially offset by pricing
improvements attributable to the continued success of PVA programs. PVA products comprised approximately 35%
of UNIFI’s consolidated net sales for fiscal 2016 as compared to approximately 30% for fiscal 2015.
Consolidated Gross Profit
Gross profit for fiscal 2016 increased by $2,927, or 3.2%, as compared to fiscal 2015, reflecting strength in the
International Segment, partially offset by decreases in the Polyester and Nylon Segments. Gross profit increased for
the International Segment due to (i) an increase in sales volumes and margins for our Chinese subsidiary from PVA
sales growth and (ii) improved margins in Brazil, partially offset by unfavorable foreign currency translation due to
the devaluation of the Brazilian Real and Chinese Renminbi versus the U.S. Dollar. Lower gross profit for the
Polyester Segment was primarily attributable to lower sales volumes. Gross profit decreased for the Nylon Segment
primarily due to lower sales volumes and devaluation of the Colombian Peso versus the U.S. Dollar, partially offset
by improved overall manufacturing efficiencies.
Further details regarding the changes in net sales and gross profit from fiscal 2015 to fiscal 2016 by reportable
segment follow.
Polyester Segment
The components of Segment Profit, each component as a percentage of net sales and the percentage increase or
decrease over the prior period amounts for the Polyester Segment are as follows:
For the Fiscal Year Ended
June 26, 2016
June 28, 2015
Net sales
Cost of sales
Gross profit
Depreciation expense
Segment Profit
$ 383,167
333,638
49,529
11,188
$ 60,717
The change in net sales for the Polyester Segment is as follows:
Net sales for fiscal 2015
Decrease in average selling price
Decrease in sales volumes
Net sales for fiscal 2016
% of Net Sales
100.0 $ 396,239
87.1 345,462
50,777
12.9
2.9
10,579
15.8 $ 61,356
% of Net Sales % Change
(3.3)
100.0
(3.4)
87.2
(2.5)
12.8
5.8
2.7
(1.0)
15.5
$
$
396,239
(8,150)
(4,922)
383,167
The decrease in net sales for the Polyester Segment was attributable to lower sales prices as a result of lower raw
material costs (approximately 10% for virgin polyester raw materials), partially offset by an improved sales mix
(due to our focus on growing PVA sales). Decreased sales volumes are primarily attributable to (i) the strategic
exiting of specific lower-margin commodity business and (ii) lower demand in certain sectors of the retail market,
partially offset by growth of PVA yarn volumes.
The change in Segment Profit for the Polyester Segment is as follows:
Segment Profit for fiscal 2015
Decrease in sales volumes
Increase in underlying margins
Segment Profit for fiscal 2016
$
$
61,356
(761)
122
60,717
The decrease in Segment Profit for the Polyester Segment was attributable to lower sales volumes, as discussed in
the net sales analysis above, and an increase in manufacturing costs, partially offset by the favorable impact of mix
35
enrichment achieved through increased demand for our PVA yarns. Segment Profit, as a percentage of net sales,
grew over fiscal 2015, demonstrating mix enrichment.
Polyester Segment net sales and Segment Profit as a percentage of total consolidated amounts were 59.5% and
56.0%, respectively, for fiscal 2016, compared to 57.7% and 58.1%, respectively, for fiscal 2015.
Nylon Segment
The components of Segment Profit, each component as a percentage of net sales and the percentage increase or
decrease over the prior period amounts for the Nylon Segment are as follows:
For the Fiscal Year Ended
June 26, 2016
June 28, 2015
Net sales
Cost of sales
Gross profit
Depreciation expense
Segment Profit
$ 131,715
113,906
17,809
1,899
$ 19,708
The change in net sales for the Nylon Segment is as follows:
Net sales for fiscal 2015
Decrease in sales volumes
Decrease in average selling price and change in sales mix
Unfavorable foreign currency translation effects
Net sales for fiscal 2016
% of Net Sales
100.0 $ 149,612
86.5 130,644
13.5
18,968
1,798
1.5
15.0 $ 20,766
% of Net Sales % Change
(12.0)
100.0
(12.8)
87.3
(6.1)
12.7
5.6
1.2
(5.1)
13.9
$
$
149,612
(13,457)
(3,173)
(1,267)
131,715
The decrease in net sales for the Nylon Segment was primarily attributable to (i) lower sales volumes as a result of
domestic market weakness and certain inventory adjustments in the supply chain, (ii) a decrease in pricing following
the decline in raw material costs, and (iii) currency devaluation of the Colombian Peso versus the U.S. Dollar.
The change in Segment Profit for the Nylon Segment is as follows:
Segment Profit for fiscal 2015
Decrease in sales volumes
Unfavorable foreign currency translation effects (Colombian Peso)
Improvement in underlying margins
Segment Profit for fiscal 2016
$
$
20,766
(1,867)
(329)
1,138
19,708
The decrease in Segment Profit for the Nylon Segment was primarily attributable to (i) lower sales volumes, as
discussed in the net sales analysis above and (ii) the unfavorable impact of currency devaluation of the Colombian
Peso versus the U.S. Dollar. These decreases were partially offset by improved manufacturing efficiencies.
Nylon Segment net sales and Segment Profit as a percentage of total consolidated amounts were 20.5% and 18.2%,
respectively, for fiscal 2016, compared to 21.8% and 19.7%, respectively, for fiscal 2015.
36
International 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 International Segment are as follows:
For the Fiscal Year Ended
June 26, 2016
June 28, 2015
% of Net Sales
% of Net
Sales
Net sales
Cost of sales
Gross profit
Depreciation expense
Segment Profit
$ 122,554
95,666
26,888
885
$ 27,773
100.0 $ 134,992
78.1 113,556
21,436
21.9
0.8
1,997
22.7 $ 23,433
The change in net sales for the International Segment is as follows:
% Change
(9.2)
(15.8)
25.4
(55.7)
18.5
100.0
84.1
15.9
1.5
17.4
Net sales for fiscal 2015
Unfavorable foreign currency translation effects (Brazilian Real and Chinese Renminbi)
Improvement in average selling price and change in sales mix
Increase in sales volumes
Net sales for fiscal 2016
$
$
134,992
(29,761)
14,233
3,090
122,554
The decrease in net sales for the International Segment was primarily attributable to unfavorable foreign currency
translation effects due to the devaluation of the Brazilian Real versus the U.S. Dollar (using a weighted average
exchange rate of 3.67 Real/U.S. Dollar and 2.66 Real/U.S. Dollar for fiscal 2016 and 2015, respectively) and
weakening of the Chinese Renminbi versus the U.S. Dollar. PVA portfolio growth and favorable product and price
mix in Brazil led to improvements in underlying average selling price and sales mix. In addition, our Brazilian
subsidiary gained market share during the second half of fiscal 2016 as a local competitor closed its operations.
The change in Segment Profit for the International Segment is as follows:
Segment Profit for fiscal 2015
Improvements in underlying margins
Increase in sales volumes
Unfavorable foreign currency translation effects (Brazilian Real and Chinese Renminbi)
Segment Profit for fiscal 2016
$
$
23,433
9,098
516
(5,274)
27,773
The increase in Segment Profit for the International Segment was attributable to (i) improved margins in Brazil
based on a greater mix of higher-margin manufactured PVA products as well as increased unit conversion margin
for both manufactured and resale yarns, (ii) improved margins in China due to the continued growth of PVA
programs in Asia and (iii) higher sales volumes as noted in the net sales analysis above. The increase was partially
offset by unfavorable foreign currency translation effects due to the devaluation of both the Brazilian Real and
Chinese Renminbi against the U.S. Dollar.
International Segment net sales and Segment profit as a percentage of total consolidated amounts were 19.0% and
25.6%, respectively, for fiscal 2016, compared to 19.6% and 22.2%, respectively, for fiscal 2015.
37
Consolidated Selling, General & Administrative Expenses
The change in SG&A expenses is as follows:
SG&A expenses for fiscal 2015
Decrease in variable compensation
Decrease in non-cash compensation expenses
Decrease in depreciation and amortization expenses
Increase in consumer marketing and branding expenses
Decrease due to foreign currency translation and other net activity
SG&A expenses for fiscal 2016
$
$
49,672
(1,231)
(647)
(304)
888
(876)
47,502
Total SG&A expenses were lower versus the prior fiscal year, primarily attributable to (i) a decrease in variable
compensation expense due to a smaller pool of executive officers in fiscal 2016, (ii) a decrease in non-cash
compensation expense reflecting (a) lower expense for an unfunded supplemental retirement plan driven by lower
market performance for an equity index during fiscal 2016 and (b) a comparative decline in the quantity of stock
option awards vesting, (iii) a decrease in depreciation and amortization expenses due to lower amortization of
customer lists and (iv) a decrease due to the impact of foreign currency translation. These decreases were partially
offset by an increase in consumer marketing and branding expenses resulting from the timing and magnitude of
expenses for advertising and sponsorship agreements, primarily for REPREVE®.
Consolidated Provision for Bad Debts
Provision for bad debts increased from $947 for fiscal 2015 to $1,684 for fiscal 2016. The increase primarily reflects
a provision for a specific Polyester customer balance, for which UNIFI had determined a full recovery to be
unlikely.
Consolidated Other Operating Expense, Net
Other operating expense, net increased from $1,600 for fiscal 2015 to $2,248 for fiscal 2016.
The increase was driven by the incurrence of consulting and transition fees related to former executives of UNIFI
($1,293), partially offset by a year-over-year decrease in the net impact of asset disposals ($765). During fiscal
2015, Renewables recorded a loss on disposal of assets of $1,322 (before non-controlling interest) relating to certain
miscanthus grass which would not be used in the future. Also in fiscal 2015, UNIFI recognized a gain on sale of
assets of $630 relating to the sale of certain land and building assets historically utilized for warehousing in the
Polyester Segment.
38
Consolidated Interest Expense, Net
Interest expense, net decreased from $3,109 for fiscal 2015 to $2,918 for fiscal 2016, and reflected the following
components:
Interest and fees on ABL Facility
Other interest
Subtotal of interest on debt obligations
Amortization of debt financing fees
Mark-to-market adjustment for interest rate swap
Reclassification adjustment for interest rate swap
Interest capitalized to property, plant and equipment, net
Subtotal of other components of interest expense
Total interest expense
Interest income
Interest expense, net
For the Fiscal Year Ended
June 26, 2016
June 28, 2015
$
$
2,903 $
885
3,788
407
(20)
77
(724)
(260)
3,528
(610)
2,918 $
3,290
273
3,563
505
(83)
231
(191)
462
4,025
(916)
3,109
Interest and fees on the ABL Facility decreased in connection with a decline in the weighted average interest rate
from 2.8% to 2.3%, partially offset by $177 of fees incurred in fiscal 2016 in connection with the first annual
principal reset of the term loan.
The increase in other interest reflects an increase in the average capital lease obligation from $6,286 to $17,583.
UNIFI capitalized more interest in fiscal 2016, driven by increased capital expenditures, the majority of which relate
to the construction of a plastic bottle processing facility.
Interest income in each period includes earnings recognized on cash equivalents held globally. Interest income
decreased from fiscal 2015 due to a lower average balance of interest-bearing cash equivalents held by our Brazilian
subsidiary (where interest rates are highest among UNIFI’s subsidiaries) and changes in foreign currency translation
attributable to the devaluation of the Brazilian Real against the U.S. Dollar.
Loss on Extinguishment of Debt
UNIFI’s amendment of its credit facility during fiscal 2015 established substantially different terms for the term
loan portion of the facility (including the replacement of an existing lender), and led UNIFI to record a loss on
extinguishment of debt of $1,040 for the write-off of certain debt financing fees related to the previous credit
agreement.
Consolidated Earnings from Unconsolidated Affiliates
The components of earnings from unconsolidated affiliates are as follows:
Earnings from PAL
Earnings from nylon joint ventures
Total equity in earnings of unconsolidated affiliates
For the Fiscal Year Ended
June 26, 2016
June 28, 2015
$
$
(6,074) $
(2,889)
(8,963) $
(17,403)
(2,072)
(19,475)
As a percentage of consolidated income before income taxes
18.6%
36.2%
For fiscal 2016, PAL’s corresponding fiscal period consisted of 52 weeks. For fiscal 2015, PAL’s corresponding
fiscal period consisted of 53 weeks.
39
UNIFI’s 34% share of PAL’s earnings decreased from $17,403 in fiscal 2015 to $6,074 in fiscal 2016. The decrease
is primarily attributable to (i) two bargain purchase gains (combined total of approximately $14,000 for PAL, which
equates to approximately $4,700 for UNIFI) recognized in fiscal 2015 by PAL from the acquisitions of (a) a yarn
manufacturer based in Mexico for which PAL previously held a 50% ownership interest and (b) two cotton spinning
facilities in the United States, (ii) lower volumes related to domestic market weakness, (iii) higher start-up and
depreciation expenses in connection with recent expansions and (iv) lower operating margins primarily as a result of
competitive price pressure.
The remaining change in earnings from unconsolidated affiliates relates to improved combined operating results for
UNIFI’s two nylon extrusion joint ventures that supply POY to UNIFI’s Nylon Segment, resulting from lower raw
material costs.
Consolidated Income Taxes
The change in consolidated income taxes is as follows:
Income before income taxes
Provision for income taxes
Effective tax rate
For the Fiscal Year Ended
June 26, 2016
June 28, 2015
$
48,243
15,073
$
31.2%
53,812
13,346
24.8%
The effective tax rates for fiscal 2016 and 2015 were favorably impacted by, among other things (i) a lower overall
effective tax rate for UNIFI’s foreign earnings (reflecting free-trade zone sales in El Salvador and lower statutory
tax rates in both Brazil and China), (ii) net federal and state credits, (iii) a decrease in the valuation allowance
reflecting the recognition of lower taxable income versus book income for UNIFI’s investment in PAL (for which
UNIFI maintains a full valuation allowance) and (iv) the domestic production activities deduction. Such favorable
impacts to the fiscal 2016 and 2015 effective tax rates were partially offset by (a) an increase in the valuation
allowance for net operating losses, including Renewables, for which no tax benefit could be recognized, (b) state
and local taxes net of the assumed federal benefit and (c) a change in uncertain tax positions.
The effective tax rate increased from 24.8% in fiscal 2015 to 31.2% in fiscal 2016, primarily attributable to certain
impacts to the fiscal 2015 effective tax rate that were not components of the fiscal 2016 effective tax rate. In fiscal
2015, the effective tax rate was driven lower by (i) the reversal of the deferred tax liability reflecting UNIFI’s
indefinite reinvestment assertion at that time, generating a benefit of $7,639 and (ii) renewable energy tax credits of
$1,036 relating to the installation of a solar farm in Yadkinville, North Carolina. These benefits were partially offset
by the unfavorable impact of settling certain intercompany transactions involving UNIFI’s Brazilian subsidiary,
approximating $6,000.
Consolidated Net Income Attributable to Unifi, Inc.
Net Income for fiscal 2016 was $34,415, or $1.93 per basic share, compared to $42,151, or $2.32 per basic share, for
fiscal 2015. After considering the loss on extinguishment of debt of $1,040 recorded in fiscal 2015, the decrease in
Net Income is primarily attributable to (i) a decrease in earnings from PAL (as discussed above), (ii) a more
favorable effective tax rate in fiscal 2015, (iii) further unfavorable devaluation of the Brazilian Real versus the U.S.
Dollar and (iv) an increase in the provision for bad debts, partially offset by (a) an increase in gross profit, (b) a
decrease in SG&A expenses and (c) improved earnings from our nylon joint ventures.
40
Consolidated Adjusted EBITDA
From fiscal 2015 to fiscal 2016, Adjusted EBITDA increased from $59,610 to $65,357. As addressed above, the
improvement in gross profit was the primary driver for the increase in Adjusted EBITDA.
Liquidity and Capital Resources
UNIFI’s primary capital requirements are for working capital, capital expenditures, debt service and stock
repurchases. UNIFI’s primary sources of capital are cash generated from operations and borrowings available under
the ABL Revolver of its credit facility. For fiscal 2017, cash generated from operations was $46,062, and at June
25, 2017, excess availability under the ABL Revolver was $65,064.
As of June 25, 2017, all of UNIFI’s $129,468 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 such other subsidiaries may not be presently available to fund UNIFI’s domestic
capital requirements, including its domestic debt obligations. UNIFI employs a variety of tax planning and financing
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, liquidity, working capital and total debt obligations as of June 25,
2017 for domestic operations compared to foreign operations:
Cash and cash equivalents
Borrowings available under financing arrangements
Liquidity
Working capital
Total debt obligations
Domestic
Foreign
Total
18 $
65,064
65,082 $
35,407 $
—
35,407 $
35,425
65,064
100,489
78,799 $
129,468 $
88,784 $
— $
167,583
129,468
$
$
$
$
UNIFI received a $6,800 dividend distribution from PAL on June 28, 2017, subsequent to UNIFI’s fiscal 2017.
As of June 25, 2017, U.S. income taxes were not provided for a cumulative total of approximately $80,300 of
undistributed earnings and profits of UNIFI’s foreign subsidiaries as UNIFI currently intends to reinvest these
earnings in these foreign operations indefinitely. If at a later date, these earnings were repatriated to the United
States, UNIFI would be required to pay taxes on these amounts. Nevertheless, in future periods, UNIFI will
continue to assess the existing circumstances, including any changes in tax laws, and reevaluate the necessity for any
deferred tax liability. Determination of the amount of any deferred tax liability on these undistributed earnings is
not practicable.
41
Debt Obligations
The following table presents the total balances outstanding for UNIFI’s debt obligations, their scheduled maturity
dates and the weighted average interest rates for borrowings as well as the applicable current portion of long-term
debt:
ABL Revolver
ABL Term Loan (1)
Capital lease obligations
Construction financing
Renewables’ term loan
Renewables’ promissory note
Total debt
Current portion of capital lease obligations
Current portion of other long-term debt
Unamortized debt issuance costs
Total long-term debt
Scheduled
Maturity Date
March 2020
March 2020
(2)
(3)
—
—
$
Weighted Average
Interest Rate as of
June 25, 2017
2.8%
3.0%
3.8%
(3)
—
—
$
Principal Amounts as of
June 25, 2017
9,300 $
95,000
25,168
—
—
—
129,468
(7,060)
(10,000)
(1,026)
111,382 $
June 26, 2016
6,200
90,250
15,798
6,629
4,000
135
123,012
(4,261)
(9,525)
(1,421)
107,805
Includes the effects of interest rate swaps.
Scheduled maturity dates for capital lease obligations range from July 2018 to November 2027.
(1)
(2)
(3) Refer to the discussion below under the subheading “—Construction Financing” for further information.
ABL Facility
On March 26, 2015, Unifi, Inc. and its subsidiary, Unifi Manufacturing, Inc., entered into an Amended and Restated
Credit Agreement (as subsequently amended, the “Amended Credit Agreement”) for a $200,000 senior secured
credit facility (the “ABL Facility”) with a syndicate of lenders. The ABL Facility consists of a $100,000 revolving
credit facility (the “ABL Revolver”) and a term loan that can be reset up to a maximum amount of $100,000, once
per fiscal year, if certain conditions are met (the “ABL Term Loan”). Such principal increases occurred in both
November 2015 and November 2016 as discussed in further detail below. The ABL Facility has a maturity date of
March 26, 2020.
The Amended Credit Agreement replaced a previous senior secured credit facility dated May 24, 2012 with a similar
syndicate of lenders, which, after multiple amendments, would have matured on March 28, 2019 and consisted of a
$100,000 revolving credit facility and a $90,000 term loan. As used herein, the terms “ABL Facility,” “ABL
Revolver” and “ABL Term Loan” shall mean the senior secured credit facility, the revolving credit facility or the
term loan, respectively, under the Amended Credit Agreement or the previous senior secured credit facility, as
applicable.
The ABL Facility is secured by a first-priority perfected security interest in substantially all owned property and
assets (together with all proceeds and products) of Unifi, Inc., Unifi Manufacturing, Inc. and certain subsidiary
guarantors (the “Loan Parties”). It is also secured by a first-priority security interest in all (or 65% in the case of
certain first-tier controlled foreign corporations, as required by the lenders) of the stock of (or other ownership
interests in) each of the Loan Parties (other than UNIFI) and certain subsidiaries of the Loan Parties, together with
all proceeds and products thereof.
If excess availability under the ABL Revolver falls below the defined Trigger Level, a financial covenant requiring
the Loan Parties to maintain a fixed charge coverage ratio on a monthly basis of at least 1.05 to 1.00 becomes
effective. The Trigger Level as of June 25, 2017 was $24,375. In addition, the ABL Facility contains restrictions on
particular payments and investments, including certain restrictions on the payment of dividends and share
42
repurchases. Subject to specific provisions, the ABL Term Loan may be prepaid at par, in whole or in part, at any
time before the maturity date, at UNIFI’s discretion.
ABL Facility borrowings bear interest at the London Interbank Offer Rate (“LIBOR”) plus an applicable margin of
1.50% to 2.00%, or the Base Rate (as defined below) plus an applicable margin of 0.50% to 1.00%, with interest
currently being paid on a monthly basis. The applicable margin is based on (i) the excess availability under the ABL
Revolver and (ii) the consolidated leverage ratio, calculated as of the end of each fiscal quarter. The Base Rate
means the greater of (a) the prime lending rate as publicly announced from time to time by Wells Fargo, (b) the
Federal Funds Rate plus 0.5% and (c) LIBOR plus 1.0%. UNIFI’s ability to borrow under the ABL Revolver is
limited to a borrowing base equal to specified percentages of eligible accounts receivable and inventory and is
subject to certain conditions and limitations. There is also a monthly unused line fee under the ABL Revolver of
0.25%.
As of June 25, 2017, UNIFI was in compliance with all financial covenants and the excess availability under the
ABL Revolver was $65,064. At June 25, 2017, the fixed charge coverage ratio was 0.84 to 1.0 and UNIFI had $400
of standby letters of credit, none of which have been drawn upon.
Second Amendment
On November 19, 2015, UNIFI entered into the Second Amendment to Amended and Restated Credit Agreement
(the “Second Amendment”). The Second Amendment increased the percentage applied to real estate valuations, on a
one-time basis, from 60% to 75%, for purposes of calculating the ABL Term Loan collateral. Simultaneous to
entering into the Second Amendment, UNIFI entered into the Fourth Amended and Restated Term Note, thereby
resetting the ABL Term Loan balance to $95,000.
Capital Lease Obligations
During fiscal 2017, UNIFI recorded capital leases with an aggregate present value of $14,070, inclusive of the
reclassification activity described below under the subheading “—Construction Financing.” The weighted average
interest rate for these capital leases is 3.9%.
During fiscal 2016, UNIFI entered into capital leases with an aggregate present value of $4,154.
Construction Financing
During fiscal 2016, UNIFI entered into an agreement with a third-party lender that provided for construction-period
financing for certain build-to-suit assets. UNIFI recorded project costs to construction in progress and the
corresponding liability to construction financing (within long-term debt). As of June 26, 2016, the principal balance
of $6,629 included $790 of cash received by UNIFI and $5,839 for construction in progress paid by the third-party
lender.
During fiscal 2017, asset construction was completed and the project costs were reclassified from construction in
progress to capital lease assets. The principal balance of $13,725 was reclassified to capital lease obligations and
amortizes over a five-year period on a monthly basis through May 2022, with an interest rate of 3.8%.
Renewables’ Term Loan and Promissory Note
During the period that UNIFI held a controlling interest in Renewables, the joint venture borrowed $4,000 against a
term loan supplement to a master loan agreement and delivered a promissory note for $135, all in efforts to expand
operations and secure additional land. Such borrowings were outstanding at June 26, 2016. Upon the sale of its 60%
equity ownership interest in Renewables in December 2016, UNIFI deconsolidated the corresponding assets and
liabilities and, accordingly, the respective debt principal balances are appropriately excluded from UNIFI’s total
long-term debt as of June 25, 2017. UNIFI has no liability for such debt.
43
Scheduled Debt Maturities
The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the following five
fiscal years and thereafter:
ABL Revolver
ABL Term Loan
Capital lease obligations
Total
Fiscal 2018
—
$
10,000
7,060
17,060
$
Fiscal 2019
—
$
10,000
6,996
16,996
$
Fiscal 2020
9,300
$
75,000
5,519
89,819
$
Fiscal 2021
—
$
—
2,624
2,624
$
Fiscal 2022
—
$
—
2,418
2,418
$
Thereafter
—
$
—
551
551
$
Further discussion of the terms and conditions of the Amended Credit Agreement and the Company’s existing
indebtedness is outlined in Note 12, “Long-Term Debt,” to the accompanying consolidated financial statements.
Working Capital
The following table presents the components of working capital and the reconciliation from working capital to
Adjusted Working Capital:
Cash and cash equivalents
Receivables, net
Inventories
Other current assets
Accounts payable
Accrued expenses
Other current liabilities
Working capital
Less: Cash and cash equivalents
Less: Other current assets
Less: Other current liabilities
Adjusted Working Capital
June 25, 2017
June 26, 2016
35,425 $
81,121
111,405
15,686
(41,499)
(16,144)
(18,411)
167,583 $
(35,425)
(15,686)
18,411
134,883 $
16,646
83,422
103,532
8,292
(41,593)
(18,474)
(15,241)
136,584
(16,646)
(8,292)
15,241
126,887
$
$
$
Working capital increased from $136,584 as of June 26, 2016 to $167,583 as of June 25, 2017, while Adjusted
Working Capital increased from $126,887 to $134,883. Working capital and Adjusted Working Capital are within
the range of management’s expectations based on the composition of the underlying business and global structure.
The increase in cash and cash equivalents reflects the strong performance of our international subsidiaries and the
intent to leave cash available in foreign jurisdictions for future expansion. The decrease in receivables, net is
insignificant. The increase in inventories is attributable to higher inventory units during the start-up phase of our
REPREVE® Bottle Processing Center and sales growth from our international operations. The increase in other
current assets is primarily attributable to an increase in income taxes receivable due to lower income for UNIFI’s
domestic operations. The decrease in accounts payable is insignificant. The decrease in accrued expenses is
primarily attributable to the fiscal 2017 payment of amounts due to two former executives. The increase in other
current liabilities reflects the higher current portion of long-term debt, primarily attributable to new capital leases.
Capital Projects
During fiscal 2017, we invested approximately $40,000 in capital projects (including amounts funded by a
construction financing arrangement). The most significant investment was the completion of our REPREVE® Bottle
Processing Center at UNIFI’s existing facility in Reidsville, North Carolina. This bottle processing plant is expected
to process 75 million pounds of plastic bottle flake annually, in support of our growing focus on recycling and
sustainability, especially with the REPREVE® brand and its expanding portfolio. UNIFI also made investments
44
towards (i) completing the fourth REPREVE® Recycling Center production line, (ii) installing a bi-component
spinning line to produce high-value yarns and (iii) additional machinery modifications to meet the ever-changing
demands of the market, in support of the PVA product portfolio. These investments were primarily for the Polyester
Segment.
In fiscal 2016, we invested approximately $60,000 in capital projects, as we (i) neared completion of the bottle
processing plant at our existing facility in Reidsville, North Carolina, (ii) commenced an expansion of our
REPREVE® Recycling Center which will allow UNIFI to increase its annual production capacity above the current
72 million pounds, (iii) enhanced our automation systems in our Yadkinville, North Carolina POY facility to handle
the increasingly complex product mix, (iv) converted more machinery to accommodate smaller production runs, and
(v) further increased our air-jet texturing capacity to capture more market share through our position as the leading
technical and quality producer. These initiatives were designed to support our mix enrichment strategies, while also
improving our ability to service customers.
In fiscal 2018, UNIFI expects to invest an additional $35,000 in capital projects, which include (i) placing
equipment in Asia in support of our expanding product portfolio and growth opportunities in that region, (ii)
completing the fourth production line in the REPREVE® Recycling Center, (iii) making further improvements in
production capabilities and technology enhancements in the Americas and (iv) annual maintenance capital
expenditures. UNIFI will seek to ensure maintenance capital expenditures are sufficient to allow continued
production at high efficiencies.
The total amount ultimately invested for fiscal 2018 could be more or less depending on the timing and scale of
contemplated initiatives, and is expected to be funded by a combination of cash from operations and borrowings
under the ABL Revolver. UNIFI expects the recent capital projects to provide benefits to future profitability. The
additional assets from these capital projects consist primarily of machinery and equipment and building additions.
As a result of our continued focus on REPREVE® and other PVA yarns as part of our mix enrichment strategy, we
may incur additional expenditures for capital projects beyond the currently estimated amount, as we pursue new,
currently unanticipated, opportunities in order to expand our manufacturing capabilities for these products, for other
strategic growth initiatives or to further streamline our manufacturing process, in which case we may be required to
increase the amount of our working capital and long-term borrowings. If our strategy is successful, we would expect
higher gross profit as a result of the combination of potentially higher sales volumes and an improved mix from
higher-margin products.
Stock Repurchase Program
During fiscal 2014, UNIFI completed its repurchase of shares under its initial $50,000 stock repurchase program
that had been announced by UNIFI on January 22, 2013 (the “2013 SRP”). On April 23, 2014, UNIFI announced a
second stock repurchase program (the “2014 SRP”) to authorize UNIFI to acquire up to an additional $50,000 of its
common stock. Under the 2014 SRP (as was the case under the 2013 SRP), UNIFI is authorized to repurchase shares
at prevailing market prices, through open market purchases or privately negotiated transactions at such times and
prices and in such manner as determined by management, subject to market conditions, applicable legal
requirements, contractual obligations and other factors. Repurchases, if any, are expected to be financed through
cash generated from operations and borrowings under the ABL Revolver, and are subject to applicable limitations
and restrictions as set forth in the ABL Facility. The 2014 SRP has no stated expiration or termination date, and
there is no time limit or specific time frame otherwise for repurchases. UNIFI may discontinue repurchases at any
time that management determines additional purchases are not beneficial or advisable.
UNIFI made no share repurchases during fiscal 2017, and repurchased a total of 206 shares during fiscal 2016 at an
average price of $30.13. As of June 25, 2017, UNIFI had repurchased a total of 3,147 shares, at an average price of
$23.01 (for a total of $72,438 inclusive of commission costs) pursuant to its two Board-approved stock repurchase
programs. $27,603 remained available for share repurchases as of June 25, 2017.
45
Liquidity Summary
UNIFI has met its historical liquidity requirements for working capital, capital expenditures, debt service requirements
and other operating needs from its cash flows from operations and available borrowings. UNIFI believes that its
existing cash balances, cash provided by operating activities, and borrowings available under the ABL Revolver will
enable UNIFI to comply with the terms of its indebtedness and meet its foreseeable liquidity requirements.
Domestically, UNIFI’s cash balances, cash provided by operating activities and borrowings available under the ABL
Revolver continue to be sufficient to fund UNIFI’s domestic operating activities as well as cash commitments for its
investing and financing activities. For its existing foreign operations, UNIFI expects its existing cash balances and cash
provided by operating activities will provide the needed liquidity to fund its foreign operating activities and any foreign
investing activities, such as future capital expenditures. However, expansion of our foreign operations may require cash
sourced from our domestic subsidiaries.
Cash Provided by Operating Activities
The significant components of net cash provided by operating activities are summarized below. UNIFI analyzes net
cash provided by operating activities utilizing the major components of the statements of cash flows prepared under
the indirect method.
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
Net income including non-controlling interest
Depreciation and amortization expense
Loss on sale of business
Loss on extinguishment of debt
Equity in earnings of unconsolidated affiliates
Subtotal
Distributions received from unconsolidated affiliates
Deferred income taxes
Other changes
Net cash provided by operating activities
Fiscal 2017 Compared to Fiscal 2016
$
$
32,377 $
20,368
1,662
—
(4,230)
50,177
2,322
6,886
(13,323)
46,062 $
33,170 $
17,528
—
—
(8,963)
41,735
4,732
5,983
3,525
55,975 $
June 28, 2015
40,466
18,043
—
1,040
(19,475)
40,074
3,718
(3,796)
(1,093)
38,903
The decrease in net cash provided by operating activities from fiscal 2016 to fiscal 2017 is primarily due to an
increase in working capital in fiscal 2017, as indicated in the Other changes above. Such increase in working capital
is primarily attributable to an increase in inventories due to comparatively higher international sales and an increase
in income taxes receivable. Also, as PAL’s performance is comparatively weaker, routine tax distributions received
by the Company have declined accordingly by approximately $2,400.
These decreases were partially offset by higher earnings of $50,177 in fiscal 2017 versus $41,735 in fiscal 2016 (as
indicated in the Subtotal above which reconciles for changes in the listed non-cash activity).
Fiscal 2016 Compared to Fiscal 2015
The increase in net cash provided by operating activities from fiscal 2015 to fiscal 2016 is primarily attributable to
significantly lower taxes paid of approximately $7,000 in fiscal 2016 (due, in large part, to the favorable
depreciation provisions of the PATH Act of 2015, enacted in December 2015). Further, earnings were
approximately $1,700 higher than the prior period (noted via the Subtotal above). Such favorability is primarily
attributable to improved gross profits in fiscal 2016, along with lower SG&A expenses.
Additionally, other changes in assets and liabilities grew favorably, primarily attributable to a favorable change in
inventories for fiscal 2016, reflecting lower raw material prices, whereas fiscal 2015 was impacted by a build of raw
material inventories in support of expanded recycling activities. However, fiscal 2016 was unfavorably impacted by
lower customer receipts during June 2016 compared to June 2015.
46
Cash Used in Investing Activities and Financing Activities
Fiscal 2017
UNIFI utilized $33,382 for net investing activities and was provided $6,504 from net financing activities during
fiscal 2017. Significant investing activities include $33,190 for capital expenditures, which primarily relate to the
addition of machinery, equipment and infrastructure for UNIFI’s REPREVE® Bottle Processing Center at our
existing facility in Reidsville, North Carolina, which started production in August 2016, along with other capital
expenditures to improve UNIFI’s manufacturing flexibility and capability to produce PVA products and to increase
the capacity of our REPREVE® Recycling Center.
Significant financing activities include $7,850 for net borrowings against the ABL Facility and $4,700 for payments
on capital lease obligations, partially offset by $2,787 of proceeds from stock option exercises.
Fiscal 2016
UNIFI utilized $52,892 for net investing activities and was provided $3,642 from net financing activities during
fiscal 2016. Significant investing activities include $52,337 for capital expenditures, which primarily relate to the
addition of machinery, equipment and infrastructure for UNIFI’s new plastic bottle processing plant at our existing
facility in Reidsville, North Carolina, along with other capital expenditures to improve UNIFI’s manufacturing
flexibility and capability to produce PVA products and to increase the capacity of our REPREVE® Recycling
Center.
Significant financing activities include (i) $9,325 for net borrowings against the ABL Facility and (ii) $4,000
borrowed against a term loan supplement, partially offset by (a) $4,090 for payments on capital lease obligations and
(b) $6,211 for stock repurchases.
Fiscal 2015
UNIFI utilized $22,541 for net investing activities and $18,190 for net financing activities during fiscal 2015.
Significant investing activities include $25,966 for capital expenditures, which primarily relate to (i) improving
UNIFI’s manufacturing flexibility and capability to produce PVA products, (ii) increasing the capacity of our
REPREVE® Recycling Center and (iii) adding to the capacity, flexibility and efficiency of UNIFI’s facilities in
Yadkinville and Madison, North Carolina and El Salvador through the addition of texturing machines.
Significant financing activities include net repayments of $6,875 on the ABL Facility and $10,360 for stock
repurchases.
47
Contractual Obligations
As of June 25, 2017, UNIFI’s contractual obligations consisted of the following:
Description of Commitment
ABL Revolver
ABL Term Loan
Capital lease obligations
Contingent consideration (1)
Other long-term obligations (2)
Subtotal
Interest on long-term debt and other obligations (3)
Operating leases
Capital purchase obligations (4)
Purchase obligations
(5)
Total cash payments by period
Cash Payments Due By Period
Total
Less Than
1 Year
1-3 Years 3-5 Years
More Than
5 Years
$
9,300 $
95,000
25,168
925
3,500
— $
10,000
7,060
445
235
9,300 $
85,000
12,515
480
121
$ 133,893 $ 17,740 $ 107,416 $
5,656
2,961
—
14,886
$ 185,870 $ 43,773 $ 130,919 $
4,249
2,088
5,501
14,195
10,222
6,371
5,501
29,883
— $
—
5,042
—
62
5,104 $
243
1,322
—
373
7,042 $
—
—
551
—
3,082
3,633
74
—
—
429
4,136
(1) Contingent consideration payments are reflected at present value based on the expected future payments used
in the underlying fair value determination.
(2) Other long-term obligations do not include an estimate of the timing of potential tax payments related to
(3)
uncertain tax positions; therefore, $5,077 has been excluded from the table above.
Interest payments on variable-rate debt instruments are calculated for future periods using interest rates and
terms in effect at June 25, 2017.
(4) Capital purchase obligations relate to contracts with vendors for the construction of assets.
(5)
Purchase obligations primarily consist of utility, software and other service agreements.
For purposes of the above table, purchase obligations are defined as agreements that are enforceable and legally
binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed,
minimum or variable price provisions; and the approximate timing of the transaction.
As of June 25, 2017, UNIFI’s open purchase orders totaled approximately $33,000 and were expected to be settled
in fiscal 2018. These open purchase orders are in the ordinary course of business for the procurement of (i) raw
materials used in the production of inventory, (ii) certain consumables and outsourced services used in UNIFI’s
manufacturing processes and (iii) selected finished goods for resale sourced from third-party suppliers.
As of June 25, 2017, UNIFI had $400 of standby letters of credit, none of which have been drawn upon.
Recent Accounting Pronouncements
Issued and Pending Adoption
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued new accounting guidance for the
recognition of revenue from contracts with customers. Subsequent Accounting Standards Updates (“ASUs”) have
been issued to provide clarity and defer the effective date. The new revenue recognition standard eliminates the
transaction- and industry-specific revenue recognition guidance under current GAAP and replaces it with a
principles-based approach. While UNIFI has not yet determined the effect of the new guidance on its ongoing
financial reporting, UNIFI notes the following considerations: (i) the Company is primarily engaged in the business
of manufacturing and delivering tangible products utilizing relatively straightforward contract terms without
multiple performance obligations and (ii) transaction prices for UNIFI’s primary and material revenue activities are
determinable and lack significant timing considerations. UNIFI is currently performing the following activities
regarding implementation: (a) reviewing material contracts and (b) assessing accounting policy elections and
disclosures under the new guidance. In addition, implementation matters remaining include (x) evaluating the
systems and processes to support revenue recognition and (y) selecting the method of adoption. The new revenue
recognition guidance is effective for the Company’s fiscal 2019.
48
In July 2015, the FASB issued ASU 2015-11, Inventory, which modifies the subsequent measurement of inventories
recorded under a first-in, first-out or average cost method. Under the new standard, such inventories are required to
be measured at the lower of cost and net realizable value. The new standard is effective for UNIFI’s fiscal 2018,
with prospective application. UNIFI’s existing principles for inventory measurement include consideration of net
realizable value and, therefore, adoption is expected to have no significant impact to UNIFI’s consolidated financial
statements.
In February 2016, the FASB issued new accounting guidance for leases. The new guidance is intended to increase
transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance
sheet and disclosing key information about leasing arrangements. While UNIFI has not yet determined the full effect
of the new guidance on its ongoing financial reporting, as of June 25, 2017, UNIFI had approximately $6,400 of
future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in
excess of one year). The ASU is effective for UNIFI’s fiscal 2020, and early adoption is permitted.
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting. The ASU includes multiple provisions intended to simplify various
aspects of the accounting for share-based payments, while reducing cost and complexity. The ASU is effective for
UNIFI’s fiscal 2018. UNIFI expects this guidance to impact the provision for income taxes in future periods, but the
timing and magnitude of such impact is not estimable.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities. The ASU is intended to improve and simplify accounting rules around hedge
accounting. The ASU is effective for UNIFI’s fiscal 2020 and early adoption is permitted. UNIFI is evaluating the
effect the new guidance will have on its consolidated financial statements and related disclosures.
Recently Adopted
In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest, which requires that debt issuance
costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying
amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance of debt
issuance costs are not affected by the amendments in this update. In fiscal 2017, UNIFI adopted this guidance on a
retrospective basis, restating the corresponding line items of the consolidated balance sheets.
In April 2015, the FASB issued ASU 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, providing criteria for
determining if a license of software, as part of a cloud services arrangement, is subject to capitalization under the
existing guidance for internal-use software. UNIFI adopted the guidance in fiscal 2017 and there was no significant
impact to UNIFI’s consolidated financial statements.
There have been no other newly issued or newly applicable accounting pronouncements that have had, or are
expected to have, a significant impact on UNIFI’s consolidated financial statements.
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.
49
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. The SEC has
defined a company’s most critical accounting policies as those involving accounting estimates that require
management to make assumptions about matters that are highly uncertain at the time and where different reasonable
estimates or changes in the accounting estimate from quarter to quarter could materially impact the presentation of
the financial statements. The following discussion provides further information about accounting policies critical to
UNIFI and should be read in conjunction with Note 2, “Summary of Significant Accounting Policies,” to the
accompanying consolidated financial statements.
Receivables Reserves
An allowance for losses is provided for known and potential losses arising from yarn quality claims and for amounts
owed by customers. Reserves for yarn quality claims are based on historical claim experience and known pending
claims. The collectability of accounts receivable is based on a combination of factors, including the aging of
accounts, historical write off experience, present economic conditions such as customer bankruptcy filings, and the
financial health of specific customers and market sectors. Since losses depend to a large degree on future economic
conditions and the health of the textile industry, a significant level of judgment is required to arrive at the allowance
for uncollectible accounts. This allowance is established based on percentages applied to accounts aged for set
periods of time, supplemented by reserves for individual customer accounts where collection is no longer certain.
Establishing reserves for yarn claims and uncollectible accounts requires management judgment and estimates.
UNIFI does not believe there is a reasonable likelihood that there will be a material change in the estimates and
assumptions it uses to assess the allowance for losses. However, certain unexpected events such as a customer
bankruptcy filing could have a material impact on UNIFI’s results of operations. UNIFI has not made any material
changes to the methodology used in establishing its accounts receivable loss reserves during the past three fiscal
years. A plus or minus 10% change in the aged accounts receivable reserve percentages would not have been
material to UNIFI’s consolidated financial statements for the past three fiscal years.
Inventory Reserves
Inventory reserves are established based on many factors, including historical recovery rates, the aging of
inventories on-hand, inventory movement and expected net realizable value of specific products, and current
economic conditions. Specific reserves are established based on a determination of the obsolescence of the
inventory and whether the inventory value exceeds amounts to be recovered through expected sales prices less
selling costs. Estimating sales prices and evaluating the condition of the inventories require judgment and estimates,
which may impact the ending inventory valuation and gross margins. UNIFI uses current and historical knowledge
to record reasonable estimates of its markdown percentages and expected sales prices. UNIFI believes it is unlikely
that differences in actual demand or selling prices from those projected by management would have a material
impact on UNIFI’s financial condition or results of operations. UNIFI has not made any material changes to the
methodology used in establishing its inventory loss reserves during the past three fiscal years. A plus or minus 10%
change in its aged inventory reserves would not have been material to UNIFI’s consolidated financial statements for
the past three fiscal years.
50
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. For assets held for sale, an impairment charge is recognized if the carrying
value of the assets exceeds the fair value less costs to sell. Estimates are required to determine the fair value, the
disposal costs and the time period to dispose of the assets. Such estimates are critical in determining whether any
impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be
necessary. For assets held and used, impairment may occur if projected undiscounted cash flows are not adequate to
cover the carrying value of the assets. In such cases, additional analysis is conducted to determine the amount of
loss to be recognized, and the impairment loss is determined as the amount the carrying value of the asset or asset
group exceeds the estimated fair value, measured by future discounted cash flows. The analysis requires estimates
of the amount and timing of projected cash flows and, where applicable, judgment associated with, among other
factors, the appropriate discount rate. Such estimates are critical in determining whether any impairment charge
should be recorded and the amount of such charge if an impairment loss is deemed to be necessary. UNIFI’s
judgment regarding the existence of circumstances that indicate the potential impairment of an asset’s carrying value
is based on several factors, including, but not limited to, changes in business environment, a decline in operating
cash flows or a decision to close a manufacturing facility. The variability of these factors depends on a number of
conditions, including uncertainty about future events and general economic conditions.
Impairment of Investments in Unconsolidated Affiliates
UNIFI evaluates its investments in unconsolidated affiliates whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. UNIFI evaluates the ability of an affiliate to generate sufficient
earnings and cash flows to justify its carrying value. Reductions in an affiliate’s cash flows that are other than
temporary and indicative of a loss of investment value are assessed for impairment purposes. For fiscal 2017,
UNIFI determined there were no “other-than-temporary” impairments related to the carrying value of its
investments in unconsolidated affiliates.
Valuation Allowance for Deferred Tax Assets
UNIFI currently has a valuation allowance against certain of its deferred tax assets in the United States and foreign
subsidiaries due to negative evidence concerning the realization of those deferred tax assets. The deferred tax
valuation allowance at June 25, 2017 was $17,957.
In assessing the realization of deferred tax assets, management considers whether it is more-likely-than-not that
some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income of the appropriate character during the periods in which
those temporary differences reverse. Management considers the scheduled reversal of taxable temporary differences,
taxable income in carryback periods, projected future taxable income and tax planning strategies in making this
assessment. UNIFI reviews its estimates of future taxable income on a quarterly basis to assess if the need for a
valuation allowance exists. UNIFI continually evaluates both positive and negative evidence to determine whether
and when the valuation allowance, or a portion thereof, should be released. A release of the valuation allowance
could have a material effect on earnings in the period of release.
Item 7A.
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 June 25, 2017, UNIFI had borrowings
under its ABL Revolver and ABL Term Loan that totaled $104,300 and contain variable rates of interest; however,
UNIFI hedges a significant portion of such interest rate variability using interest rate swaps. As of June 25, 2017, after
51
considering the variable rate debt obligations that have been hedged and UNIFI’s outstanding debt obligations with
fixed rates of interest, UNIFI’s sensitivity analysis shows that a 50-basis point increase in LIBOR as of June 25, 2017
would result in an increase in annual interest expense of less than $300.
Foreign Currency Exchange Rate Risk
UNIFI conducts its business in various foreign countries and in various foreign currencies. Each of UNIFI’s
subsidiaries may enter into transactions (sales, purchases, fixed purchase commitments, etc.) that are denominated in
currencies other than the subsidiary’s functional currency and thereby expose UNIFI to foreign currency exchange
risk. UNIFI may enter into foreign currency forward contracts to hedge this exposure. UNIFI may also enter into
foreign currency forward contracts to hedge its exposure for certain equipment or inventory purchase commitments.
As of June 25, 2017, UNIFI had no outstanding foreign forward currency contracts.
A significant portion of raw materials purchased by UNIFI’s Brazilian subsidiary are denominated in U.S. Dollars,
requiring UNIFI to regularly exchange Brazilian Real. During recent fiscal years, UNIFI was negatively impacted
by a devaluation of the Brazilian Real. For fiscal 2015, the Brazilian Real declined approximately 40% in relation to
the U.S. Dollar, thereby reducing the utility of cash and cash equivalents held by UNIFI’s Brazilian subsidiary.
Discussion and analysis surrounding the impact of fluctuations of the Brazilian Real on UNIFI’s results of
operations is included above in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.”
As of June 25, 2017, UNIFI’s subsidiaries outside the United States, whose functional currency is other than the
U.S. Dollar, held approximately 14.6% of UNIFI’s consolidated total assets. UNIFI does not enter into foreign
currency derivatives to hedge its net investment in its foreign operations.
As of June 25, 2017, $28,683, or 81.0%, of UNIFI’s cash and cash equivalents were held outside the United States,
of which approximately $23,829 were held in U.S. Dollar equivalents.
More information regarding UNIFI’s derivative financial instruments as of June 25, 2017 is provided in Note 18,
“Fair Value of Financial Instruments and Non-Financial Assets and Liabilities,” to the accompanying consolidated
financial statements.
Raw Material and Commodity Cost Risks
A significant portion of UNIFI’s raw materials and energy costs are derived from petroleum-based chemicals. The
prices for petroleum and petroleum-related products and energy costs are volatile and dependent on global supply
and demand dynamics, including certain geo-political risks. UNIFI does not use financial instruments to hedge its
exposure to changes in these costs. The costs of the primary raw materials that UNIFI uses throughout all of its
operations are generally based on U.S. Dollar pricing, and such materials are purchased at market or at fixed prices
that are established with individual vendors as part of the purchasing process for quantities expected to be consumed
in the ordinary course of business.
Other Risks
UNIFI is also exposed to political risk, including changing laws and regulations governing international trade, such
as quotas, tariffs and tax laws. The degree of impact and the frequency of these events cannot be predicted.
Item 8.
Financial Statements and Supplementary Data
Our consolidated financial statements and the related notes begin on page F-i herein.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
52
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of June 25, 2017, 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 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.
Management’s Annual Report on Internal Control Over Financial Reporting
Management of UNIFI is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act). UNIFI’s internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. UNIFI’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of UNIFI; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of UNIFI are being made only in accordance with authorizations of
management and directors of UNIFI; and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of UNIFI’s assets that could have a material effect on the
consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Management, under the supervision and with the participation of the principal executive officer and principal
financial officer, assessed the effectiveness of UNIFI’s internal control over financial reporting as of June 25, 2017,
based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework (2013). Based on that assessment, management concluded that,
as of June 25, 2017, UNIFI’s internal control over financial reporting was effective based on the criteria established
in Internal Control-Integrated Framework (2013).
Attestation Report of the Independent Registered Public Accounting Firm
The effectiveness of UNIFI’s internal control over financial reporting as of June 25, 2017 has been audited by
KPMG LLP (“KPMG”), an independent registered public accounting firm. KPMG’s report, which appears in “Item
8. Financial Statements and Supplementary Data,” expresses an unqualified opinion on the effectiveness of UNIFI’s
internal control over financial reporting as of June 25, 2017.
Changes in Internal Control Over Financial Reporting
During UNIFI’s fourth quarter of fiscal 2017, there has been no change in UNIFI’s internal controls over financial
reporting that has materially affected, or is reasonably likely to materially affect, UNIFI’s internal controls over
financial reporting.
53
Item 9B.
Other Information
None.
54
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
UNIFI will file with the SEC a definitive proxy statement for its 2017 annual meeting of shareholders (the “Proxy
Statement”) no later than 120 days after the close of its fiscal year ended June 25, 2017. The information required
by this item and not given in this item is furnished by incorporation by reference to the information under the
headings “Election of Directors,” “Corporate Governance,” “Executive Officers” and “Section 16(a) Beneficial
Ownership Reporting Compliance” in the Proxy Statement.
We have adopted a written Code of Business Conduct and Ethics (the “Code of Ethics”), which is intended to
qualify as a “code of ethics” within the meaning of Item 406 of Regulation S-K of the Exchange Act. The Code of
Ethics applies to our directors and executive officers, including our principal executive officer, principal financial
officer, principal accounting officer and persons performing similar functions. The Code of Ethics is available on
our website at www.unifi.com. A copy of the Code of Ethics may also be obtained without charge to any person,
upon request, by writing to Unifi, Inc., 7201 West Friendly Avenue, Greensboro, North Carolina 27410, Attention:
Office of the Secretary.
We will disclose information pertaining to any amendment to, or waiver from, the provisions of the Code of Ethics
that apply to our principal executive officer, principal financial officer, principal accounting officer or persons
performing similar functions and that relate to any element of the Code of Ethics enumerated in the SEC rules and
regulations by posting this information on our website at www.unifi.com. The information on our website is not a
part of this Annual Report and is not incorporated by reference in this Annual Report or any of our other filings with
the SEC.
Our executive officers and their respective principal occupation or employment are as follows: Kevin D. Hall
(Chief Executive Officer); Thomas H. Caudle, Jr. (President and Chief Operating Officer); Richard E. Gerstein
(Executive Vice President, Global Branded Premium Value-Added Products and Chief Marketing Officer); John
Vegas (Executive Vice President, Global Chief Human Resources Officer); Mark A. McNeill (Executive Vice
President, Global Innovation); and Christopher A. Smosna (Vice President and Treasurer, and Interim Chief
Financial Officer).
Our non-employee directors and their respective principal occupation or employment are as follows: Robert J.
Bishop (Managing Principal, Impala Asset Management LLC, a private investment management company); Paul R.
Charron (Independent Management Consultant); Archibald Cox, Jr. (Chairman, Sextant Group, Inc., a financial
advisory and private equity firm); James M. Kilts (Founding Partner, Centerview Capital, a private equity firm);
Kenneth G. Langone (President and Chief Executive Officer, Invemed Associates LLC, an investment banking
firm); James D. Mead (President, James Mead & Company, a Connecticut-based executive search and management
consulting firm); and Suzanne M. Present (Principal, Gladwyne Partners, LLC, a private partnership fund manager).
Item 11.
Executive Compensation
The information required by this Item will appear under the headings “Director Compensation,” “Compensation
Discussion and Analysis,” “Executive Compensation Tables,” “Compensation Committee Interlocks and Insider
Participation” and “Compensation Committee Report” in the Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item will appear under the headings “Security Ownership of Certain Beneficial
Owners and Management” and “Equity Compensation Plan Information” in the Proxy Statement.
55
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item is furnished by incorporation by reference to the information under the
headings “Corporate Governance—Director Independence” and “Corporate Governance—Related Person
Transactions” in the Proxy Statement.
Item 14.
Principal Accountant Fees and Services
The information required by this item is furnished by incorporation by reference to the information under the
heading “Ratification of the Appointment of Independent Registered Public Accounting Firm” in the Proxy
Statement.
56
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) 1. Financial Statements
The financial statements and schedules listed in the accompanying Index to Consolidated Financial Statements
on page F-i are filed as part of this Annual Report.
2. Financial Statement Schedules
PAL is an unconsolidated joint venture in which UNIFI holds a 34% equity ownership interest and met the
significant subsidiary test for UNIFI’s fiscal years ended June 25, 2017, June 26, 2016 and June 28, 2015.
Accordingly, pursuant to Rule 3-09(b)(2) of Regulation S-X under the Exchange Act, UNIFI will file the
required financial statements and related notes of PAL via an amendment to this Annual Report. PAL’s
current fiscal year end is December 30, 2017, which is more than 90 days after UNIFI’s corresponding fiscal
year end, June 25, 2017. PAL’s financial statements as of December 30, 2017 and December 31, 2016 and for
the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016 will be filed on or before
March 30, 2018.
PAL’s prior fiscal year end was December 31, 2016, which was more than 90 days after UNIFI’s
corresponding fiscal year, which ended June 26, 2016. Accordingly, pursuant to Rule 3-09(b)(2) of Regulation
S-X under the Exchange Act, UNIFI filed the required financial statements and related notes of PAL on
March 29, 2017 via an amendment to UNIFI’s Annual Report on Form 10-K for the fiscal year ended June 26,
2016.
57
3. Exhibits
Exhibit
Number
Description
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1*
10.2*
10.3*
10.4*
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)).
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)).
Registration Rights Agreement, dated as of January 1, 2007, by and between Unifi, Inc. and Dillon Yarn
Corporation (incorporated by reference to Exhibit 7.1 to the Schedule 13D filed January 16, 2007 by
Dillon Yarn Corporation (File No. 005-30881)).
Amended and Restated Credit Agreement, dated as of March 26, 2015, by and among Unifi, Inc. and
certain of its domestic subsidiaries, as borrowers, Wells Fargo Bank, National Association, as
administrative agent, sole lead arranger and sole book runner, and the lenders party thereto (incorporated
by reference to Exhibit 4.1 to the Current Report on Form 8-K filed March 31, 2015 (File No. 001-
10542)).
First Amendment to Amended and Restated Credit Agreement, dated as of June 26, 2015, by and among
Unifi, Inc. and Unifi Manufacturing, Inc., as borrowers, Wells Fargo Bank, National Association, as
administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 4.1 to the
Current Report on Form 8-K filed June 30, 2015 (File No. 001-10542)).
Second Amendment to Amended and Restated Credit Agreement, dated as of November 19, 2015, by
and among Unifi, Inc. and Unifi Manufacturing, Inc., as borrowers, Wells Fargo Bank, National
Association, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit
4.1 to the Current Report on Form 8-K filed November 23, 2015 (File No. 001-10542)).
Amended and Restated Guaranty and Security Agreement, dated as of March 26, 2015, by and among
the grantors from time to time party thereto and Wells Fargo Bank, National Association, as
administrative agent (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed
March 31, 2015 (File No. 001-10542)).
First Amendment to Amended and Restated Guaranty and Security Agreement, dated as of June 26,
2015, by and among the grantors from time to time party thereto and Wells Fargo Bank, National
Association, as administrative agent (incorporated by reference to Exhibit 4.2 to the Current Report on
Form 8-K filed June 30, 2015 (File No. 001-10542)).
Trademark Security Agreement, dated as of May 24, 2012, by and among the grantors party thereto and
Wells Fargo Bank, N.A., as agent (incorporated by reference to Exhibit 4.3 to the Current Report on
Form 8-K filed May 25, 2012 (File No. 001-10542)).
Patent Security Agreement, dated as of May 24, 2012, by and among the grantors party thereto and
Wells Fargo Bank, N.A., as agent (incorporated by reference to Exhibit 4.4 to the Current Report on
Form 8-K filed May 25, 2012 (File No. 001-10542)).
1999 Unifi, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 99.1 to the Registration
Statement on Form S-8 filed August 7, 2000 (File No. 333-43158)).
Form of Incentive Stock Option Agreement for Employees for use in connection with the 1999 Unifi,
Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Current Report on Form
8-K filed July 31, 2006 (File No. 001-10542)).
2008 Unifi, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 99.1 to the Registration
Statement on Form S-8 filed December 12, 2008 (File No. 333-156090)).
Form of Incentive Stock Option Agreement for Employees for use in connection with the 2008 Unifi,
Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Quarterly Report on
Form 10-Q for the quarter ended December 28, 2008 (File No. 001-10542)).
58
Exhibit
Number
10.5*
10.6*
10.7*
10.8*
10.9*
Description
Form of Restricted Stock Unit Agreement for Non-Employee Directors for use in connection with the
2008 Unifi, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q for the quarter ended December 26, 2010 (File No. 001-10542)).
Form of Restricted Stock Unit Agreement for Employees for use in connection with the 2008 Unifi, Inc.
Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q for the quarter ended September 25, 2011 (File No. 001-10542)).
Unifi, Inc. 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed October 23, 2013 (File No. 001-10542)).
Form of Restricted Stock Unit Agreement for Non-Employee Directors for use in connection with the
Unifi, Inc. 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K filed October 23, 2013 (File No. 001-10542)).
Form of Restricted Stock Unit Agreement for Employees for use in connection with the Unifi, Inc. 2013
Incentive Compensation Plan (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form
10-Q for the quarter ended December 29, 2013 (File No. 001-10542)).
10.10* Form of Incentive Stock Option Agreement for Employees for use in connection with the Unifi, Inc.
2013 Incentive Compensation Plan (used for agreements entered into prior to March 26, 2017)
(incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended
December 29, 2013 (File No. 001-10542)).
10.11* Form of Incentive Stock Option Agreement for Employees for use in connection with the Unifi, Inc.
2013 Incentive Compensation Plan (used for agreements entered into on or after March 26, 2017)
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended
March 26, 2017 (File No. 001-10542)).
10.12* Unifi, Inc. Supplemental Key Employee Retirement Plan (incorporated by reference to Exhibit 10.4 to
the Current Report on Form 8-K filed July 31, 2006 (File No. 001-10542)).
10.13* Amendment to Unifi, Inc. Supplemental Key Employee Retirement Plan (incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed January 6, 2009 (File No. 001-10542)).
10.14* Unifi, Inc. Director Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q for the quarter ended December 26, 2010 (File No. 001-10542)).
10.15* Unifi, Inc. Director Compensation Policy (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed October 31, 2016 (File No. 001-10542)).
10.16* Change in Control Agreement by and between Unifi, Inc. and Thomas H. Caudle, Jr., effective as of
August 14, 2009 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed
August 18, 2009 (File No. 001-10542)).
10.17* Amendment No. 1 to Change in Control Agreement by and between Unifi, Inc. and Thomas H. Caudle,
Jr., effective as of December 31, 2011 (incorporated by reference to Exhibit 10.3 to the Current Report
on Form 8-K filed January 5, 2012 (File No. 001-10542)).
10.18* Amendment No. 2 to Change in Control Agreement by and between Unifi, Inc. and Thomas H. Caudle,
Jr., effective as of December 31, 2014 (incorporated by reference to Exhibit 10.3 to the Current Report
on Form 8-K filed December 1, 2014 (File No. 001-10542)).
10.19* Consulting Agreement by and between Unifi, Inc. and William L. Jasper, dated as of April 27, 2016
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed April 28, 2016 (File
No. 001-10542)).
59
Exhibit
Number
Description
10.20* Letter Agreement by and between Unifi, Inc. and Sean D. Goodman, dated as of October 22, 2015
(incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K for the fiscal year ended
June 26, 2016 (File No. 001-10542)).
10.21* Employment Agreement by and between Unifi, Inc. and Kevin D. Hall, effective as of May 3, 2017
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed May 4, 2017 (File
No. 001-10542)).
10.22* Amendment No. 1 to Employment Agreement by and between Unifi, Inc. and Kevin D. Hall, effective
as of May 19, 2017 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K/A
filed May 19, 2017 (File No. 001-10542)).
10.23+* Employment Agreement by and between Unifi, Inc. and John D. Vegas, effective as of July 17, 2017.
10.24+* Employment Agreement by and between Unifi, Inc. and Richard Gerstein, effective as of July 28, 2017.
10.25
10.26
10.27
10.28
10.29
10.30
10.31
21.1+
23.1+
31.1+
31.2+
Sales and Services Agreement, dated as of January 1, 2007, by and between Unifi Manufacturing, Inc.
and Dillon Yarn Corporation (incorporated by reference to Exhibit 99.1 to the Registration Statement on
Form S-3 filed February 9, 2007 (File No. 333-140580)).
First Amendment to Sales and Services Agreement, effective as of January 1, 2009, by and between
Unifi Manufacturing, Inc. and Dillon Yarn Corporation (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K filed December 3, 2008 (File No. 001-10542)).
Second Amendment to Sales and Services Agreement, effective as of January 1, 2010, by and between
Unifi Manufacturing, Inc. and Dillon Yarn Corporation (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K filed December 11, 2009 (File No. 001-10542)).
Third Amendment to Sales and Services Agreement, effective as of January 1, 2011, by and between
Unifi Manufacturing, Inc. and Dillon Yarn Corporation (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K filed December 22, 2010 (File No. 001-10542)).
Fourth Amendment to Sales and Services Agreement, effective as of January 1, 2012, by and between
Unifi Manufacturing, Inc. and Dillon Yarn Corporation (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K filed December 20, 2011 (File No. 001-10542)).
Yarn Purchase Agreement, effective as of September 1, 2014, by and between Unifi Manufacturing, Inc.
and Hanesbrands Inc. (incorporated by reference to Exhibit 10.35 to the Annual Report on Form 10-K
for the fiscal year ended June 29, 2014 (File No. 001-10542)).
Deposit Account Control Agreement, dated as of May 24, 2012, by and among Unifi Manufacturing,
Inc., Wells Fargo Bank, N.A. and Bank of America, N.A. (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K filed May 25, 2012 (File No. 001-10542)).
List of Subsidiaries of Unifi, Inc.
Consent of KPMG LLP.
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.
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1++ Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2++ Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
60
Exhibit
Number
101+
Description
The following financial information from Unifi, Inc.’s Annual Report on Form 10-K for the fiscal year
ended June 25, 2017, filed September 1, 2017, formatted in eXtensible Business Reporting Language:
(i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated
Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the
Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.
+
++
*
**
Filed herewith.
Furnished herewith.
Indicates a management contract or compensatory plan or arrangement.
Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with
the Securities and Exchange Commission.
Item 16.
Form 10-K Summary
None.
61
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: September 1, 2017
UNIFI, INC.
By: /s/ KEVIN D. HALL
Kevin D. Hall
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Kevin D. Hall and Thomas H. Caudle, Jr., or either of them, his or her attorney-in-fact, with full power of
substitution and resubstitution for such person in any and all capacities, to sign any amendments to this report and to
file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that either of said attorney-in-fact, or substitute or substitutes, may
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the date indicated:
Signature
/s/ KEVIN D. HALL
Kevin D. Hall
/s/ CHRISTOPHER A. SMOSNA
Christopher A. Smosna
/s/ ROBERT J. BISHOP
Robert J. Bishop
/s/ THOMAS H. CAUDLE, JR.
Thomas H. Caudle, Jr.
/s/ PAUL R. CHARRON
Paul R. Charron
/s/ ARCHIBALD COX, JR.
Archibald Cox, Jr.
/s/ JAMES M. KILTS
James M. Kilts
/s/ KENNETH G. LANGONE
Kenneth G. Langone
/s/ JAMES D. MEAD
James D. Mead
/s/ SUZANNE M. PRESENT
Suzanne M. Present
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Vice President and Treasurer, and
Interim Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer )
Director
Director
Director
Director
Director
Director
Chairman of the Board and Director
Director
Date: September 1, 2017
62
UNIFI, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm..............................................................................................................
Consolidated Balance Sheets as of June 25, 2017 and June 26, 2016.................................................................................................
Consolidated Statements of Income for the fiscal years ended June 25, 2017, June 26, 2016 and June 28, 2015 .............................
Consolidated Statements of Comprehensive Income for the fiscal years ended June 25, 2017, June 26, 2016 and June 28, 2015 .........
Consolidated Statements of Shareholders’ Equity for the fiscal years ended June 25, 2017, June 26, 2016 and June 28, 2015 .......
Consolidated Statements of Cash Flows for the fiscal years ended June 25, 2017, June 26, 2016 and June 28, 2015 ......................
Notes to Consolidated Financial Statements .......................................................................................................................................
F-1
F-3
F-4
F-5
F-6
F-7
F-8
F-i
[THIS PAGE INTENTIONALLY LEFT BLANK]
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Unifi, Inc.:
We have audited the accompanying consolidated balance sheets of Unifi, Inc. and subsidiaries as of June 25, 2017
and June 26, 2016, and the related consolidated statements of income, comprehensive income, shareholders’ equity,
and cash flows for each of the years in the three-year period ended June 25, 2017. These consolidated financial
statements are the responsibility of Unifi, Inc.’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Unifi, Inc. and subsidiaries as of June 25, 2017 and June 26, 2016, and the results of their
operations and their cash flows for each of the years in the three-year period ended June 25, 2017, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Unifi, Inc.’s internal control over financial reporting as of June 25, 2017, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated September 1, 2017 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Greensboro, North Carolina
September 1, 2017
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Unifi, Inc.:
We have audited Unifi, Inc.’s internal control over financial reporting as of June 25, 2017, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Unifi, Inc.’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, Unifi, Inc. maintained, in all material respects, effective internal control over financial reporting as
of June 25, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Unifi, Inc. and subsidiaries as of June 25, 2017 and June 26, 2016, and
the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each
of the years in the three-year period ended June 25, 2017, and our report dated September 1, 2017 expressed an
unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Greensboro, North Carolina
September 1, 2017
F-2
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
June 25, 2017
June 26, 2016
ASSETS
Cash and cash equivalents
Receivables, net
Inventories
Income taxes receivable
Other current assets
Total current assets
Property, plant and equipment, net
Deferred income taxes
Intangible assets, net
Investments in unconsolidated affiliates
Other non-current assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable
Accrued expenses
Income taxes payable
Current portion of long-term debt
Total current liabilities
Long-term debt
Other long-term liabilities
Deferred income taxes
Total liabilities
Commitments and contingencies
Common stock, $0.10 par value (500,000,000 shares authorized; 18,229,777
and 17,847,416 shares issued and outstanding as of June 25, 2017 and
June 26, 2016, respectively)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Total Unifi, Inc. shareholders’ equity
Non-controlling interest
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
$
$
$
35,425 $
81,121
111,405
9,218
6,468
243,637
203,388
2,194
2,158
119,513
613
571,503 $
41,499 $
16,144
1,351
17,060
76,054
111,382
11,804
11,457
210,697
1,823
51,923
339,940
(32,880)
360,806
—
360,806
571,503 $
16,646
83,422
103,532
3,502
4,790
211,892
185,101
2,387
3,741
117,412
4,909
525,442
41,593
18,474
1,455
13,786
75,308
107,805
10,393
4,991
198,497
1,785
45,932
307,065
(29,751)
325,031
1,914
326,945
525,442
See accompanying notes to consolidated financial statements.
F-3
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
(Benefit) provision for bad debts
Other operating (income) expense, net
Operating income
Interest income
Interest expense
Loss on sale of business
Loss on extinguishment of debt
Equity in earnings of unconsolidated affiliates
Income before income taxes
Provision for income taxes
Net income including non-controlling interest
Less: net loss attributable to non-controlling interest
Net income attributable to Unifi, Inc.
Net income attributable to Unifi, Inc. per common share:
Basic
Diluted
$
$
$
$
$
June 25, 2017
For the Fiscal Year Ended
June 26, 2016
647,270 $
553,106
94,164
50,829
(123)
(310)
43,768
(517)
3,578
1,662
—
(4,230)
43,275
10,898
32,377 $
(498)
32,875 $
643,637 $
550,005
93,632
47,502
1,684
2,248
42,198
(610)
3,528
—
—
(8,963)
48,243
15,073
33,170 $
(1,245)
34,415 $
June 28, 2015
687,121
596,416
90,705
49,672
947
1,600
38,486
(916)
4,025
—
1,040
(19,475)
53,812
13,346
40,466
(1,685)
42,151
1.81 $
1.78 $
1.93 $
1.87 $
2.32
2.24
See accompanying notes to consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the Fiscal Year Ended
Net income including non-controlling interest
Other comprehensive loss:
$
32,377 $
June 25, 2017
June 26, 2016
33,170 $
June 28, 2015
40,466
Foreign currency translation adjustments
Foreign currency translation adjustments for an unconsolidated
affiliate
Changes in interest rate swaps, net of tax of $299, $0 and $0,
respectively
Other comprehensive loss, net
Comprehensive income including non-controlling interest
Less: comprehensive loss attributable to non-controlling interest
Comprehensive income attributable to Unifi, Inc.
$
(2,936)
(2,135)
(21,578)
245
(794)
(933)
(438)
(3,129)
29,248
(498)
29,746 $
77
(2,852)
30,318
(1,245)
31,563 $
231
(22,280)
18,186
(1,685)
19,871
See accompanying notes to consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
Balance at June 29, 2014
Options exercised
Stock-based compensation
Conversion of restricted stock units
Common stock repurchased and retired
under publicly announced program
Excess tax benefit on stock-based
compensation plans
Other comprehensive loss, net of tax
Contributions from non-controlling
interest
Net income (loss)
Balance at June 28, 2015
Options exercised
Stock-based compensation
Conversion of restricted stock units
Common stock repurchased and retired
under publicly announced program
Excess tax benefit on stock-based
compensation plans
Tax deficiency from stock-based
compensation plans
Other comprehensive loss, net of tax
Contributions from non-controlling
interest
Net income (loss)
Balance at June 26, 2016
Options exercised
Stock-based compensation
Conversion of restricted stock units
Excess tax benefit on stock-based
compensation plans
Other comprehensive loss, net of tax
Deconsolidation for sale of business
Net income (loss)
Balance at June 25, 2017
Common
Retained
Earnings
Shares
18,314 $ 1,831 $ 42,130 $245,673 $
Stock
Capital in
Excess of
Par Value
Accumulated
Other
Comprehensive
Loss
Total
Unifi, Inc.
Shareholders’
Equity
Non-
controlling
Interest
Total
Shareholders’
Equity
(4,619) $
285,015 $
1,723 $
286,738
11
—
31
1
—
3
94
2,631
(3)
—
—
—
—
—
—
95
2,631
—
—
—
—
95
2,631
—
(349)
(34)
(833)
(9,493)
—
(10,360)
—
(10,360)
—
—
—
—
242
—
—
—
—
(22,280)
242
(22,280)
—
—
242
(22,280)
—
—
—
—
— 42,151
18,007 $ 1,801 $ 44,261 $278,331 $
—
—
—
—
(26,899) $
—
42,151
297,494 $
1,561
(1,685)
1,599 $
1,561
40,466
299,093
27
—
19
3
—
2
178
2,340
(2)
—
—
—
(206)
(21)
(509)
(5,681)
—
—
120
—
—
—
—
—
—
—
—
—
—
(456)
—
—
—
—
(2,852)
181
2,340
—
(6,211)
120
(456)
(2,852)
—
—
—
—
—
—
—
181
2,340
—
(6,211)
120
(456)
(2,852)
—
—
—
—
— 34,415
17,847 $ 1,785 $ 45,932 $307,065 $
—
—
—
—
(29,751) $
—
34,415
325,031 $
1,560
(1,245)
1,914 $
1,560
33,170
326,945
313
—
70
31
—
7
2,756
2,182
(7)
—
—
—
—
—
—
2,787
2,182
—
—
—
—
—
1,060
—
—
—
—
—
—
—
—
— 32,875
18,230 $ 1,823 $ 51,923 $339,940 $
—
—
—
—
—
(3,129)
—
—
(32,880) $
1,060
(3,129)
—
32,875
360,806 $
—
—
(1,416)
(498)
— $
2,787
2,182
—
1,060
(3,129)
(1,416)
32,377
360,806
See accompanying notes to consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
June 25, 2017
For the Fiscal Year Ended
June 26, 2016
June 28, 2015
$
16,646 $
10,013 $
15,907
32,377
33,170
40,466
Cash and cash equivalents at beginning of year
Operating activities:
Net income including non-controlling interest
Adjustments to reconcile net income including non-controlling interest to
net cash provided by operating activities:
Equity in earnings of unconsolidated affiliates
Distributions received from unconsolidated affiliates
Depreciation and amortization expense
Loss on sale of business
Loss on extinguishment of debt
Non-cash compensation expense
Excess tax benefit on stock-based compensation plans
Deferred income taxes
Other, net
Changes in assets and liabilities:
Receivables, net
Inventories
Other current assets
Income tax receivable
Accounts payable and accrued expenses
Income taxes payable
Other non-current assets
Other non-current liabilities
Net cash provided by operating activities
Investing activities:
Capital expenditures
Proceeds from sale of assets
Other, net
Net cash used in investing activities
Financing activities:
Proceeds from ABL Revolver
Payments on ABL Revolver
Proceeds from ABL Term Loan
Payments on ABL Term Loan
Proceeds from a term loan supplement
Proceeds from construction financing
Payment on term loan from equity affiliate
Payments of debt financing fees
Payments on capital lease obligations
Common stock repurchased and retired under publicly announced
programs
Proceeds from stock option exercises
Excess tax benefit on stock-based compensation plans
Contributions from non-controlling interest
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at end of year
$
(4,230)
2,322
20,368
1,662
—
2,983
(1,060)
6,886
(1,112)
1,586
(8,519)
(1,824)
(4,657)
(1,207)
(67)
(233)
787
46,062
(8,963)
4,732
17,528
—
—
2,501
(120)
5,983
(302)
(88)
6,843
(304)
(1,931)
(5,710)
816
(108)
1,928
55,975
(33,190)
61
(253)
(33,382)
(52,337)
2,099
(2,654)
(52,892)
121,800
(118,700)
14,500
(9,750)
—
—
—
—
(4,700)
—
2,787
1,060
—
(493)
6,504
(405)
18,779
35,425 $
153,200
(152,000)
17,375
(9,250)
4,000
790
(1,250)
(217)
(4,090)
(6,211)
181
120
1,560
(566)
3,642
(92)
6,633
16,646 $
(19,475)
3,718
18,043
—
1,040
3,148
(242)
(3,796)
1,441
4,491
(6,171)
(64)
(1,035)
(3,612)
(2,395)
76
3,270
38,903
(25,966)
3,847
(422)
(22,541)
149,100
(170,100)
22,000
(7,875)
—
—
—
(1,063)
(1,286)
(10,360)
95
242
1,561
(504)
(18,190)
(4,066)
(5,894)
10,013
See accompanying notes to consolidated financial statements.
F-7
Unifi, Inc.
Notes to Consolidated Financial Statements
1. Background
Overview
Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, “UNIFI,” the “Company,” “we,”
“us” or “our”), is a multi-national company that manufactures and sells innovative synthetic and recycled products
made from polyester and nylon primarily to other yarn manufacturers and knitters and weavers that produce fabric
for the apparel, hosiery, home furnishings, automotive, industrial and other end-use markets. Polyester yarns include
partially oriented yarn (“POY”), textured, solution and package dyed, twisted, beamed and draw wound yarns, and
each is available in virgin or recycled varieties. Recycled solutions, made from both pre-consumer and post-
consumer waste, include plastic bottle flake and polyester polymer beads (“Chip”). Nylon products include
textured, solution dyed and spandex covered yarns.
UNIFI maintains one of the textile industry’s most comprehensive yarn product offerings that include specialized
yarns, premium value-added (“PVA”) yarns and commodity yarns, with principal geographic markets in the
Americas and Asia.
UNIFI has manufacturing operations in four countries and participates in joint ventures in Israel and the United
States, the most significant of which is a 34% non-controlling partnership interest in Parkdale America, LLC
(“PAL”), a producer of cotton and synthetic yarns for sale to the global textile industry and apparel market.
All amounts, except per share amounts, are presented in thousands (000s), unless otherwise noted.
Fiscal Year
The fiscal year end for Unifi, Inc. and its subsidiary in El Salvador ends on the last Sunday in June. Unifi, Inc.’s
fiscal 2017, 2016 and 2015 ended on June 25, 2017, June 26, 2016 and June 28, 2015, respectively. Unifi, Inc.’s
Brazilian, Chinese, Colombian and Sri Lankan subsidiaries’ fiscal years end on June 30th. There were no significant
transactions or events that occurred between the fiscal year ends of Unifi, Inc. and its wholly owned subsidiaries.
Unifi, Inc.’s fiscal 2017, 2016 and 2015 all consisted of 52 fiscal weeks.
Reclassifications
Certain reclassifications of prior fiscal years’ data have been made to conform to the fiscal 2017 presentation.
UNIFI adopted Accounting Standards Update (“ASU”) 2015-03, Interest—Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”) during fiscal 2017, along with the clarifying
guidance in ASU 2015-15, Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent
Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements—Amendments to SEC
Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting. As shown in the table below,
unamortized debt issuance costs associated with outstanding debt have been reclassified to conform to the new
presentation requirements as follows:
Debt issuance costs (within other non-current assets)
Total assets
Long-term debt
Total liabilities
$
1,421 $
526,863
109,226
199,918
(1,421) $
(1,421)
(1,421)
(1,421)
—
525,442
107,805
198,497
June 26, 2016
As Previously
Reported
Adjustments Due
to Adoption of
ASU 2015-03
June 26, 2016
As Adjusted
F-8
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
2. Summary of Significant Accounting Policies
UNIFI follows U.S. generally accepted accounting principles (“GAAP”). The significant accounting policies
described below, together with the other notes to the consolidated financial statements that follow, are an integral
part of the consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of Unifi, Inc. and its subsidiaries in which it maintains a
controlling financial interest. All account balances and transactions between Unifi, Inc. and the subsidiaries which it
controls have been eliminated. Investments in entities in which UNIFI is able to exercise significant influence, but
not control, are accounted for using the equity method. For transactions with entities accounted for under the equity
method, any intercompany profits on amounts still remaining are eliminated. Amounts originating from any deferral
of intercompany profits are recorded within either UNIFI’s investment account or the account balance to which the
transaction specifically relates (e.g., inventory). Only upon settlement of the intercompany transaction with a third
party is the deferral of the intercompany profit recognized by UNIFI.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make use of estimates
and assumptions that affect the reported amounts of assets and liabilities, certain financial statement disclosures at
the date of the financial statements, and the reported amounts of revenues and expenses during the period. UNIFI’s
consolidated financial statements include amounts that are based on management’s best estimates and judgments.
Actual results may vary from these estimates. These estimates are reviewed periodically to determine if a change is
required.
Cash and Cash Equivalents
Cash equivalents are defined as highly liquid, short-term investments having an original maturity of three months or
less. Book overdrafts, for which the bank has not advanced cash, if any, are reclassified to accounts payable and
reflected as an offset thereto within the accompanying consolidated statements of cash flows.
Receivables
Receivables are stated at their net realizable value. Allowances are provided for known and potential losses arising
from yarn quality claims and for amounts owed by customers. Reserves for yarn quality claims are based on
historical claim experience and known pending claims and are recorded as a reduction of net sales. The allowance
for uncollectible accounts is shown as a reduction of operating income and reflects UNIFI’s best estimate of
probable losses inherent in its accounts receivable portfolio determined on the basis of historical write off
experience, aging of trade receivables, specific allowances for known troubled accounts and other currently
available information. Customer accounts are written off against the allowance for uncollectible accounts when they
are no longer deemed to be collectible.
Inventories
UNIFI’s inventories are valued at the lower of cost or market with the cost for the majority of its inventory
determined using the first-in, first-out method. Certain foreign inventories and limited categories of supplies and
agricultural inventories are valued using the average cost method. UNIFI’s estimates for inventory reserves for
obsolete, slow-moving or excess inventories are based upon many factors, including historical recovery rates, the
aging of inventories on-hand, inventory movement and expected net realizable value of specific products, and
current economic conditions.
F-9
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Debt Issuance Costs
Debt issuance costs are recorded to long-term debt and amortized as additional interest expense following either the
effective interest method or the straight-line method. In the event of any prepayment of its debt obligations, UNIFI
accelerates the recognition of a pro-rata amount of issuance costs and records an extinguishment of debt.
Property, Plant and Equipment
Property, plant and equipment (“PP&E”) are stated at historical cost less accumulated depreciation. Plant and
equipment under capital leases are stated at the present value of minimum lease payments less accumulated
amortization. Additions or improvements that substantially extend the useful life of a particular asset are capitalized.
Depreciation is calculated primarily utilizing the straight-line method over the following useful lives:
Asset categories
Land improvements
Buildings and improvements
Machinery and equipment
Computer, software and office equipment
Internal software development costs
Transportation equipment
Useful lives in years
Five to Twenty
Fifteen to Forty
Two to Twenty-five
Three to Seven
Three
Three to Fifteen
Leasehold improvements are depreciated over the lesser of their estimated useful lives or the remaining term of the
lease.
Assets under capital leases are amortized in a manner consistent with UNIFI’s normal depreciation policy if
ownership is transferred by the end of the lease, or if there is a bargain purchase option. If such ownership criteria
are not met, amortization occurs over the shorter of the lease term or the asset’s useful life.
UNIFI capitalizes its costs of developing internal software when the software is used as an integral part of its
manufacturing or business processes and the technological feasibility has been established. Internal software costs
are amortized over a period of three years and, in accordance with the project type, charged to cost of sales or
selling, general and administrative (“SG&A”) expenses.
Fully depreciated assets are retained in cost and accumulated depreciation accounts until they are removed from
service. In the case of disposals, asset costs and related accumulated depreciation amounts are removed from the
accounts, and the net amounts, less proceeds from disposal, are included in the determination of net income and
presented within other operating (income) expense, net.
Repair and maintenance costs related to PP&E which do not significantly increase the useful life of an existing asset
or do not significantly alter, modify or change the capabilities or production capacity of an existing asset are
expensed as incurred.
Interest is capitalized for capital projects requiring a construction period.
PP&E and other long-lived assets are tested for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Long-lived assets to be disposed of by sale within one year are
classified as held for sale and are reported at the lower of carrying amount or fair value less cost to sell.
Depreciation ceases for all assets classified as held for sale. Long-lived assets to be disposed of other than by sale
are classified as held for use until they are disposed of and these assets are reported at the lower of their carrying
amount or estimated fair value.
Intangible Assets
Finite-lived intangible assets, such as customer lists, non-compete agreements, licenses, trademarks and patents, are
amortized over their estimated useful lives. UNIFI periodically evaluates the reasonableness of the useful lives of
F-10
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed
for impairment or obsolescence whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or
other valuation techniques. UNIFI has no intangibles with indefinite lives.
Investments in Unconsolidated Affiliates
UNIFI evaluates its investments in unconsolidated affiliates for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Derivative Instruments
All derivatives are carried on the balance sheet at fair value and are classified according to their asset or liability
position and the expected timing of settlement. On the date the derivative contract is entered into, UNIFI may
designate the derivative into one of the following categories:
•
•
•
Fair value hedge – a hedge of the fair value of a recognized asset or liability or a firm commitment.
Changes in the fair value of derivatives designated and qualifying as fair value hedges, as well as the
offsetting gains and losses on the hedged items, are reported in income in the same period.
Cash flow hedge – a hedge of a forecasted transaction or of the variability of cash flows to be received
or paid related to a recognized asset or liability. The effective portion of gains and losses on cash flow
hedges are recorded in accumulated other comprehensive loss, until the underlying transactions are
recognized in income. When the hedged item is realized, gains or losses are reclassified from
accumulated other comprehensive loss to current period earnings on the same line item as the
underlying transaction.
Net investment hedge – if a derivative is used as a foreign currency hedge of a net investment in a
foreign operation, its changes in fair value, to the extent effective as a hedge, are recorded in foreign
currency translation adjustments in accumulated other comprehensive loss.
Any ineffective portion of a designated hedge is immediately recognized in current period earnings. Derivatives that
are not designated for hedge accounting are marked to market at the end of each period with the changes in fair
value recognized in current period earnings. Settlements of any fair value or cash flow derivative contracts are
classified as cash flows from operating activities.
Fair Value Measurements
The accounting guidance for fair value measurements and disclosures establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the
principal market, or if none exists, the most advantageous market, for the specific asset or liability at the
measurement date (the exit price). Fair value is based on assumptions that market participants would use when
pricing the asset or liability. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
and the lowest priority to unobservable inputs. UNIFI uses the following to measure fair value for its assets and
liabilities:
•
•
•
Level 1 – Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability
either indirectly or directly.
Level 3 – Unobservable inputs reflecting management’s own assumptions about the inputs used in
pricing the asset or liability.
The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that
is significant to the fair value measurement in its entirety.
F-11
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recorded
to recognize the expected future tax benefits or costs of events that have been, or will be, reported in different tax
years for financial statement purposes than for tax purposes. Deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which these items are expected to reverse. UNIFI reviews deferred tax assets to determine if it
is more-likely-than-not they will be realized. If UNIFI determines it is not more-likely-than-not that a deferred tax
asset will be realized, it records a valuation allowance to reverse the previously recognized benefit. Provision is
made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such
earnings are not deemed to be permanently invested.
UNIFI recognizes tax benefits related to uncertain tax positions if it believes it is more-likely-than-not of being
sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of
being realized. UNIFI accrues for other tax contingencies when it is probable that a liability to a taxing authority
has been incurred and the amount of the contingency can be reasonably estimated. Income tax expense related to
penalties and interest, if incurred, is included in provision for income taxes.
Stock-Based Compensation
Compensation expense for stock awards is based on the grant date fair value and expensed over the applicable
vesting period. UNIFI has a policy of issuing new shares to satisfy stock option exercises. For awards with a
service condition and a graded vesting schedule, UNIFI has elected an accounting policy of recognizing
compensation cost on a straight-line basis over the requisite service period for each separate vesting portion of the
award as if the award was, in-substance, multiple awards.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries whose functional currency is other than the U.S. Dollar are translated at
exchange rates existing at the respective balance sheet dates. Translation gains and losses are not included in
determining net income, but are presented in a separate component of accumulated other comprehensive loss.
UNIFI translates the results of operations of its foreign operations at the average exchange rates during the
respective periods. Transaction gains and losses are included within other operating (income) expense, net.
Revenue Recognition
UNIFI recognizes revenue when (i) there is persuasive evidence of an arrangement, (ii) the sales price is fixed or
determinable, (iii) title and the risks of ownership have been transferred to the customer and (iv) collection of the
receivable is reasonably assured. For the sale of goods, revenue recognition occurs primarily upon shipment. For
service arrangements, revenue is recognized (a) when transportation services have been completed in accordance
with the bill of lading contract or (b) in accordance with contractual agreements with customers utilizing the criteria
above. Revenue includes amounts for duties and import taxes, interest billed to customers, and shipping and
handling costs billed to customers. Revenue excludes value-added taxes or other sales taxes and includes any
applicable deductions for returns and allowances, yarn claims and discounts.
Cost of Sales
The major components of cost of sales are: (i) materials and supplies, (ii) labor and fringe benefits, (iii) utility and
overhead costs associated with manufactured products, (iv) cost of products purchased for resale, (v) shipping,
handling and warehousing costs, (vi) research and development costs, (vii) depreciation expense and (viii) all other
costs related to production or providing service activities.
Shipping, Handling and Warehousing Costs
Shipping, handling and warehousing costs include costs to store goods prior to shipment, prepare goods for
shipment and physically move goods to customers.
F-12
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Research and Development Costs
Research and development costs include employee costs, production costs related to customer samples, operating
supplies, consulting fees and other miscellaneous costs. The cost of research and development is charged to expense
as incurred. Research and development costs were as follows:
For the Fiscal Year Ended
Research and development costs
$
7,177 $
6,907 $
June 25, 2017
June 26, 2016
June 28, 2015
8,113
Selling, General and Administrative Expenses
The major components of SG&A expenses are: (i) costs of UNIFI’s sales force, marketing and advertising efforts,
and commissions, (ii) costs of maintaining UNIFI’s general and administrative support functions including
executive management, information technology, human resources, legal and finance, (iii) amortization of intangible
assets and (iv) all other costs required to be classified as SG&A expenses.
Advertising Costs
Advertising costs are expensed as incurred and included in SG&A expenses. UNIFI’s advertising costs include
spending for items such as consumer marketing and branding initiatives, promotional items, trade shows,
sponsorships and other programs. Advertising costs were as follows:
For the Fiscal Year Ended
Advertising costs
Self-Insurance
$
3,070 $
June 25, 2017
June 26, 2016
4,844 $
June 28, 2015
3,975
UNIFI self-insures certain risks such as employee healthcare claims. Reserves for incurred but not reported
healthcare claims are estimated using historical data, the timeliness of claims processing, medical trends, inflation
and any changes, if applicable, in the nature or type of the plan.
Contingencies
At any point in time, UNIFI may be a party to various pending legal proceedings, claims or environmental actions.
Accruals for estimated losses are recorded at the time information becomes available indicating that losses are
probable and estimable. Any amounts accrued are not discounted. Legal costs such as outside counsel fees and
expenses are charged to expense as incurred.
3. Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued new accounting guidance for the
recognition of revenue from contracts with customers. Subsequent ASUs have been issued to provide clarity and
defer the effective date. The new revenue recognition standard eliminates the transaction- and industry-specific
revenue recognition guidance under current GAAP and replaces it with a principles-based approach. While UNIFI
has not yet determined the effect of the new guidance on its ongoing financial reporting, UNIFI notes the following
considerations: (i) the Company is primarily engaged in the business of manufacturing and delivering tangible
products utilizing relatively straightforward contract terms without multiple performance obligations and (ii)
transaction prices for UNIFI’s primary and material revenue activities are determinable and lack significant timing
considerations. UNIFI is currently performing the following activities regarding implementation: (a) reviewing
material contracts and (b) assessing accounting policy elections and disclosures under the new guidance. In addition,
implementation matters remaining include (x) evaluating the systems and processes to support revenue recognition
and (y) selecting the method of adoption. The new revenue recognition guidance is effective for the Company’s
fiscal 2019.
F-13
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
In July 2015, the FASB issued ASU 2015-11, Inventory, which modifies the subsequent measurement of inventories
recorded under a first-in, first-out or average cost method. Under the new standard, such inventories are required to
be measured at the lower of cost and net realizable value. The new standard is effective for UNIFI’s fiscal 2018,
with prospective application. UNIFI’s existing principles for inventory measurement include consideration of net
realizable value and, therefore, adoption is expected to have no significant impact to UNIFI’s consolidated financial
statements.
In February 2016, the FASB issued new accounting guidance for leases. The new guidance is intended to increase
transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance
sheet and disclosing key information about leasing arrangements. While UNIFI has not yet determined the full effect
of the new guidance on its ongoing financial reporting, as of June 25, 2017, UNIFI had approximately $6,400 of
future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in
excess of one year). The ASU is effective for UNIFI’s fiscal 2020, and early adoption is permitted.
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting. The ASU includes multiple provisions intended to simplify various
aspects of the accounting for share-based payments, while reducing cost and complexity. The ASU is effective for
UNIFI’s fiscal 2018. UNIFI expects this guidance to impact the provision for income taxes in future periods, but the
timing and magnitude of such impact is not estimable.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities. The ASU is intended to improve and simplify accounting rules around hedge
accounting. The ASU is effective for UNIFI’s fiscal 2020 and early adoption is permitted. UNIFI is evaluating the
effect the new guidance will have on its consolidated financial statements and related disclosures.
In April 2015, the FASB issued ASU 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, providing criteria for
determining if a license of software, as part of a cloud services arrangement, is subject to capitalization under the
existing guidance for internal-use software. UNIFI adopted the guidance in fiscal 2017 and there was no significant
impact to UNIFI’s consolidated financial statements.
Based on UNIFI’s review of ASUs, there have been no other newly issued or newly applicable accounting
pronouncements that have had, or are expected to have, a significant impact on UNIFI’s consolidated financial
statements.
4. Sale of Renewables
On December 23, 2016, UNIFI, through a wholly owned foreign subsidiary, entered into a Membership Interest
Purchase Agreement (the “RR Agreement”) to sell its 60% equity ownership interest in Repreve Renewables, LLC
(“Renewables”) to its existing third-party joint venture partner for $500 in cash and release of certain debt
obligations (the “RR Sale”). UNIFI had no continuing involvement in the operations of Renewables subsequent to
December 23, 2016.
In connection with the RR Sale, UNIFI recognized a loss on sale of business, reflecting the difference between the
cash consideration received and UNIFI’s portion of Renewables’ net assets on the date of the RR Agreement. The
operations of Renewables during the period of UNIFI’s ownership are not reflected as discontinued operations as (i)
the enterprise does not have a major effect on UNIFI’s consolidated operations and financial results, (ii) the disposal
does not represent a strategic shift and (iii) the enterprise is not an individually significant component. The
operations of Renewables up to the date of the RR Sale are reflected in continuing operations within the
accompanying consolidated statements of income.
The loss on the sale of the business is not relevant to UNIFI’s core operations and is not reflective of the primary
revenue or expense activity of UNIFI. Therefore, UNIFI has recorded the loss on the sale of Renewables below
operating income within the accompanying consolidated statements of income.
F-14
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Deconsolidation of Renewables resulted in the removal of all corresponding assets (the most significant of which
was $4,472 of miscanthus grass, net of depreciation, historically reflected in other non-current assets) and liabilities
and the elimination of the non-controlling interest in Renewables from UNIFI’s consolidated balance sheet as of
December 25, 2016, as summarized in the table below.
Cash purchase price
Net assets and liabilities of Renewables
Derecognition of non-controlling interest
Transaction-related costs
Loss on sale of business
$
$
500
(3,540)
1,416
(38)
(1,662)
UNIFI’s consolidated balance sheet as of June 26, 2016 includes the consolidated accounts of Renewables, along
with a non-controlling interest adjustment; while UNIFI’s consolidated balance sheet as of June 25, 2017 does not
reflect any assets, liabilities or non-controlling interest of Renewables.
5. Receivables, Net
Receivables, net consists of the following:
Customer receivables
Allowance for uncollectible accounts
Reserves for yarn quality claims
Net customer receivables
Related party receivables
Other receivables
Total receivables, net
June 25, 2017
June 26, 2016
$
$
83,291 $
(2,222)
(1,278)
79,791
6
1,324
81,121 $
86,361
(2,839)
(795)
82,727
7
688
83,422
Other receivables consist primarily of refunds due for non-income related taxes and refunds due from vendors.
The changes in UNIFI’s allowance for uncollectible accounts and reserves for yarn quality claims were as follows:
Balance at June 29, 2014
Charged to costs and expenses
Translation activity
Deductions
Balance at June 28, 2015
Charged to costs and expenses
Translation activity
Deductions
Balance at June 26, 2016
Credited (charged) to costs and expenses
Translation activity
Deductions
Balance at June 25, 2017
Allowance for
Uncollectible
Accounts
Reserves for Yarn
Quality Claims
(1,035) $
(947)
240
146
(1,596) $
(1,684)
(56)
497
(2,839) $
123
34
460
(2,222) $
(618)
(1,336)
29
1,344
(581)
(1,886)
(4)
1,676
(795)
(2,719)
3
2,233
(1,278)
$
$
$
$
Amounts credited (charged) to costs and expenses for the allowance for uncollectible accounts are reflected in the
(benefit) provision for bad debts and deductions represent amounts written off which were deemed to not be
collectible, net of any recoveries. Amounts charged to costs and expenses for the reserves for yarn quality claims
F-15
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
are primarily reflected as a reduction of net sales and deductions represent adjustments to either increase or decrease
claims based on negotiated amounts or actual versus estimated claim differences.
6. Inventories
Inventories consists of the following:
Raw materials
Supplies
Work in process
Finished goods
Gross inventories
Inventory reserves
Total inventories
June 25, 2017
June 26, 2016
$
$
36,748 $
6,104
7,399
63,121
113,372
(1,967)
111,405 $
37,162
5,387
6,595
55,771
104,915
(1,383)
103,532
The cost for the majority of UNIFI’s inventories is determined using the first-in, first-out method. Certain foreign
inventories and limited categories of supplies of $33,231 and $27,651 as of June 25, 2017 and June 26, 2016,
respectively, were valued under the average cost method.
7. Other Current Assets
Other current assets consists of the following:
Vendor deposits
Prepaid expenses
Value-added taxes receivable
Other
Total other current assets
June 25, 2017
June 26, 2016
$
$
2,992 $
2,272
1,197
7
6,468 $
2,036
1,496
1,225
33
4,790
Vendor deposits primarily relate to down payments made toward the purchase of raw materials. Prepaid expenses
consist of advance payments for insurance, professional fees, membership dues, subscriptions, non-income related
tax payments, marketing and information technology services. Value-added taxes receivable are recoverable taxes
associated with the sales and purchase activities of UNIFI’s foreign operations.
8. Property, Plant and Equipment, Net
PP&E, net consists of the following:
Land
Land improvements
Buildings and improvements
Assets under capital leases
Machinery and equipment
Computers, software and office equipment
Transportation equipment
Construction in progress
Gross property, plant and equipment
Less: accumulated depreciation
Less: accumulated amortization – capital leases
Total property, plant and equipment, net
F-16
June 25, 2017
June 26, 2016
2,931 $
15,066
157,115
34,568
579,211
19,360
4,798
7,371
820,420
(612,355)
(4,677)
203,388 $
3,154
13,734
145,633
21,525
544,369
17,823
4,713
39,695
790,646
(602,839)
(2,706)
185,101
$
$
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Assets under capital leases consists of the following:
Machinery and equipment
Transportation equipment
Building improvements
Gross assets under capital leases
June 25, 2017
June 26, 2016
$
$
24,467 $
6,273
3,828
34,568 $
14,745
5,927
853
21,525
During fiscal 2017 and 2016, UNIFI recorded capital leases with aggregate present values of $14,070 and $4,154,
respectively, among the above categories. The fiscal 2017 amount includes consideration for a construction
financing arrangement further described in Note 12, “Long-Term Debt.”
Depreciation expense and repair and maintenance expenses were as follows:
For the Fiscal Year Ended
Depreciation expense
Repair and maintenance expenses
$
18,483 $
18,319
June 25, 2017
June 26, 2016
15,269 $
16,819
June 28, 2015
15,422
17,741
9. Intangible Assets, Net
Intangible assets, net consists of the following:
Customer lists
Non-compete agreements
Trademarks, licenses and other
Total intangible assets, gross
Accumulated amortization – customer lists
Accumulated amortization – non-compete agreements
Accumulated amortization – trademarks, licenses and other
Total accumulated amortization
Total intangible assets, net
June 25, 2017
June 26, 2016
23,615 $
4,050
505
28,170
(21,685)
(3,903)
(424)
(26,012)
2,158 $
23,615
4,293
891
28,799
(20,665)
(3,860)
(533)
(25,058)
3,741
$
$
In fiscal 2007, UNIFI purchased certain texturing operations that are included in the Polyester Segment. The
valuation of the customer list acquired was determined by estimating the discounted net earnings attributable to the
customer relationships that were purchased after considering items such as possible customer attrition. Based on the
length and trend of the projected cash flows, an estimated useful life of 13 years was determined. The customer list
is amortized through December 2019, in a manner which reflects the expected economic benefit that will be
received over its 13-year life. The non-compete agreement is amortized through December 2017, using the straight-
line method over the period currently covered by the agreement.
A customer list and a non-compete agreement were recorded in connection with a business combination in fiscal
2014, utilizing similar valuation methods as described above for the fiscal 2007 transaction. The customer list is
amortized over a nine-year estimated useful life based on the expected economic benefit. The non-compete
agreement is amortized using the straight line method over the five-year term of the agreement.
In fiscal 2012, UNIFI acquired a controlling interest in Renewables, an agricultural company focused on the
development, production and commercialization of miscanthus grass for use in the animal bedding, bio energy and
bio-based products markets. The acquisition and operations of such enterprise resulted in the capitalization of
certain intangible assets. The non-compete agreement for Renewables was amortized using the straight-line method
over the five-year term of the agreement. The license was amortized using the straight-line method over its
F-17
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
estimated useful life of eight years. As described in Note 4, “Sale of Renewables,” UNIFI sold such controlling
interest in fiscal 2017, deconsolidating all of the related assets, liabilities and non-controlling interest.
UNIFI capitalizes costs incurred to register trademarks for REPREVE® and other PVA products in various
countries. UNIFI has determined that these trademarks have varying useful lives of up to three years and are being
amortized using the straight-line method.
Amortization expense for intangible assets consists of the following:
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
Customer lists
Non-compete agreements
Trademarks, licenses and other
Total amortization expense
$
$
1,020 $
287
74
1,381 $
1,233 $
323
145
1,701 $
June 28, 2015
1,594
323
163
2,080
The following table presents the expected intangible asset amortization for the next five fiscal years:
Expected amortization
2018
2019
2020
2021
2022
$
1,032
$
678
$
327
$
60
$
47
10. Other Non-Current Assets
Other non-current assets consists of the following:
Miscanthus grass, net
Other
Total other non-current assets
June 25, 2017
June 26, 2016
$
$
— $
613
613 $
4,522
387
4,909
As described in Note 4, “Sale of Renewables,” UNIFI deconsolidated the assets of Renewables, which included
miscanthus grass. Miscanthus grass had reflected the capitalization of costs necessary to bring the long-term
biological assets to commercial production, net of accumulated depreciation.
11. Accrued Expenses
Accrued expenses consists of the following:
Payroll and fringe benefits
Utilities
Property taxes
Current portion of supplemental post-employment plan
Consulting and transition fees payable to former executive officers
Other
Total accrued expenses
June 25, 2017
June 26, 2016
$
$
10,469 $
2,562
771
42
—
2,300
16,144 $
10,370
2,376
831
1,506
1,045
2,346
18,474
Other consists primarily of employee-related claims and payments, interest, marketing expenses, freight expenses,
rent, other non-income related taxes and deferred revenue.
F-18
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
12. Long-Term Debt
Debt Obligations
The following table presents the total balances outstanding for UNIFI’s debt obligations, their scheduled maturity
dates and the weighted average interest rates for borrowings as well as the applicable current portion of long-term
debt:
ABL Revolver
ABL Term Loan (1)
Capital lease obligations
Construction financing
Renewables’ term loan
Renewables’ promissory note
Total debt
Current portion of capital lease obligations
Current portion of other long-term debt
Unamortized debt issuance costs
Total long-term debt
Scheduled
Maturity Date
March 2020
March 2020
(2)
(3)
—
—
$
Weighted Average
Interest Rate as of
June 25, 2017
2.8%
3.0%
3.8%
(3)
—
—
$
Principal Amounts as of
June 25, 2017
9,300 $
95,000
25,168
—
—
—
129,468
(7,060)
(10,000)
(1,026)
111,382 $
June 26, 2016
6,200
90,250
15,798
6,629
4,000
135
123,012
(4,261)
(9,525)
(1,421)
107,805
Includes the effects of interest rate swaps.
Scheduled maturity dates for capital lease obligations range from July 2018 to November 2027.
(1)
(2)
(3) Refer to the discussion below under the subheading “—Construction Financing” for further information.
ABL Facility
On March 26, 2015, Unifi, Inc. and its subsidiary, Unifi Manufacturing, Inc., entered into an Amended and Restated
Credit Agreement (as subsequently amended, the “Amended Credit Agreement”) for a $200,000 senior secured
credit facility (the “ABL Facility”) with a syndicate of lenders. The ABL Facility consists of a $100,000 revolving
credit facility (the “ABL Revolver”) and a term loan that can be reset up to a maximum amount of $100,000, once
per fiscal year, if certain conditions are met (the “ABL Term Loan”). Such principal increases occurred in
November 2015 and November 2016 as discussed in further detail below. The ABL Facility has a maturity date of
March 26, 2020.
The Amended Credit Agreement replaced a previous senior secured credit facility dated May 24, 2012 with a similar
syndicate of lenders, which, after multiple amendments, would have matured on March 28, 2019 and consisted of a
$100,000 revolving credit facility and a $90,000 term loan. As used herein, the terms “ABL Facility,” “ABL
Revolver” and “ABL Term Loan” shall mean the senior secured credit facility, the revolving credit facility or the
term loan, respectively, under the Amended Credit Agreement or the previous senior secured credit facility, as
applicable.
The ABL Facility is secured by a first-priority perfected security interest in substantially all owned property and
assets (together with all proceeds and products) of Unifi, Inc., Unifi Manufacturing, Inc. and certain subsidiary
guarantors (the “Loan Parties”). It is also secured by a first-priority security interest in all (or 65% in the case of
certain first-tier controlled foreign corporations, as required by the lenders) of the stock of (or other ownership
interests in) each of the Loan Parties (other than UNIFI) and certain subsidiaries of the Loan Parties, together with
all proceeds and products thereof.
If excess availability under the ABL Revolver falls below the defined Trigger Level, a financial covenant requiring
the Loan Parties to maintain a fixed charge coverage ratio on a monthly basis of at least 1.05 to 1.00 becomes
effective. The Trigger Level as of June 25, 2017 was $24,375. In addition, the ABL Facility contains restrictions on
particular payments and investments, including certain restrictions on the payment of dividends and share
F-19
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
repurchases. Subject to specific provisions, the ABL Term Loan may be prepaid at par, in whole or in part, at any
time before the maturity date, at UNIFI’s discretion.
ABL Facility borrowings bear interest at the London Interbank Offer Rate (“LIBOR”) plus an applicable margin of
1.50% to 2.00%, or the Base Rate (as defined below) plus an applicable margin of 0.50% to 1.00%, with interest
currently being paid on a monthly basis. The applicable margin is based on (i) the excess availability under the ABL
Revolver and (ii) the consolidated leverage ratio, calculated as of the end of each fiscal quarter. The Base Rate
means the greater of (a) the prime lending rate as publicly announced from time to time by Wells Fargo, (b) the
Federal Funds Rate plus 0.5% and (c) LIBOR plus 1.0%. UNIFI’s ability to borrow under the ABL Revolver is
limited to a borrowing base equal to specified percentages of eligible accounts receivable and inventory and is
subject to certain conditions and limitations. There is also a monthly unused line fee under the ABL Revolver of
0.25%.
As of June 25, 2017, the excess availability under the ABL Revolver was $65,064. At June 25, 2017, the fixed
charge coverage ratio was 0.84 to 1.0 and UNIFI had $400 of standby letters of credit, none of which had been
drawn upon. Management maintains the capability to quickly and easily improve the fixed charge coverage ratio
utilizing existing cash resources.
On November 18, 2016, pursuant to the principal reset conditions of the Amended Credit Agreement, UNIFI, at its
discretion, reset the ABL Term Loan principal balance to $100,000. In connection with the principal reset, the ABL
Term Loan is subject to quarterly amortizing payments of $2,500.
Second Amendment
On November 19, 2015, UNIFI entered into the Second Amendment to Amended and Restated Credit Agreement
(the “Second Amendment”). The Second Amendment increased the percentage applied to real estate valuations, on a
one-time basis, from 60% to 75%, for purposes of calculating the ABL Term Loan collateral. Simultaneous to
entering into the Second Amendment, UNIFI entered into the Fourth Amended and Restated Term Note, thereby
resetting the ABL Term Loan balance to $95,000.
Capital Lease Obligations
During fiscal 2017, UNIFI recorded capital leases with an aggregate present value of $14,070, inclusive of the
reclassification activity described below in the subheading “—Construction Financing.” The weighted average
interest rate for these capital leases is 3.9%.
During fiscal 2016, UNIFI entered into capital leases with an aggregate present value of $4,154.
Construction Financing
During fiscal 2016, UNIFI entered into an agreement with a third-party lender that provided for construction-period
financing for certain build-to-suit assets. UNIFI recorded project costs to construction in progress and the
corresponding liability to construction financing (within long-term debt). As of June 26, 2016, the principal balance
of $6,629 included $790 of cash received by UNIFI and $5,839 for construction in progress paid by the third-party
lender.
During fiscal 2017, asset construction was completed and the project costs were reclassified from construction in
progress to capital lease assets. The principal balance of $13,725 was reclassified to capital lease obligations and
amortizes over a five-year period on a monthly basis through May 2022, with an interest rate of 3.8%.
Renewables’ Term Loan and Promissory Note
During the period that UNIFI held a controlling interest in Renewables, the joint venture borrowed $4,000 against a
term loan supplement to a master loan agreement and delivered a promissory note for $135, all in efforts to expand
operations and secure additional land. Such borrowings were outstanding at June 26, 2016. As described in Note 4,
“Sale of Renewables,” upon the sale of its 60% equity ownership interest in Renewables in December 2016, UNIFI
F-20
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
deconsolidated the corresponding assets and liabilities, and, accordingly, the respective debt principal balances are
appropriately excluded from UNIFI’s total long-term debt as of June 25, 2017. UNIFI has no liability for such debt.
Scheduled Debt Maturities
The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the following five
fiscal years and thereafter:
ABL Revolver
ABL Term Loan
Capital lease obligations
Total
Loss on Extinguishment of Debt
Fiscal 2018
—
$
10,000
7,060
17,060
$
Fiscal 2019
—
$
10,000
6,996
16,996
$
Fiscal 2020
9,300
$
75,000
5,519
89,819
$
Fiscal 2021
—
$
—
2,624
2,624
$
Fiscal 2022
—
$
—
2,418
2,418
$
Thereafter
—
$
—
551
551
$
Entering into the Amended Credit Agreement in fiscal 2015 generated substantially different terms for the ABL
Term Loan and resulted in the replacement of an existing lender. Accordingly, in fiscal 2015, UNIFI recorded a loss
on extinguishment of debt of $1,040 for the write-off of certain debt financing fees related to the previous credit
agreement.
13. Other Long-Term Liabilities
Other long-term liabilities consists of the following:
Uncertain tax positions
Supplemental post-employment plan
Other
Total other long-term liabilities
June 25, 2017
June 26, 2016
$
$
5,077 $
2,822
3,905
11,804 $
4,463
2,262
3,668
10,393
UNIFI maintains an unfunded supplemental post-employment plan for certain management employees. Each
employee’s account is credited annually based upon a percentage of the participant’s base salary, with each
participant’s balance adjusted quarterly to reflect returns based upon a stock market index. Amounts are paid to
participants six months after termination of employment.
Other primarily includes certain retiree and post-employment medical and disability liabilities, deferred revenue and
deferred energy incentive credits.
14. Income Taxes
Components of Income Before Income Taxes
The components of income before income taxes consist of the following:
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
21,679 $
26,564
48,243 $
June 28, 2015
36,430
17,382
53,812
United States
Foreign
Income before income taxes
$
$
2,689 $
40,586
43,275 $
F-21
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Components of Provision for Income Taxes
Provision for income taxes consists of the following:
June 25, 2017
For the Fiscal Year Ended
June 26, 2016
June 28, 2015
Current:
Federal
State
Foreign
Total current tax expense
Deferred:
Federal
State
Foreign
Total deferred tax expense
Provision for income taxes
$
$
(6,082) $
(130)
10,224
4,012
6,602
162
122
6,886
10,898 $
1,545 $
764
6,781
9,090
6,304
255
(576)
5,983
15,073 $
8,748
1,369
7,025
17,142
(4,006)
(112)
322
(3,796)
13,346
Utilization of Net Operating Loss Carryforwards
In fiscal 2017, UNIFI generated a U.S. federal net operating loss (“NOL”) of $25,500 that it expects to carryback to
fiscal 2015 and 2016. Foreign deferred tax expense includes the utilization of NOL carryforwards of $756, $0 and
$147 for fiscal 2017, 2016 and 2015, respectively. State deferred tax expense includes the utilization of NOL
carryforwards of $26, $42 and $196 for fiscal 2017, 2016 and 2015, respectively.
Effective Tax Rate
Reconciliation from the federal statutory tax rate to the effective tax rate is as follows:
June 25, 2017
For the Fiscal Year Ended
June 26, 2016
June 28, 2015
Federal statutory tax rate
Foreign income taxed at different rates
Repatriation of foreign earnings and withholding taxes
Change in valuation allowance
Domestic production activities deduction
Research and other credits
State income taxes, net of federal tax benefit
Change in uncertain tax positions
Settlement of certain intercompany foreign currency transactions
Indefinite reinvestment assertion
Renewable energy credits
Nondeductible expenses and other
Effective tax rate
35.0%
(10.2)
1.4
(0.5)
2.0
(5.1)
0.2
1.8
—
—
—
0.6
25.2%
35.0%
(7.7)
(1.0)
(3.7)
(0.5)
4.8
1.5
1.2
—
—
—
1.6
31.2%
35.0%
(3.2)
(0.3)
(5.6)
(1.3)
(0.4)
1.8
5.4
5.6
(14.2)
(1.9)
3.9
24.8%
The effective tax rate for fiscal 2017 benefited from, among other things, (i) a lower overall effective tax rate for
UNIFI’s foreign earnings (reflecting free-trade zone sales in El Salvador and lower statutory tax rates in both Brazil
and China), (ii) increased research and development credits, (iii) a decrease in the valuation allowance reflecting the
recognition of lower taxable income versus book income for UNIFI’s investment in PAL (for which UNIFI
maintains a full valuation allowance) and (iv) a reduction in the valuation allowance related to foreign NOLs utilized
in 2017. These benefits were partially offset by (a) a reduction in the domestic production activities deduction due
to the carryback of certain losses, (b) a change in uncertain tax positions and (c) withholding taxes on repatriation of
foreign earnings.
F-22
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
The effective tax rate for fiscal 2016 benefited from, among other things, (i) a lower overall effective tax rate for
UNIFI’s foreign earnings (reflecting free-trade zone sales in El Salvador and lower statutory tax rates in both Brazil
and China), (ii) a decrease in the valuation allowance reflecting the recognition of lower taxable income versus book
income for UNIFI’s investment in PAL (for which UNIFI maintains a full valuation allowance) and (iii) a reduction
in the valuation allowance related to foreign tax credits utilized in fiscal 2016. These benefits were partially offset
by (a) utilization of foreign tax credits, (b) an increase in the valuation allowance for NOLs, including Renewables,
for which no tax benefit could be recognized, (c) state and local taxes net of the assumed federal benefit and (d) a
change in uncertain tax positions.
The effective tax rate for fiscal 2015 benefited from, among other things, (i) a lower overall effective tax rate for
UNIFI’s foreign earnings (reflecting free-trade zone sales in El Salvador and lower statutory tax rates in both Brazil
and China), (ii) the reversal of the indefinite reinvestment assertion which provided for indefinitely reinvested
foreign earnings at June 28, 2015, (iii) a decrease in the valuation allowance reflecting the recognition of lower
taxable income versus book income for UNIFI’s investment in PAL (for which UNIFI maintains a full valuation
allowance), (iv) benefits from federal and state credits, especially renewable energy credits in connection with the
installation of a solar farm, and (v) the domestic production activities deduction. These benefits were partially offset
by (a) the change in uncertain tax positions, (b) an increase in the valuation allowance related to Renewables, (c)
certain nondeductible expenses, (d) state income taxes (net of federal benefit) and (e) the settlement of certain
intercompany foreign currency transactions.
Deferred Income Taxes
The significant components of UNIFI’s deferred tax assets and liabilities consist of the following:
Deferred tax assets:
Investments, including unconsolidated affiliates
State tax credits
Accrued liabilities and valuation reserves
NOL carryforwards
Intangible assets, net
Incentive compensation plans
Foreign tax credits
Capital loss carryforward
Research credit carryforward
Other items
Total gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Other
Total deferred tax liabilities
Net deferred tax liabilities
Deferred Income Taxes - Valuation Allowance
June 25, 2017
June 26, 2016
$
$
7,737 $
338
3,952
7,854
3,932
2,487
789
1,746
1,115
5,224
35,174
(17,957)
17,217
(26,417)
(63)
(26,480)
(9,263) $
8,337
361
3,660
3,952
4,349
3,297
—
—
—
4,668
28,624
(13,550)
15,074
(17,098)
(580)
(17,678)
(2,604)
In assessing the realizability of deferred tax assets, UNIFI considers whether it is more-likely-than-not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in which those temporary differences
become deductible. UNIFI considers the scheduled reversal of taxable temporary differences, taxable income in
carryback years, projected future taxable income and tax planning strategies in making this assessment. Since
UNIFI operates in multiple jurisdictions, the assessment is made on a jurisdiction-by-jurisdiction basis, taking into
account the effects of local tax law.
F-23
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
The balances and activity for UNIFI’s deferred tax valuation allowance are as follows:
Balance at beginning of year
(Increase) decrease in valuation allowance
Balance at end of year
For the Fiscal Year Ended
June 26, 2016
June 25, 2017
$
(13,550) $
(4,407)
(17,957) $
$
(15,606) $
2,056
(13,550) $
June 28, 2015
(18,615)
3,009
(15,606)
Components of UNIFI’s deferred tax valuation allowance are as follows:
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
Investment in a former domestic unconsolidated affiliate
Equity-method investment in PAL
Certain losses carried forward (1)
State NOLs
Other foreign NOLs (2)
Foreign tax credits
Total deferred tax valuation allowance
$
$
(6,269) $
(1,520)
(5,924)
(108)
(3,347)
(789)
(17,957) $
(1) Certain U.S. NOLs and capital losses outside the U.S. consolidated tax filing group.
(2)
Presented net of certain NOL carryforward deferred tax assets.
(6,418) $
(2,102)
(5,030)
—
—
—
(13,550) $
June 28, 2015
(6,503)
(3,261)
(4,162)
—
—
(1,680)
(15,606)
During fiscal 2017, UNIFI’s valuation allowance increased by $4,407. This increase consisted primarily of $4,241
of foreign losses, and $789 of foreign tax credit carryforwards for which no benefit can be recognized. The increase
was partially offset by a net decrease of $582 related to UNIFI’s investment in PAL due to the timing of PAL’s
taxable income versus book income.
During fiscal 2016, UNIFI’s valuation allowance decreased by $2,056. This decrease consisted primarily of $1,159
related to UNIFI’s investment in PAL due to the timing of PAL’s taxable income versus book income and the
utilization of $1,680 of foreign tax credits. The decrease was partially offset by a net increase of $858 related to
UNIFI’s investment in Renewables and related NOLs as a result of its continued losses.
During fiscal 2015, UNIFI’s valuation allowance decreased by $3,009. This decrease relates to the timing of taxable
income versus book income for PAL, partially offset by a net increase in NOLs for Renewables which were deemed
unrealizable, and the disposal of certain miscanthus grass.
Unrecognized Tax Benefits
A reconciliation of beginning and ending gross amounts of unrecognized tax benefits is as follows:
Balance at beginning of year
Gross increases related to current period tax positions
Gross increases related to tax positions in prior periods
Gross decreases related to settlements with tax authorities
Gross decreases related to lapse of applicable statute of limitations
$
Balance at end of year
4,532 $
473
711
(480)
—
5,236 $
June 28, 2015
983
3,469
18
(178)
(263)
4,029
4,029 $
110
1,058
(274)
(391)
4,532 $
For the Fiscal Year Ended
June 26, 2016
June 25, 2017
$
Unrecognized tax benefits would generate a favorable impact of $5,236 on UNIFI’s effective tax rate when
recognized. UNIFI does not expect material changes in uncertain tax positions within the next 12 months. The
reversal of interest and penalties recognized by UNIFI within the provision for income taxes were $(42), $(23) and
F-24
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
$(95) for fiscal 2017, 2016 and 2015, respectively. UNIFI had $773, $279 and $23 accrued for interest and/or
penalties related to uncertain tax positions as of June 25, 2017, June 26, 2016 and June 28, 2015, respectively.
Expiration of Net Operating Loss Carryforwards and Foreign Tax Credits
As of June 25, 2017, UNIFI had U.S. federal NOLs held outside the U.S. consolidated tax filing group of $10,430,
which carry a full valuation allowance. These carryforwards, if unused, will begin to expire in 2030. As of June 25,
2017, UNIFI had U.S. federal capital loss carryforwards held outside the U.S. consolidated tax filing group of
$4,489, which carry a full valuation allowance. These carryforwards, if unused, will begin to expire in 2027.
As of June 25, 2017, UNIFI had $10,325 of state NOL carryforwards in the United States that may be used to offset
future taxable income, $6,666 of which are offset by a valuation allowance. These carryforwards, if unused, will
begin to expire in 2022. As of June 25, 2017, the Company also had U.S. state NOLs held outside the U.S.
consolidated tax filing group of $12,796, which are offset by a full valuation allowance. These carryforwards, if
unused, will begin to expire in 2028.
As of June 25, 2017, UNIFI had foreign NOL carryforwards of $13,468, offset by a full valuation allowance, which,
if unused, will begin to expire in 2019.
As of June 25, 2017, UNIFI had research and development credit carryforwards of $1,274, which, if unused, will
begin to expire in 2036.
As of June 25, 2017, UNIFI had foreign tax credits in foreign jurisdictions of $789 with no expiration, which are
offset by a full valuation allowance.
Tax Years Subject to Examination
Unifi, Inc. and its domestic subsidiaries file a consolidated federal income tax return, as well as income tax returns
in multiple state and foreign jurisdictions. The tax years subject to examination vary by jurisdiction. UNIFI
regularly assesses the outcomes of both completed and ongoing examinations to ensure that UNIFI’s provision for
income taxes is sufficient.
In fiscal 2016, the Internal Revenue Service (the “IRS”) examined UNIFI’s federal income tax return for fiscal
2013. The examination closed with no material assessment. On June 29, 2017, UNIFI received a notice of audit
from the IRS covering the amended tax returns filed for fiscal 2013, 2014 and 2015.
In fiscal 2016, the North Carolina Department of Revenue initiated an audit for tax periods ending June 24, 2012 to
June 29, 2014. The audit was not concluded at the end of fiscal 2017. No material assessment is anticipated.
UNIFI is currently under appeal in Colombia for tax years 2006 and 2007. UNIFI believes it is more-likely-than-not
to conclude the appeal with no material assessment.
Statutes related to material foreign jurisdictions are open from January 1, 2012 and material state jurisdictions from
June 30, 2013. Certain carryforward tax attributes generated in years prior remain subject to examination and could
change subsequent tax years.
Indefinite Reinvestment Assertion
UNIFI provides for U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are
considered indefinitely reinvested outside the United States.
As of June 25, 2017, U.S. income taxes were not provided for on a cumulative total of approximately $80,300 of
undistributed earnings and profits of UNIFI’s foreign subsidiaries as UNIFI currently intends to reinvest these
earnings in these foreign operations indefinitely. If at a later date, these earnings were repatriated to the United
States, UNIFI would be required to pay taxes on these amounts. Nevertheless, in future periods, UNIFI will
continue to assess the existing circumstances, including any changes in tax laws, and reevaluate the necessity for any
deferred tax liability. Determination of the amount of any deferred tax liability on these undistributed earnings is
not practicable.
F-25
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
15. Shareholders’ Equity
On January 22, 2013, UNIFI announced a stock repurchase program to acquire up to $50,000 of UNIFI’s common
stock. UNIFI completed its repurchase of shares under this program in March 2014. On April 23, 2014, UNIFI
announced that its Board of Directors (the “Board”) authorized a new stock repurchase program to acquire up to an
additional $50,000 of UNIFI’s common stock with no expiration. Purchases under the program may be completed in
accordance with Securities and Exchange Commission regulations at prevailing market prices, through open market
purchases or privately negotiated transactions, at such times and prices and in such manner as determined by
management, subject to market conditions, applicable legal requirements, contractual obligations and other factors.
Repurchases, if any, are expected to be financed through cash generated from operations and borrowings, and are
subject to applicable limitations and restrictions as set forth in the credit agreement governing UNIFI’s debt
obligations. UNIFI may discontinue repurchases at any time that management determines additional purchases are
not beneficial or advisable. The following table summarizes UNIFI’s repurchases and retirements of its common
stock under the stock repurchase programs for the fiscal periods noted.
Fiscal 2013
Fiscal 2014
Fiscal 2015
Fiscal 2016
Fiscal 2017
Total
Total Number
of Shares
Repurchased
as Part of Publicly
Announced Plans
or Programs
Approximate
Dollar Value that
May Yet Be
Repurchased
Under Publicly Announced
Plans or Programs
Average Price
Paid per
Share
1,068 $
1,524 $
349 $
206 $
—
3,147 $
18.08
23.96
29.72
30.13
—
23.01 $
27,603
All repurchased shares have been retired and have the status of authorized and unissued shares. The cost of the
repurchased shares is recorded as a reduction to common stock to the extent of the par value of the shares acquired
and the remainder is allocated between capital in excess of par value, on a pro rata basis, and retained earnings.
No dividends were paid in the three most recent fiscal years.
16. Stock-Based Compensation
On October 23, 2013, UNIFI’s shareholders approved the Unifi, Inc. 2013 Incentive Compensation Plan (the “2013
Plan”). The 2013 Plan replaced the 2008 Unifi, Inc. Long-Term Incentive Plan (the “2008 LTIP”). No additional
awards can be granted under the 2008 LTIP; however, prior awards outstanding under the 2008 LTIP remain subject
to that plan’s provisions. The 2013 Plan authorized the issuance of 1,000 shares of common stock, subject to certain
increases in the event outstanding awards under the 2008 LTIP expire, are forfeited or otherwise terminate
unexercised.
The following table provides information as of June 25, 2017 with respect to the number of securities remaining
available for future issuance under the 2013 Plan:
Authorized under the 2013 Plan
Plus: Awards expired, forfeited or otherwise terminated unexercised from the 2008 LTIP or
the 2013 Plan
Less: Awards granted to employees
Less: Awards granted to non-employee directors
Available for issuance under the 2013 Plan
1,000
343
(561)
(101)
681
F-26
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Stock Options
During fiscal 2017, 2016 and 2015, UNIFI granted stock options to purchase 153, 82 and 150 shares of its common
stock, respectively, to certain key employees. The stock options vest ratably over the required three-year service
period and have ten-year contractual terms. For fiscal 2017, 2016 and 2015, the weighted average exercise price of
the stock options granted was $28.82, $32.36 and $27.38 per share, respectively. UNIFI used the Black-Scholes
model to estimate the weighted average grant date fair value of $10.13, $20.27 and $17.31 per share, respectively.
For stock options granted, the valuation models used the following assumptions:
Expected term (years)
Risk-free interest rate
Volatility
Dividend yield
June 25, 2017
5.0
1.4%
37.9%
—
For the Fiscal Year Ended
June 26, 2016
7.6
2.1%
60.5%
—
June 28, 2015
7.3
2.2%
62.6%
—
UNIFI uses historical data to estimate the expected term and volatility. The risk-free interest rate is based on the
U.S. Treasury yield curve in effect at the time of the grant for periods corresponding with the expected term of the
stock options.
A summary of stock option activity for fiscal 2017 is as follows:
Outstanding at June 26, 2016
Granted
Exercised
Cancelled or forfeited
Expired
Outstanding at June 25, 2017
Vested and expected to vest as of June 25, 2017
Exercisable at June 25, 2017
Stock Options
Weighted
Average
Exercise Price
14.32
28.82
11.29
30.20
—
19.93
19.89
13.77
720 $
153 $
(356) $
(39) $
— $
478 $
476 $
287 $
Weighted
Average
Remaining
Contractual
Life
(Years)
Aggregate
Intrinsic
Value
5.9 $
5.9 $
3.9 $
4,464
4,463
4,397
At June 25, 2017, all stock options subject to a market condition were vested.
At June 25, 2017, the remaining unrecognized compensation cost related to the unvested stock options was $1,053,
which is expected to be recognized over a weighted average period of 1.6 years.
For fiscal 2017, 2016 and 2015, the total intrinsic value of stock options exercised was $5,802, $598 and $190,
respectively. The amount of cash received from the exercise of stock options was $2,787, $181 and $95 for fiscal
2017, 2016 and 2015, respectively. The tax benefit realized from stock options exercised was $1,517, $155 and $73
for fiscal 2017, 2016 and 2015, respectively.
Restricted Stock Units
During fiscal 2017 and 2016, UNIFI granted 150 and 20 restricted stock units (“RSUs”), respectively, to certain key
employees. The employee RSUs are subject to a vesting restriction and convey no rights of ownership in shares of
Company common stock until such employee RSUs have vested and been distributed to the grantee in the form of
Company common stock. The employee RSUs vest over a three-year period, and will be converted into an
equivalent number of shares of Company common stock (for distribution to the grantee) on each vesting date, unless
the grantee has elected to defer the receipt of the shares of stock until separation from service. If, after the first
F-27
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
anniversary of the grant date and prior to the final vesting date, the grantee has a separation from service without
cause for any reason other than the employee’s resignation, the remaining unvested employee RSUs will become
fully vested and will be converted into an equivalent number of shares of Company common stock and issued to the
grantee. UNIFI estimated the fair value of each employee RSU granted during fiscal 2017 and 2016 to be $27.66
and $27.46, respectively.
During fiscal 2017, 2016 and 2015, UNIFI granted 31, 28 and 17 RSUs, respectively, to UNIFI’s non-employee
directors. The director RSUs became fully vested on the grant date. The director RSUs convey no rights of
ownership in shares of Company common stock until such director RSUs have been distributed to the grantee in the
form of Company common stock. The vested director RSUs will be converted into an equivalent number of shares
of Company common stock and distributed to the grantee following the grantee’s termination of service as a
member of the Board. The grantee may elect to defer receipt of the shares of Company common stock in
accordance with the deferral options provided under the Unifi, Inc. Director Deferred Compensation Plan. UNIFI
estimated the fair value of each director RSU granted during fiscal 2017, 2016 and 2015 to be $29.09, $28.08 and
$28.58, respectively.
UNIFI estimates the fair value of RSUs based on the market price of UNIFI’s common stock at the award grant date.
A summary of the RSU activity for fiscal 2017 is as follows:
Weighted
Average
Grant Date
Fair Value
Non-vested
Vested
Total
Outstanding at June 26, 2016
Granted
Vested
Converted
Cancelled or forfeited
Outstanding at June 25, 2017
21 $
181 $
(39) $
— $
(13) $
150 $
27.20
27.90
28.63
—
27.46
27.66
162
—
39
(70)
—
131
Weighted
Average
Grant Date
Fair Value
18.70
27.90
—
15.47
27.46
25.02
183 $
181 $
— $
(70) $
(13) $
281 $
At June 25, 2017, the number of RSUs vested and expected to vest was 281, with an aggregate intrinsic value of
$8,120. The aggregate intrinsic value of the 131 vested RSUs at June 25, 2017 was $3,782.
The remaining unrecognized compensation cost related to the unvested RSUs at June 25, 2017 was $3,648, which is
expected to be recognized over a weighted average period of 2.1 years.
For fiscal 2017, 2016 and 2015, the total intrinsic value of RSUs converted was $2,120, $553 and $958,
respectively. The tax benefit realized from the conversion of RSUs was $806, $221 and $373 for fiscal 2017, 2016
and 2015, respectively.
Summary
The total cost charged against income related to all stock-based compensation arrangements was as follows:
For the Fiscal Year Ended
Stock options
RSUs
Total compensation cost
$
$
749 $
1,432
2,181 $
June 25, 2017
June 26, 2016
1,379 $
961
2,340 $
June 28, 2015
1,955
676
2,631
The total income tax benefit recognized for stock-based compensation was $599, $592 and $623 for fiscal 2017,
2016 and 2015, respectively.
F-28
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
As of June 25, 2017, total unrecognized compensation costs related to all unvested stock-based compensation
arrangements were $4,701. The weighted average period over which these costs are expected to be recognized is 2.0
years.
17. Defined Contribution Plan
UNIFI matches employee contributions made to the Unifi, Inc. Retirement Savings Plan (the “401(k) Plan”), a
401(k) defined contribution plan, which covers eligible domestic salary and hourly employees. Under the terms of
the 401(k) Plan, UNIFI matches 100% of the first 3% of eligible employee contributions and 50% of the next 2% of
eligible contributions.
The following table presents the employer matching contribution expense related to the 401(k) Plan:
For the Fiscal Year Ended
Matching contribution expense
$
2,538 $
2,331 $
June 25, 2017
June 26, 2016
June 28, 2015
2,201
18. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities
Financial Instruments
UNIFI may use derivative financial instruments such as foreign currency forward contracts or interest rate swaps to
reduce its ongoing business exposures to fluctuations in foreign currency exchange rates or interest rates. UNIFI
does not enter into derivative contracts for speculative purposes.
Foreign Currency Forward Contracts
UNIFI may enter into foreign currency forward contracts as economic hedges for exposures related to certain sales,
inventory purchases and equipment purchases which are denominated in currencies that are not its functional
currency. Foreign currency forward contracts are not designated as hedges by UNIFI and are marked to market each
period and offset by the foreign exchange (gains) losses included in other operating (income) expense, net resulting
from the underlying exposures of the foreign currency denominated assets and liabilities. As of June 25, 2017 and
June 26, 2016, there were no outstanding foreign currency forward contracts. However, UNIFI utilized a foreign
currency forward contract during fiscal 2017, for which the impact to the consolidated financial statements was
insignificant.
Interest Rate Swaps
UNIFI’s primary debt obligations utilize variable-rate LIBOR, exposing the Company to variability in interest
payments due to changes in interest rates. Management enters into LIBOR-based interest rate swap agreements to
manage fluctuations in cash flows resulting from changes in the benchmark LIBOR. Under the terms of the interest
rate swaps, UNIFI effectively receives LIBOR-based variable interest rate payments and makes fixed interest rate
payments, thereby fixing the variable rate cash flows on the notional amount of debt obligations.
On January 5, 2017, February 24, 2017 and June 1, 2017, UNIFI entered into three interest rate swaps with Wells
Fargo Bank, N.A. (“Wells Fargo”), with notional amounts of $20,000 (“Swap A”), $30,000 (“Swap B”) and $25,000
(“Swap C”), respectively. The combined designated hedges fix LIBOR at approximately 1.9% for $75,000 of
variable rate borrowings through May 24, 2022. In accordance with hedge accounting, each swap is reflected on the
balance sheet at fair value with a corresponding balance in accumulated other comprehensive loss, and impacts
earnings commensurate with the forecasted transaction.
On May 18, 2012, UNIFI entered into a five-year, $50,000 interest rate swap (“Swap D”) with Wells Fargo to
provide a hedge against the variability of cash flows related to LIBOR-based variable rate borrowings under the
ABL Facility. On November 26, 2012, UNIFI de-designated Swap D as a cash flow hedge. Swap D allowed UNIFI
F-29
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
to fix LIBOR at 1.06% and terminated on May 24, 2017. See Note 19, “Accumulated Other Comprehensive Loss,”
for detail regarding the reclassifications of amounts from accumulated other comprehensive loss related to Swap D.
Contingent Consideration
In December 2013, UNIFI acquired certain draw-winding assets in a business combination and recorded a $2,500
contingent consideration liability (Level 3 classification in the fair value hierarchy). There has been no material fair
value activity relevant to the contingent consideration since its establishment, and the balance at June 25, 2017 is
primarily a result of the life-to-date payments made.
UNIFI’s financial assets and liabilities accounted for at fair value on a recurring basis and the level within the fair
value hierarchy used to measure these items are as follows:
As of June 25, 2017
Swap A
Swap B
Swap C
Contingent
consideration
As of June 26, 2016
Swap D
Contingent
consideration
Notional Amount
USD $ 20,000 Other long-term liabilities
USD $ 30,000 Other long-term liabilities
USD $ 25,000 Other long-term liabilities
Balance Sheet Location
Accrued expenses
and other long-term liabilities
—
Notional Amount
USD $ 50,000 Accrued expenses
Accrued expenses
and other long-term liabilities
Balance Sheet Location
—
Fair Value
Hierarchy
Level 2
Level 2
Level 2
$
$
$
Level 3
$
Fair Value
243
364
201
925
Fair Value
Hierarchy
Level 2
Fair Value
$
260
Level 3
$
1,348
Estimates for the fair value of UNIFI’s derivative contracts are obtained from month-end market quotes for contracts
with similar terms.
Swaps A, B and C, designated hedges, impacted interest expense for fiscal 2017 by $42. Swap D, a de-designated
hedge, impacted interest expense for fiscal 2017, 2016 and 2015 by $178, $375 and $507, respectively.
By entering into derivative contracts, UNIFI exposes itself to counterparty credit risk. UNIFI attempts to minimize
this risk by selecting counterparties with investment grade credit ratings and regularly monitoring those ratings.
UNIFI’s derivative instruments do not contain any credit-risk-related contingent features.
UNIFI believes that there have been no significant changes to its credit risk profile or the interest rates available to
UNIFI for debt issuances with similar terms and average maturities, and UNIFI estimates that the fair values of its
debt obligations approximate the carrying amounts. Other financial instruments include cash and cash equivalents,
receivables, accounts payable and accrued expenses. The financial statement carrying amounts of these items
approximate the fair value due to their short-term nature.
There were no transfers into or out of the levels of the fair value hierarchy for fiscal 2017, 2016 and 2015.
Non-Financial Assets and Liabilities
UNIFI did not have any non-financial assets or liabilities that were required to be measured at fair value on a
recurring or non-recurring basis.
F-30
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
19. Accumulated Other Comprehensive Loss
The components of and the changes in accumulated other comprehensive loss, net of tax, as applicable, consist of
the following:
Balance at June 29, 2014
Other comprehensive (loss) income, net of tax
Balance at June 28, 2015
Other comprehensive (loss) income, net of tax
Balance at June 26, 2016
Other comprehensive loss, net of tax
Balance at June 25, 2017
Foreign
Currency
Translation
Adjustments
Changes in
Interest
Rate
Swaps
Accumulated
Other
Comprehensive
Loss
$
$
$
$
(4,241) $
(22,511)
(26,752) $
(2,929)
(29,681) $
(2,691)
(32,372) $
(378) $
231
(147) $
(4,619)
(22,280)
(26,899)
77
(70) $
(2,852)
(29,751)
(438)
(508) $
(3,129)
(32,880)
A summary of other comprehensive (loss) income for fiscal 2017, 2016 and 2015 is provided as follows, noting
there is no tax impact for fiscal 2016 and 2015:
Other comprehensive (loss) income:
Foreign currency translation adjustments
Foreign currency translation adjustments for
an unconsolidated affiliate
Changes in interest rate swaps, net of
reclassification adjustments
Other comprehensive loss, net
Fiscal 2017
Fiscal 2016
Fiscal 2015
Pre-tax Tax
After-tax Pre-tax After-tax Pre-tax After-tax
$(2,936) $ — $(2,936) $(2,135) $(2,135) $(21,578) $(21,578)
245 —
245
(794)
(794)
(933)
(933)
(737)
231
$(3,428) $ 299 $(3,129) $(2,852) $(2,852) $(22,280) $(22,280)
(438)
231
299
77
77
20. Computation of Earnings Per Share
The computation of basic and diluted earnings per share (“EPS”) is as follows:
Basic EPS
Net income attributable to Unifi, Inc.
Weighted average common shares outstanding
Basic EPS
Diluted EPS
Net income attributable to Unifi, Inc.
Weighted average common shares outstanding
Net potential common share equivalents –
stock options and RSUs
Adjusted weighted average common shares outstanding
Diluted EPS
Excluded from the calculation of common share equivalents:
Anti-dilutive common share equivalents
Excluded from the calculation of diluted shares:
Unvested stock options that vest upon achievement of certain
market conditions
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
June 28, 2015
$
$
$
$
32,875 $
18,136
1.81 $
34,415 $
17,857
1.93 $
32,875 $
18,136
34,415 $
17,857
307
18,443
1.78 $
558
18,415
1.87 $
42,151
18,207
2.32
42,151
18,207
629
18,836
2.24
390
193
150
—
—
—
F-31
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
The calculation of earnings per common share is based on the weighted average number of UNIFI’s common shares
outstanding for the applicable period. The calculation of diluted earnings per common share 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.
21. Other Operating (Income) Expense, Net
Other operating (income) expense, net primarily consists of gains and losses on (i) foreign currency transactions and
(ii) sale or disposal of assets, along with certain expenses related to former employees for consulting, transition,
relocation or severance.
22. Investments in Unconsolidated Affiliates and Variable Interest Entities
Parkdale America, LLC
In June 1997, UNIFI and Parkdale Mills, Inc. (“Mills”) entered into a Contribution Agreement that set forth the terms
and conditions by which the two companies contributed all of the assets of their spun cotton yarn operations utilizing
open-end and air-jet spinning technologies to create PAL. In exchange for its contribution, UNIFI received a 34%
ownership interest in PAL, which is accounted for using the equity method of accounting. Effective January 1, 2012,
Mills’ interest in PAL was assigned to Parkdale Incorporated.
PAL is a limited liability company treated as a partnership for income tax reporting purposes. PAL is a producer of
cotton and synthetic yarns for sale to the global textile industry and apparel market. Per PAL’s fiscal 2016 audited
financial statements, PAL had 14 manufacturing facilities located primarily in the southeast region of the United
States and in Mexico. PAL’s five largest customers accounted for approximately 81% of total revenues and 80% of
total gross accounts receivable outstanding. As PAL’s fiscal year end is the Saturday nearest to December 31 and its
results are considered significant, UNIFI files an amendment to each Annual Report on Form 10-K on or before 90
days subsequent to PAL’s fiscal year end to provide PAL’s audited financial statements for PAL’s most recent fiscal
year. UNIFI filed an amendment to its Annual Report on Form 10-K for the fiscal year ended June 26, 2016 on
March 29, 2017 to provide PAL’s audited financial statements for PAL’s fiscal year ended December 31, 2016.
UNIFI expects to file an amendment to this Annual Report on or before March 30, 2018 to provide PAL’s audited
financial statements for PAL’s fiscal year ended December 30, 2017.
The U.S. federal government maintains a program providing economic adjustment assistance to domestic users of
upland cotton (the “cotton rebate program”). The cotton rebate program offers a subsidy for cotton consumed in
domestic production, and the subsidy is paid the month after the eligible cotton is consumed. To be completely
earned, the subsidy must be used within 18 months after the marketing year in which it is earned to purchase
qualifying capital expenditures in the United States for production of goods from upland cotton. The marketing year
is from August 1 to July 31. The program provides a subsidy of up to three cents per pound. In February 2014, the
U.S. federal government extended the program for five years. The cotton subsidy will remain at three cents per
pound for the life of the program. PAL recognizes its share of income for the cotton subsidy when the cotton has
been consumed and the qualifying assets have been acquired, with an appropriate allocation methodology
considering the dual criteria of the subsidy.
PAL is subject to price risk related to anticipated fixed-price yarn sales. To protect the gross margin of these sales,
PAL may enter into cotton futures to manage changes in raw material prices in order to protect the gross margin of
fixed-priced yarn sales. The derivative instruments used are listed and traded on an exchange and are thus valued
using quoted prices classified within Level 1 of the fair value hierarchy. As of June 25, 2017, PAL had no futures
contracts designated as cash flow hedges.
F-32
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
As of June 25, 2017, UNIFI’s investment in PAL was $115,614, which was reflected within investments in
unconsolidated affiliates in the accompanying consolidated balance sheets. The reconciliation between UNIFI’s
share of the underlying equity of PAL and its investment is as follows:
Underlying equity as of June 25, 2017
Initial excess capital contributions
Impairment charge recorded by UNIFI in 2007
Anti-trust lawsuit against PAL in which UNIFI did not participate
Cotton rebate adjustments to PAL’s depreciation expense
Investment as of June 25, 2017
$
$
133,819
53,363
(74,106)
2,652
(114)
115,614
On August 28, 2014, PAL acquired the remaining 50% ownership interest in a yarn manufacturer based in Mexico
in which PAL was historically a 50% member. The acquisition increased PAL’s regional manufacturing capacity
and expanded its product offerings and customer base. PAL accounted for the transaction as a business combination
under the acquisition method, recognizing the assets acquired and liabilities assumed at their respective fair values
as of the acquisition date. UNIFI and PAL concluded that the acquisition did not represent a material business
combination. PAL recognized a bargain purchase gain of $4,430 and recorded acquired net assets of $23,644.
On February 27, 2015, PAL purchased two manufacturing facilities, plus inventory, for approximately $13,000 in
cash, and entered into a yarn supply agreement with the seller. PAL accounted for the transaction as a business
combination under the acquisition method, recognizing the assets acquired and liabilities assumed at their respective
fair values as of the acquisition date. UNIFI and PAL concluded that the acquisition did not represent a material
business combination. PAL recognized a bargain purchase gain of $9,381.
U.N.F. Industries, Ltd.
In September 2000, UNIFI and Nilit Ltd. (“Nilit”) formed a 50/50 joint venture, U.N.F. Industries Ltd. (“UNF”), for
the purpose of operating nylon extrusion assets to manufacture nylon POY. Raw material and production services
for UNF are provided by Nilit under separate supply and services agreements. UNF’s fiscal year end is December
31 and it is a registered Israeli private company located in Migdal Ha-Emek, Israel.
UNF America, LLC
In October 2009, UNIFI and Nilit America Inc. (“Nilit America”) formed a 50/50 joint venture, UNF America LLC
(“UNFA”), for the purpose of operating a nylon extrusion facility which manufactures nylon POY. Raw material
and production services for UNFA are provided by Nilit America under separate supply and services agreements.
UNFA’s fiscal year end is December 31 and it is a limited liability company treated as a partnership for income tax
reporting purposes located in Ridgeway, Virginia.
In conjunction with the formation of UNFA, UNIFI entered into a supply agreement with UNF and UNFA whereby
UNIFI agreed to purchase all of its first quality nylon POY requirements for texturing (subject to certain exceptions)
from either UNF or UNFA. The agreement has no stated minimum purchase quantities and pricing is negotiated
every six months, based on market rates. As of June 25, 2017, UNIFI’s open purchase orders related to this
agreement were $2,046.
UNIFI’s raw material purchases under this supply agreement consist of the following:
For the Fiscal Year Ended
UNF
UNFA
Total
$
$
2,254 $
20,493
22,747 $
F-33
June 25, 2017
June 26, 2016
2,828 $
24,319
27,147 $
June 28, 2015
3,676
29,922
33,598
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
As of June 25, 2017 and June 26, 2016, UNIFI had combined accounts payable due to UNF and UNFA of $2,301
and $3,231, respectively.
UNIFI has determined that UNF and UNFA are variable interest entities (“VIEs”) and has 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 UNIFI purchases substantially all of the output
from the two entities, the two entities’ balance sheets constitute 3% or less of UNIFI’s current assets, total assets and
total liabilities, and 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. As of June 25, 2017, UNIFI’s combined
investments in UNF and UNFA were $3,899 and are shown within investments in unconsolidated affiliates in the
accompanying consolidated balance sheets. The financial results of UNF and UNFA are included in UNIFI’s
consolidated financial statements with a one-month lag, using the equity method of accounting and with
intercompany profits eliminated in accordance with UNIFI’s accounting policy. Other than the supply agreement
discussed above, UNIFI does not provide any other commitments or guarantees related to either UNF or UNFA.
Condensed balance sheet and income statement information for UNIFI’s unconsolidated affiliates (including
reciprocal balances) is presented in the following tables. PAL is defined as significant and its information is
separately disclosed. PAL does not meet the criteria for segment reporting. For UNIFI’s fiscal 2017 and 2016,
PAL’s corresponding fiscal periods both consisted of 52 weeks. Depreciation and amortization for PAL for the
periods presented includes amounts for PAL’s foreign subsidiaries. PAL’s current assets and shareholders’ equity
accounts reflect a $6,800 dividend distribution made to UNIFI on June 28, 2017, subsequent to UNIFI’s fiscal 2017.
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Shareholders’ equity and capital accounts
UNIFI’s portion of undistributed earnings
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Shareholders’ equity and capital accounts
Net sales
Gross profit
Income from operations
Net income
Depreciation and amortization
$
$
$
As of June 25, 2017
Other
PAL
247,820 $
183,418
54,389
3,263
373,586
10,340 $
1,039
3,588
—
7,791
Total
258,160
184,457
57,977
3,263
381,377
46,248
1,916
48,164
As of June 26, 2016
Other
PAL
244,197 $
203,251
56,921
3,057
387,470
PAL
754,285 $
26,275
10,406
7,814
42,801
12,781 $
1,069
4,048
—
9,802
22,905 $
4,877
3,061
2,988
177
Total
256,978
204,320
60,969
3,057
397,272
Total
777,190
31,152
13,467
10,802
42,978
For the Fiscal Year Ended June 25, 2017
Other
Cash received by PAL under cotton rebate program
Earnings recognized by PAL for cotton rebate program
14,293
13,491
—
—
14,293
13,491
Distributions received
822
1,500
2,322
F-34
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Distributions received from PAL of $822 excludes a $6,800 dividend distribution made to UNIFI on June 28, 2017,
subsequent to UNIFI’s fiscal 2017.
Net sales
Gross profit
Income from operations
Net income
Depreciation and amortization
Cash received by PAL under cotton rebate program
Earnings recognized by PAL for cotton rebate program
Distributions received
Net sales
Gross profit
Income from operations
Net income
Depreciation and amortization
$
$
For the Fiscal Year Ended June 26, 2016
Other
PAL
824,248 $
32,626
15,143
17,670
46,235
29,463 $
7,651
5,772
5,838
150
Total
853,711
40,277
20,915
23,508
46,385
17,057
16,080
—
—
17,057
16,080
1,732
3,000
4,732
For the Fiscal Year Ended June 28, 2015
Other
PAL
828,502 $
53,042
34,873
50,991
35,536
33,496 $
5,480
3,861
4,140
117
Total
861,998
58,522
38,734
55,131
35,653
Cash received by PAL under cotton rebate program
Earnings recognized by PAL for cotton rebate program
18,087
17,398
—
—
18,087
17,398
Distributions received
2,468
1,250
3,718
As of the end of PAL’s corresponding 12-month fiscal periods ending in June, PAL’s amounts of deferred revenues
related to the cotton rebate program were $0 for all periods.
23. Commitments and Contingencies
Collective Bargaining Agreements
While employees of UNIFI’s Brazilian operations are unionized, none of the labor force employed by UNIFI’s
domestic or other foreign subsidiaries is currently covered by a collective bargaining agreement.
Environmental
On September 30, 2004, UNIFI completed its acquisition of polyester filament manufacturing assets located in
Kinston, North Carolina from Invista S.a.r.l. (“INVISTA”). The land for the Kinston site was leased pursuant to a
99-year ground lease (the “Ground Lease”) with E.I. DuPont de Nemours (“DuPont”). Since 1993, DuPont has been
investigating and cleaning up the Kinston site under the supervision of the U.S. Environmental Protection Agency
and the North Carolina Department of Environmental Quality (“DEQ”) pursuant to the Resource Conservation and
Recovery Act Corrective Action program. The program requires DuPont to identify all potential areas of
environmental concern (“AOCs”), assess the extent of containment at the identified AOCs and remediate the AOCs
to comply with applicable regulatory standards. Effective March 20, 2008, UNIFI entered into a lease termination
agreement associated with conveyance of certain assets at the Kinston site to DuPont. This agreement terminated
the Ground Lease and relieved UNIFI of any future responsibility for environmental remediation, other than
participation with DuPont, if so called upon, with regard to UNIFI’s period of operation of the Kinston site, which
F-35
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
was from 2004 to 2008. At this time, UNIFI has no basis to determine if or when it will have any responsibility or
obligation with respect to the AOCs or the extent of any potential liability for the same.
UNIFI continues to own property acquired in the 2004 transaction with INVISTA that has contamination from
DuPont’s operations and is monitored by DEQ. This site has been remediated by DuPont, and DuPont has received
authority from DEQ to discontinue further remediation, other than natural attenuation. Prior to transfer of
responsibility to UNIFI, DuPont has a duty to monitor and report the environmental status of the site to DEQ. UNIFI
expects to assume that responsibility in fiscal 2018 and will be entitled to receive from DuPont seven years of
monitoring and reporting costs, less certain adjustments. At that time, UNIFI will assume responsibility for any
future remediation of the site. At this time, UNIFI has no basis to determine if or when it will have any obligation to
perform further remediation or the potential cost thereof.
Leases
UNIFI routinely leases sales and administrative office space, warehousing and distribution centers, manufacturing
space, transportation equipment, manufacturing equipment, and other information technology and office equipment
from third parties.
Future minimum capital lease payments and future minimum lease payments under non-cancelable operating leases
(with initial or remaining lease terms in excess of one year) as of June 25, 2017 by fiscal year are:
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal years thereafter
Total minimum lease payments
Less estimated executory costs
Less interest
Present value of net minimum capital lease payments
Less current portion of capital lease obligations
Long-term portion of capital lease obligations
Capital leases
$
Operating leases
2,088
1,621
1,340
994
328
—
6,371
7,943 $
7,626
5,916
2,870
2,565
1,032
27,952 $
(782)
(2,002)
25,168
(7,060)
18,108
$
$
Rental expenses incurred under operating leases and included in operating income consist of the following:
For the Fiscal Year Ended
Rental expenses
Unconditional Obligations
$
4,357 $
June 25, 2017
June 26, 2016
4,867 $
June 28, 2015
4,214
UNIFI is a party to unconditional obligations for certain utility and other purchase or service commitments. These
commitments are non-cancelable, have remaining terms in excess of one year and qualify as normal purchases.
F-36
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
On a fiscal year basis, the minimum payments expected to be made as part of such commitments are as follows:
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Thereafter
Unconditional purchase
obligations
$
9,384 $
8,306 $
4,475 $
201 $
6 $
Unconditional service
obligations
Total unconditional
obligations
2,383
1,864
245
148
76
$
11,767 $
10,170 $
4,720 $
349 $
82 $
22
412
434
For fiscal 2017, 2016 and 2015, total costs incurred under these commitments consisted of the following:
For the Fiscal Year Ended
Costs for unconditional purchase obligations
Costs for unconditional service obligations
Total
$
$
26,984 $
2,575
29,559 $
June 25, 2017
June 26, 2016
26,790 $
641
27,431 $
June 28, 2015
28,971
7,625
36,596
24. Related Party Transactions
Related party receivables consist of the following:
Salem Global Logistics, Inc.
Total related party receivables (included within receivables, net)
Related party payables consist of the following:
Salem Leasing Corporation (included within accounts payable)
Salem Leasing Corporation (capital lease obligation)
Total related party payables
June 25, 2017
June 26, 2016
6 $
6 $
7
7
June 25, 2017
June 26, 2016
298 $
947
1,245 $
250
1,015
1,265
$
$
$
$
Related party transactions in excess of $120 for the current or prior two fiscal years consist of the matters in the
table below and the following paragraphs:
Affiliated Entity
Salem Leasing Corporation
Transaction Type
Transportation equipment costs
and capital lease debt service
Salem Global Logistics, Inc.
Freight service income
For the Fiscal Year Ended
June 25, 2017 June 26, 2016
June 28, 2015
$
3,914 $
128
3,751 $
253
3,633
179
Mr. Kenneth G. Langone, a member of the Board, is a director, shareholder and non-executive Chairman of the
Board of Salem Holding Company. UNIFI leases tractors and trailers from Salem Leasing Corporation, a wholly
owned subsidiary of Salem Holding Company. In addition to the monthly lease payments, UNIFI also incurs
expenses for routine repair and maintenance, fuel and other expenses. These leases do not contain renewal options,
purchase options or escalation clauses with respect to the minimum lease charges.
Salem Global Logistics, Inc. is also a wholly owned subsidiary of Salem Holding Company. During fiscal 2017,
2016 and 2015, UNIFI earned income by providing for-hire freight services for Salem Global Logistics, Inc.
F-37
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
25. 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 Chief Executive Officer, who is the chief
operating decision maker (“CODM”), in order to assess performance and allocate resources. Characteristics of the
organization which were relied upon in making the determination of reportable segments include the nature of the
products sold, the organization’s internal structure, the trade policies in the geographic regions in which UNIFI
operates, and the information that is regularly reviewed by the CODM for the purpose of assessing performance and
allocating resources.
UNIFI’s operating segments are aggregated into three reportable segments based on similarities between the
operating segments’ economic characteristics, nature of products sold, type of customer, methods of distribution and
regulatory environment.
•
•
•
The operations within the Polyester Segment exhibit similar long-term economic characteristics and sell
into an economic trading zone covered by the North American Free Trade Agreement (“NAFTA”) and
the Dominican Republic—Central America Free Trade Agreement (“CAFTA-DR”) to similar customers
utilizing similar methods of distribution. These operations derive revenues from polyester-based
products with sales primarily to other yarn manufacturers and knitters and weavers that produce yarn
and/or fabric for the apparel, hosiery, automotive, home furnishings, industrial and other end-use
markets. The Polyester Segment consists of sales and manufacturing operations in the United States and
El Salvador.
The operations within the Nylon Segment exhibit similar long-term economic characteristics and sell
into an economic trading zone covered by NAFTA and CAFTA-DR to similar customers utilizing
similar methods of distribution. The Nylon Segment includes an immaterial operating segment in
Colombia that sells similar nylon-based textile products to similar customers in Colombia and Mexico
utilizing similar methods of distribution. These operations derive revenues from nylon-based products
with sales to knitters and weavers that produce fabric primarily for the apparel and hosiery markets.
The Nylon Segment consists of sales and manufacturing operations in the United States and Colombia.
The operations within the International Segment exhibit similar long-term economic characteristics and
sell to similar customers utilizing similar methods of distribution in geographic regions that are outside
of the NAFTA and CAFTA-DR economic trading zone. The International Segment primarily sells
polyester-based products to knitters and weavers that produce fabric for the apparel, automotive, home
furnishings, industrial and other end-use markets primarily in the South American and Asian regions.
The International Segment includes a manufacturing location in Brazil and sales offices in Brazil, China
and Sri Lanka.
In addition to UNIFI’s reportable segments, the selected financial information presented below includes an All
Other category. All Other consists primarily of Renewables (up through the date of sale, December 23, 2016) and
for-hire transportation services. Revenue for Renewables was primarily derived from (i) facilitating the use of
miscanthus grass as bio-fuel through service agreements and (ii) delivering harvested miscanthus grass to poultry
producers for animal bedding. For-hire transportation services revenue is derived from performing common carrier
services utilizing UNIFI’s fleet of transportation equipment.
The operations within All Other (i) are not subject to review by the CODM at a level consistent with UNIFI’s other
operations, (ii) are not regularly evaluated using the same metrics applied to UNIFI’s other operations and (iii) do
not qualify for aggregation with an existing reportable segment. Therefore, such operations are excluded from
reportable segments.
UNIFI evaluates the operating performance of its segments based upon Segment Profit (Loss), 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.
F-38
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
The accounting policies for the segments are consistent with UNIFI’s accounting policies. Intersegment sales are
omitted from the below financial information, 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 Fiscal Year Ended June 25, 2017
Net sales
Cost of sales
Gross profit (loss)
Segment depreciation expense
Segment Profit
Net sales
Cost of sales
Gross profit (loss)
Segment depreciation expense
Segment Profit
Net sales
Cost of sales
Gross profit (loss)
Segment depreciation expense
Segment Profit (Loss)
International All Other
Total
Nylon
Polyester
$ 355,740 $ 112,704 $ 173,686 $
131,087
315,655 100,633
42,599
12,071
1,119
2,125
43,718 $
$ 54,006 $ 14,196 $
40,085
13,921
5,140 $ 647,270
5,731 553,106
94,164
(591)
638
17,803
47 $ 111,967
For the Fiscal Year Ended June 26, 2016
International All Other
Total
Nylon
Polyester
$ 383,167 $ 131,715 $ 122,554 $
95,666
333,638 113,906
26,888
17,809
885
1,899
27,773 $
$ 60,717 $ 19,708 $
49,529
11,188
6,201 $ 643,637
6,795 550,005
93,632
(594)
820
14,792
226 $ 108,424
For the Fiscal Year Ended June 28, 2015
International All Other
Total
Nylon
Polyester
$ 396,239 $ 149,612 $ 134,992 $
113,556
345,462 130,644
21,436
18,968
1,997
1,798
23,433 $
$ 61,356 $ 20,766 $
50,777
10,579
6,278 $ 687,121
6,754 596,416
90,705
(476)
14,847
473
(3) $ 105,552
The reconciliations of segment gross profit (loss) to consolidated income before income taxes are as follows:
Polyester
Nylon
International
All Other
Segment gross profit
SG&A expenses
(Benefit) provision for bad debts
Other operating (income) expense, net
Operating income
Interest income
Interest expense
Loss on sale of business
Loss on extinguishment of debt
Equity in earnings of unconsolidated affiliates
Income before income taxes
For the Fiscal Year Ended
June 26, 2016
June 25, 2017
$
40,085 $
12,071
42,599
(591)
94,164
50,829
(123)
(310)
43,768
(517)
3,578
1,662
—
(4,230)
43,275 $
49,529 $
17,809
26,888
(594)
93,632
47,502
1,684
2,248
42,198
(610)
3,528
—
—
(8,963)
48,243 $
June 28, 2015
50,777
18,968
21,436
(476)
90,705
49,672
947
1,600
38,486
(916)
4,025
—
1,040
(19,475)
53,812
$
F-39
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
The reconciliations of segment depreciation and amortization expense to consolidated depreciation and amortization
expense are as follows:
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
Polyester
Nylon
International
All Other
Segment depreciation expense
Other depreciation and amortization expense
Depreciation and amortization expense
$
$
13,921 $
2,125
1,119
638
17,803
2,565
20,368 $
11,188 $
1,899
885
820
14,792
2,736
17,528 $
June 28, 2015
10,579
1,798
1,997
473
14,847
3,196
18,043
The reconciliations of segment capital expenditures to consolidated capital expenditures are as follows:
Polyester
Nylon
International
Segment capital expenditures
Other capital expenditures
Capital expenditures
For the Fiscal Year Ended
June 26, 2016
June 25, 2017
$
25,442 $
1,247
4,734
31,423
1,767
33,190 $
$
44,517 $
2,548
2,755
49,820
2,517
52,337 $
June 28, 2015
21,267
2,392
1,468
25,127
839
25,966
In addition to the capital expenditures noted above, Polyester assets were added via a construction financing
arrangement further described in Note 12, “Long-Term Debt.”
During fiscal 2017, UNIFI changed the segmentation of cash and cash equivalents to better reflect its ability to
expand operations in multiple regions. Thus, in the reconciliations below, cash and cash equivalents have been
reclassified out of individual segments and into other current assets for the fiscal years presented.
The reconciliations of segment total assets to consolidated total assets are as follows:
June 25, 2017
June 26, 2016
Polyester
Nylon
International
Segment total assets
Other current assets
Other property, plant and equipment
Other non-current assets
Investments in unconsolidated affiliates
Total assets
$
$
270,819 $
57,789
80,824
409,432
27,375
14,904
279
119,513
571,503 $
243,093 $
63,141
66,998
373,232
13,337
16,597
4,864
117,412
525,442 $
June 28, 2015
208,411
66,490
60,809
335,710
6,892
13,544
4,714
113,901
474,761
Product sales (excluding the All Other category) are as follows:
For the Fiscal Year Ended
Polyester
Nylon
Total
$
$
529,426 $
112,704
642,130 $
F-40
June 25, 2017
June 26, 2016
505,721 $
131,715
637,436 $
June 28, 2015
531,231
149,612
680,843
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Geographic Data
Geographic information is set forth below, beginning with net sales. Brazil is reported separately from other foreign
countries because its net sales exceed 10% of consolidated net sales for each of the fiscal years presented.
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
United States
Brazil
Remaining Foreign Countries
Total
$
$
424,490 $
109,079
113,701
647,270 $
472,287 $
83,087
88,263
643,637 $
June 28, 2015
509,490
101,912
75,719
687,121
Export sales from UNIFI’s U.S. operations to external
customers
$
104,229 $
113,725 $
119,548
The information for net sales is based on the operating locations from where the items were produced or distributed.
Geographic information for long-lived assets is as follows:
United States
Brazil
Remaining Foreign Countries
Total
$
$
304,696 $
12,616
8,360
325,672 $
June 25, 2017
June 26, 2016
292,854 $
9,714
8,595
311,163 $
June 28, 2015
240,431
8,207
9,237
257,875
Long-lived assets are comprised of PP&E, net; intangible assets, net; investments in unconsolidated affiliates; and
other non-current assets.
Geographic information for total assets is as follows:
United States
Brazil
Remaining Foreign Countries
Total
$
$
445,947 $
58,598
66,958
571,503 $
26. Quarterly Results (Unaudited)
Quarterly financial data and selected highlights are as follows:
June 25, 2017
June 26, 2016
427,679 $
53,993
43,770
525,442 $
June 28, 2015
387,155
50,300
37,306
474,761
Net sales
Gross profit
Net income including non-controlling interest
Less: net loss attributable to non-controlling interest
Net income attributable to Unifi, Inc. (1) (2) (3)
Net income attributable to Unifi, Inc. per common share:
Basic (4)
Diluted (4)
$
September 25,
2016
159,969 $
23,547
9,142
(261)
9,403 $
$
June 25,
2017
For the Fiscal Quarters Ended
March 26,
December 25,
2017
2016
160,896 $ 171,250
155,155 $
27,357
21,130
22,130
9,704
9,177
4,354
—
—
(237)
9,704
9,177 $
4,591 $
$
$
0.52 $
0.51 $
0.25 $
0.25 $
0.50 $
0.50 $
0.53
0.52
F-41
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Net sales
Gross profit
Net income including non-controlling interest
Less: net loss attributable to non-controlling interest
Net income attributable to Unifi, Inc. (5)
Net income attributable to Unifi, Inc. per common share:
Basic (4)
Diluted (4)
September 27,
2015
162,165 $
20,984
7,786
(239)
8,025 $
For the Fiscal Quarters Ended
March 27,
December 27,
2016
2015
161,278 $
156,336 $
23,364
21,813
9,275
6,194
(270)
(414)
9,689 $
6,464 $
$
$
June 26,
2016
163,858
27,471
9,915
(322)
10,237
$
$
0.45 $
0.43 $
0.36 $
0.35 $
0.54 $
0.53 $
0.57
0.56
(1) Net income attributable to Unifi, Inc. for the quarter ended December 25, 2016 includes the loss on sale of
business of $1,662.
(2) Net income attributable to Unifi, Inc. for the first three quarters of fiscal 2017 includes comparatively lower
earnings from equity affiliates.
(3) Net income attributable to Unifi, Inc. for the quarters ended September 25, 2016, March 26, 2017 and June 25,
(4)
2017 includes a comparatively lower effective tax rate.
Income per share is computed independently for each of the periods presented. The sum of the income per
share amounts for the quarters may not equal the total for the year.
(5) Net income attributable to Unifi, Inc. for the quarters ended June 26, 2016, March 27, 2016 and December 27,
2015 includes the unfavorable impact of key employee transition costs of approximately $840, $260 and $400,
respectively.
27. Supplemental Cash Flow Information
Cash payments for interest and taxes consist of the following:
June 25, 2017
For the Fiscal Year Ended
June 26, 2016
June 28, 2015
Interest, net of capitalized interest of $652, $704 and $191,
respectively
Income taxes, net of refunds
$
3,282
$
8,123
3,066
$
9,923
3,304
17,208
Cash payments for taxes shown above consist primarily of income and withholding tax payments made by UNIFI in
both U.S. and foreign jurisdictions.
Non-Cash Investing and Financing Activities
As of June 25, 2017, June 26, 2016 and June 28, 2015, $3,234, $4,197 and $1,726, respectively, were included in
accounts payable for unpaid capital expenditures.
In June 2015, UNIFI sold certain land and building assets. Net proceeds from the sale of $1,390 were remitted
directly to a qualified intermediary.
During fiscal 2017, UNIFI recorded reclassification and non-cash activity relating to the construction financing
arrangement discussed in Note 12, “Long-Term Debt.”
During fiscal 2015, UNIFI entered into capital leases with aggregate present values of $12,784.
During fiscal 2016, Renewables acquired certain land valued at $191 utilizing a promissory note for $135 and cash.
F-42
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