UNIFI, INC.
Notice of Annual Meeting
and
Proxy Statement
for
2018 Annual Meeting of Shareholders
October 31, 2018
2018 Annual Report on Form 10-K
UNIFI, INC.
7201 West Friendly Avenue
Greensboro, North Carolina 27410
September 13, 2018
Dear Shareholder:
On behalf of the Board of Directors and the management of Unifi, Inc., I invite you to attend the 2018
Annual Meeting of Shareholders (the “Annual Meeting”). The Annual Meeting will be held at 8:30 a.m.,
Eastern Time, on Wednesday, October 31, 2018 at the Lotte New York Palace located at 455 Madison
Avenue at 50th Street, New York, New York 10022. Details regarding admission to the Annual Meeting
and the business to be conducted are described in the accompanying Notice of 2018 Annual Meeting
of Shareholders and Proxy Statement.
I hope that you will attend the Annual Meeting in person, but even if you are planning to come, I
strongly encourage you to vote as soon as possible to ensure that your shares are represented at the
meeting. The accompanying Proxy Statement explains more about voting. Please read it carefully.
Thank you for your continued support.
Sincerely,
Kevin D. Hall
Chairman of the Board and Chief Executive Officer
UNIFI, INC.
7201 West Friendly Avenue
Greensboro, North Carolina 27410
(336) 294-4410
Notice of 2018 Annual Meeting of Shareholders
The 2018 Annual Meeting of Shareholders (the “Annual Meeting”) of Unifi, Inc. (the “Company”) will be
held at 8:30 a.m., Eastern Time, on Wednesday, October 31, 2018 at the Lotte New York Palace
located at 455 Madison Avenue at 50th Street, New York, New York 10022, for the purpose of voting
on the following matters:
1. To elect the 11 directors nominated by the Board of Directors;
2. To approve, on an advisory basis, the Company’s named executive officer compensation
in fiscal 2018;
3. To approve the Unifi, Inc. Amended and Restated 2013 Incentive Compensation Plan;
4. To ratify the appointment of KPMG LLP as the Company’s independent registered public
accounting firm for fiscal 2019; and
5. To transact such other business as may properly come before the Annual Meeting or any
adjournment or postponement thereof.
The Board of Directors unanimously recommends that you vote “FOR” Items 1, 2, 3 and 4. The
proxy holders will use their discretion to vote on other matters that may properly arise at the
Annual Meeting or any adjournment or postponement thereof.
Only shareholders of record as of the close of business on September 4, 2018 will be entitled to vote at
the Annual Meeting.
Your vote is important. Whether or not you plan to attend the Annual Meeting, you are encouraged to
vote as soon as possible to ensure that your shares are represented at the meeting. If you are a
shareholder of record and received a paper copy of the proxy materials by mail, you may vote your
shares by proxy using one of the following methods: (i) vote via the Internet; (ii) vote by telephone; or
(iii) complete, sign, date and return your proxy card in the postage-paid envelope provided. If you are a
shareholder of record and received only a Notice of Internet Availability of Proxy Materials by mail, you
may vote your shares by proxy at the Internet site address listed on your Notice. If you hold your
shares through an account with a bank, broker or similar organization, please follow the instructions
you receive from the shareholder of record to vote your shares.
By Order of the Board of Directors,
Ben Sirmons
Secretary and Deputy General Counsel
September 13, 2018
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Shareholders To Be Held on October 31, 2018:
The Notice of Annual Meeting and Proxy Statement and
the Annual Report on Form 10-K are available at www.proxyvote.com.
Table of Contents
Page
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Proposal 1:
Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Nominees for Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
The Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Documents Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Board Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Board Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Director Meeting Attendance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Director Nomination Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Shareholder Recommendations of Director Candidates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Annual Evaluation of Directors and Board Committee Members . . . . . . . . . . . . . . . . . . . . . . . . 21
No Hedging, Pledging or Short Selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Policy for Review of Related Person Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Related Person Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
The Board’s Role in Risk Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Compensation Committee Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Communications with the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Compensation Philosophy, Principles and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Overview of Compensation Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Compensation Mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Control by the Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Detailed Review of Compensation Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Policy on Executive Officer and Employee Incentive Compensation Recoupment . . . . . . . . . . 35
Officers Stock Ownership Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Tax Impact on Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Risk Analysis of Compensation Programs and Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Shareholder Say-on-Pay Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Executive Compensation Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Outstanding Equity Awards at Fiscal Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Option Exercises and Stock Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Nonqualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
. . . . . . . . . . . . . . 45
Potential Payments Upon Termination of Employment or Change in Control
Pay Ratio Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Equity Compensation Plan Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
i
Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advisory Vote to Approve Named Executive Officer Compensation . . . . . . . . . . . . . . . .
Proposal 2:
Approval of the Unifi, Inc. Amended and Restated 2013 Incentive Compensation
Proposal 3:
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overview of Features and Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eligibility and Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Types of Awards that may be Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of Stock Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted Stock and Vested Share Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted Stock Units, Performance Share Units and Vested Share Units . . . . . . . . . . . . . .
Stock Options and Stock Appreciation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transferability of Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amendment of the Plan and Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective Date and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Plan Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Historical Grant Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Historical Burn Rate and Potential Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ratification of the Appointment of Independent Registered Public Accounting
Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees Paid to Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Pre-Approval of Audit and Non-Audit Services . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholder Proposals for the 2019 Annual Meeting of Shareholders . . . . . . . . . . . . . . . . . .
2018 Annual Report to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual Report on Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Householding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP Financial Performance Measures
Unifi, Inc. Amended and Restated 2013 Incentive Compensation Plan
Appendix A:
Appendix B:
Proposal 4:
51
52
54
54
54
55
55
55
56
56
57
57
58
58
59
61
61
61
62
62
63
63
64
65
65
65
65
65
ii
PROXY STATEMENT
Inc. (“UNIFI” or the
The Board of Directors (the “Board of Directors” or the “Board”) of Unifi,
“Company”) is providing these materials to you in connection with the 2018 Annual Meeting of
Shareholders (the “Annual Meeting”). The Annual Meeting will be held at 8:30 a.m., Eastern Time, on
Wednesday, October 31, 2018 at the Lotte New York Palace located at 455 Madison Avenue at 50th
Street, New York, New York 10022.
Why did I receive these materials?
General Information
You received these materials because the Board of Directors is soliciting your proxy to vote your
shares at the Annual Meeting. This Proxy Statement includes information that UNIFI is required to
provide you under the Securities and Exchange Commission rules and regulations (the “SEC rules”)
and is designed to assist you in voting your shares.
What is a proxy?
The Board is asking for your proxy. This means you authorize persons selected by the Company to
vote your shares at the Annual Meeting in the way that you instruct. All shares represented by valid
proxies received and not revoked before the Annual Meeting will be voted in accordance with the
shareholder’s specific voting instructions.
Why did I receive a one-page notice regarding Internet availability of proxy materials instead of
a full set of proxy materials?
The SEC rules allow companies to choose the method for delivery of proxy materials to shareholders.
For most shareholders, the Company has elected to mail a notice regarding the availability of proxy
materials on the Internet (the “Notice of Internet Availability”), rather than sending a full set of these
materials in the mail. The Notice of Internet Availability, or a full set of the proxy materials (including the
Proxy Statement and form of proxy), as applicable, was sent to shareholders beginning September 13,
2018, and the proxy materials were posted on the investor relations portion of the Company’s website,
www.unifi.com, and on the website referenced in the Notice of Internet Availability on the same day.
Utilizing this method of proxy delivery expedites receipt of proxy materials by the Company’s
shareholders and lowers the cost of the Annual Meeting. If you would like to receive a paper or e-mail
copy of the proxy materials, you should follow the instructions in the Notice of Internet Availability for
requesting a copy.
What is included in these materials?
These materials include:
(cid:129)
(cid:129)
the Notice of Annual Meeting and Proxy Statement; and
the Annual Report on Form 10-K for the fiscal year ended June 24, 2018, which contains
the Company’s audited consolidated financial statements.
If you received a paper copy of these materials by mail, these materials also include the proxy card or
voting instruction form for the Annual Meeting.
1
What items will be voted on at the Annual Meeting?
There are four proposals scheduled to be voted on at the Annual Meeting:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
the election of the 11 directors nominated by the Board of Directors;
the approval, on an advisory basis, of
compensation in fiscal 2018;
the Company’s named executive officer
the approval of the Unifi, Inc. Amended and Restated 2013 Incentive Compensation Plan;
and
the ratification of the appointment of KPMG LLP as the Company’s independent registered
public accounting firm for fiscal 2019.
The Board is not aware of any other matters to be brought before the Annual Meeting. If other matters
are properly raised at the Annual Meeting, the proxy holders may vote any shares represented by
proxy in their discretion.
What are the Board’s voting recommendations?
The Board unanimously recommends that you vote your shares:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
“FOR” the election of each of the 11 directors nominated by the Board of Directors;
“FOR” the approval, on an advisory basis, of the Company’s named executive officer
compensation in fiscal 2018;
“FOR” the approval of
Compensation Plan; and
the Unifi,
Inc. Amended and Restated 2013 Incentive
“FOR” the ratification of the appointment of KPMG LLP as the Company’s independent
registered public accounting firm for fiscal 2019.
Who can attend the Annual Meeting?
Admission to the Annual Meeting is limited to:
(cid:129)
(cid:129)
(cid:129)
shareholders of record as of the close of business on September 4, 2018;
holders of valid proxies for the Annual Meeting; and
invited guests.
Admission to the Annual Meeting will be on a first-come, first-served basis. Each shareholder may be
asked to present valid photo identification, such as a driver’s license or passport, and proof of stock
ownership as of the record date for admittance.
When is the record date and who is entitled to vote?
The Board set September 4, 2018 as the record date. As of the record date, 18,373,375 shares of
common stock, $0.10 par value per share, of UNIFI (“Common Stock”) were issued and outstanding.
Shareholders are entitled to one vote per share of Common Stock outstanding on the record date on
any matter properly presented at the Annual Meeting.
2
What is a shareholder of record?
A shareholder of record or registered shareholder is a shareholder whose ownership of Common Stock
is reflected directly on the books and records of UNIFI’s transfer agent, American Stock Transfer &
Trust Company, LLC. If you hold Common Stock through an account with a bank, broker or similar
organization, you are considered the beneficial owner of shares held in street name and are not a
shareholder of record. For shares held in street name, the shareholder of record is your bank, broker or
similar organization. UNIFI only has access to ownership records for the registered shares. If you are
not a shareholder of record and you wish to attend the Annual Meeting, UNIFI will require additional
documentation to evidence your stock ownership as of the record date, such as a copy of your
brokerage account statement, a letter from the shareholder of record (e.g., your bank, broker or other
nominee) or a copy of your voting instruction form or Notice of Internet Availability.
How do I vote?
You may vote by any of the following methods:
(cid:129)
(cid:129)
(cid:129)
In person. Shareholders of record and beneficial owners of shares held in street name may
vote in person at the Annual Meeting. If you hold shares in street name, you must also
obtain a legal proxy from the shareholder of record (e.g., your bank, broker or other
nominee) to vote in person at the Annual Meeting.
By telephone or via the Internet. Shareholders of record may vote by proxy, by telephone
or via the Internet, by following the instructions included in the proxy card or Notice of
If you are a
Internet Availability provided or the instructions you receive by e-mail.
beneficial owner of shares held in street name, your ability to vote by telephone or via the
Internet depends on the voting procedures of the shareholder of record (e.g., your bank,
broker or other nominee). Please follow the instructions included in the voting instruction
form or Notice of Internet Availability provided to you by the shareholder of record.
By mail. Shareholders of record and beneficial owners of shares held in street name may
vote by proxy by completing, signing, dating and returning the proxy card or voting
instruction form provided.
How can I revoke my proxy or change my vote?
Shareholders of record. You may revoke your proxy or change your vote at any time prior to the taking
of the vote at the Annual Meeting by (i) submitting a written notice of revocation to the Company’s
Secretary at Unifi, Inc., 7201 West Friendly Avenue, Greensboro, North Carolina 27410; (ii) delivering
a proxy bearing a later date using any of the voting methods described in the immediately preceding
Q&A, including by telephone or via the Internet, and until the applicable deadline for each method
specified in the accompanying proxy card or Notice of Internet Availability; or (iii) attending the Annual
Meeting and voting in person. Attendance at the Annual Meeting will not cause your previously granted
proxy to be revoked unless you specifically make that request or vote in person at the meeting. For all
methods of voting, the last vote cast will supersede all previous votes.
Beneficial owners of shares held in street name. You may revoke or change your voting instructions by
following the specific instructions provided to you by the shareholder of record (e.g., your bank, broker
or other nominee), or, if you have obtained a legal proxy from the shareholder of record, by attending
the Annual Meeting and voting in person.
3
What happens if I vote by proxy and do not give specific voting instructions?
Shareholders of record. If you are a shareholder of record and you vote by proxy, by telephone, via the
Internet or by completing, signing, dating and returning a proxy card, without giving specific voting
instructions, then the proxy holders will vote your shares in the manner recommended by the Board on
all matters presented in this Proxy Statement and as the proxy holders may determine in their
discretion for any other matters properly presented for a vote at the Annual Meeting.
Beneficial owners of shares held in street name. If you are a beneficial owner of shares held in street
name and do not provide the organization that holds your shares with specific voting instructions,
under the rules of various national and regional securities exchanges, the organization that holds your
shares may generally vote on “routine” matters but cannot vote on “non-routine” matters.
the
organization that holds your shares does not receive instructions from you on how to vote your shares
on a “non-routine” matter, the organization that holds your shares will inform the inspector of election
that it does not have the authority to vote on that matter with respect to your shares. This is referred to
as a “broker non-vote.”
If
Proposals 1, 2 and 3, the election of directors, the advisory vote to approve the Company’s named
executive officer compensation in fiscal 2018 and the approval of the Unifi, Inc. Amended and Restated
2013 Incentive Compensation Plan, respectively, are “non-routine” matters. Consequently, without your
voting instructions,
the organization that holds your shares cannot vote your shares on these
proposals. Proposal 4, the ratification of the appointment of KPMG LLP as the Company’s independent
registered public accounting firm for fiscal 2019, is considered a “routine” matter.
What is the voting requirement to approve each of the proposals?
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Proposal 1, Election of Directors. Directors shall be elected by the affirmative vote of a
majority of the votes cast (meaning that the number of shares voted “for” a nominee must
exceed the number of shares voted “against” such nominee). If any existing director who is
a nominee for reelection receives a greater number of votes “against” his or her election
than votes “for” such election, the Company’s Amended and Restated By-laws provide that
such person shall be deemed to have tendered to the Board his or her resignation as a
director. There is no cumulative voting with respect to the election of directors.
Proposal 2, Advisory Vote to Approve Named Executive Officer Compensation. Advisory
approval of the Company’s named executive officer compensation in fiscal 2018 requires
the affirmative vote of a majority of the votes cast (meaning that the number of shares
voted “for” the proposal must exceed the number of shares voted “against” such proposal).
the Unifi,
Proposal 3, Approval of
Inc. Amended and Restated 2013 Incentive
Compensation Plan. Approval of the Unifi, Inc. Amended and Restated 2013 Incentive
Compensation Plan requires the affirmative vote of a majority of the votes cast (meaning
that the number of shares voted “for” the proposal must exceed the aggregate of the
number of shares voted “against” such proposal plus abstentions).
Proposal 4, Ratification of the Appointment of Independent Registered Public Accounting
Firm. Ratification of
the appointment of KPMG LLP as the Company’s independent
registered public accounting firm for fiscal 2019 requires the affirmative vote of a majority
of the votes cast (meaning that the number of shares voted “for” the proposal must exceed
the number of shares voted “against” such proposal).
(cid:129) Other Items. Approval of any other matters requires the affirmative vote of a majority of the
votes cast (meaning that the number of shares voted “for” the item must exceed the
number of shares voted “against” such item).
4
What is the quorum for the Annual Meeting? How are abstentions and broker non-votes treated?
The presence, in person or by proxy, of the holders of a majority of the outstanding shares entitled to
vote is necessary for the transaction of business at the Annual Meeting. Your shares are counted as
being present if you vote in person at the Annual Meeting, by telephone, via the Internet or by
submitting a properly executed proxy card or voting instruction form by mail. Abstentions and broker
non-votes are counted as present for the purpose of determining a quorum for the Annual Meeting.
With respect to Proposal 1, the election of directors, you may vote “for” or “against” each of the
nominees for the Board, or you may “abstain” from voting for one or more nominees. Abstentions and
broker non-votes are not considered votes cast for the foregoing purpose and will therefore have no
effect on the election of director nominees.
With respect to Proposals 2, 3 and 4, the advisory vote to approve the Company’s named executive
officer compensation in fiscal 2018, the approval of the Unifi, Inc. Amended and Restated 2013
Incentive Compensation Plan and the ratification of the appointment of KPMG LLP as the Company’s
independent registered public accounting firm for fiscal 2019, respectively, you may vote “for” or
“against” these proposals, or you may “abstain” from voting on these proposals. For Proposals 2 and 4,
abstentions and broker non-votes are not considered votes cast for the foregoing purposes and will
therefore have no effect on the vote for these proposals. For Proposal 3, under the New York Stock
Exchange rules (the “NYSE rules”), abstentions are considered votes cast for the foregoing purpose
and will therefore have the effect of votes “against” this proposal, whereas broker non-votes are not
considered votes cast for the foregoing purpose and will therefore have no effect on the vote for this
proposal.
Who are the proxy holders and how will they vote?
The persons named as attorneys-in-fact in the proxies, Kevin D. Hall and Thomas H. Caudle, Jr., were
selected by the Board and are officers and directors of the Company. If you are a shareholder of record
and you return an executed and dated proxy card but do not provide specific voting instructions, your
shares will be voted on the proposals as follows:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
“FOR” the election of each of the 11 directors nominated by the Board of Directors;
“FOR” the approval, on an advisory basis, of the Company’s named executive officer
compensation in fiscal 2018;
“FOR” the approval of
Compensation Plan; and
the Unifi,
Inc. Amended and Restated 2013 Incentive
“FOR” the ratification of the appointment of KPMG LLP as the Company’s independent
registered public accounting firm for fiscal 2019.
If other matters properly come before the Annual Meeting and you do not provide specific voting
instructions, your shares will be voted on such matters in the discretion of the proxy holders.
Who pays for solicitation of proxies?
The Company is paying the cost of soliciting proxies and will reimburse brokerage firms and other
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for sending proxy
materials to shareholders and obtaining their proxies. In addition to soliciting the proxies by mail and
the Internet, certain of the Company’s directors, officers and employees, without compensation, may
solicit proxies personally or by telephone, facsimile and e-mail.
5
Where can I find the voting results of the Annual Meeting?
The Company will announce preliminary or final voting results at the Annual Meeting and publish final
results in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the
“SEC”) within four business days of the completion of the meeting.
6
Security Ownership of Certain Beneficial Owners and Management
The table below provides information about
the beneficial ownership of Common Stock as of
September 4, 2018, by each person known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock as well as by each director, nominee for director and named
executive officer and by all directors and executive officers as a group. In computing the number of
shares beneficially owned by a person and the ownership percentage of that person, shares deemed
outstanding include (i) shares of Common Stock subject to stock options held by that person that are
currently exercisable or exercisable within 60 days of September 4, 2018 and (ii) restricted stock units
that vest within 60 days of September 4, 2018. However, these shares or units are not deemed
outstanding for the purposes of computing the ownership percentage of any other person. The
ownership percentage is based on 18,373,375 shares of Common Stock outstanding as of
September 4, 2018. Except as otherwise indicated in the footnotes below, each of the persons named
in the table has sole voting and investment power with respect
to the securities indicated as
beneficially owned by such person, subject to community property laws where applicable. Unless
otherwise indicated in the footnotes below, the address for each of the beneficial owners is c/o Unifi,
Inc., 7201 West Friendly Avenue, Greensboro, North Carolina 27410.
Name
Principal Shareholders:
BlackRock, Inc.
Dimensional Fund Advisors LP
Kenneth G. Langone
Impala Asset Management LLC
Victory Capital Management Inc.
ValueAct Spring Master Fund, L.P.
Directors, Director Nominees and
Named Executive Officers:
Jeffrey C. Ackerman
Robert J. Bishop
Albert P. Carey
Thomas H. Caudle, Jr.
Paul R. Charron
Archibald Cox, Jr.
Richard E. Gerstein
Kevin D. Hall
James M. Kilts
Kenneth G. Langone
James D. Mead
Suzanne M. Present
Christopher A. Smosna
John D. Vegas
Eva T. Zlotnicka
Directors and executive officers as a group (15 persons)
*
Less than 1%.
Number of Shares and
Nature of Beneficial Ownership
Ownership
Percentage
2,094,173(1)
1,538,440(2)
1,280,000(3)
1,265,149(4)
1,093,908(5)
925,000(6)
10,000(7)
1,520,690(8)
3,135(9)
105,687(10)
24,003(11)
129,885(12)
10,000(13)
18,656(14)
15,288(15)
1,280,000(3)
20,401(16)
29,545(17)
13,334(18)
10,335(19)
925,610(20)
4,116,569
11.40%
8.37%
6.97%
6.89%
5.95%
5.03%
*
8.28%
*
*
*
*
*
*
*
6.97%
*
*
*
*
5.04%
22.41%
(1) This information is based upon a Schedule 13G/A filed with the SEC on January 19, 2018 by BlackRock, Inc.
(“BlackRock”), whose address is 55 East 52nd Street, New York, New York 10055. The Schedule 13G/A
reports that BlackRock has sole voting power over 2,063,486 shares, shared voting power over no shares and
sole investment power over all of the shares shown.
7
(2) This information is based upon a Schedule 13G/A filed with the SEC on February 9, 2018 by Dimensional
Fund Advisors LP (“Dimensional”), whose address is Building One, 6300 Bee Cave Road, Austin, Texas
78746. The Schedule 13G/A reports that Dimensional has sole voting power over 1,483,955 shares, shared
voting power over no shares and sole investment power over all of the shares shown. Dimensional furnishes
investment advice to four investment companies registered under the Investment Company Act of 1940 and
serves as investment manager or sub-adviser to certain other commingled funds, group trusts and separate
accounts (such investment companies, trusts and accounts, collectively referred to as the “Funds”). In certain
cases, subsidiaries of Dimensional may act as an adviser or sub-adviser to certain Funds. In its role as
investment adviser, sub-adviser and/or manager, Dimensional or its subsidiaries may possess voting and/or
investment power over the securities of the Company owned by the Funds and may be deemed to be the
beneficial owner of these shares. However, all securities reported on the Schedule 13G/A are owned by the
Funds, and Dimensional and its subsidiaries disclaim beneficial ownership of all of the shares shown.
(3)
Includes (i) 130,000 shares owned by Invemed Associates LLC, in which Mr. Langone owns an 81% interest
and of which Mr. Langone serves as President and Chief Executive Officer, as to which Mr. Langone has
shared voting and investment power and of which Mr. Langone disclaims beneficial ownership, except to the
extent of his pecuniary interest
therein; (ii) 30,000 shares owned by Mr. Langone’s wife, as to which
Mr. Langone has shared voting and investment power and of which Mr. Langone disclaims beneficial
ownership; and (iii) 31,353 shares that Mr. Langone has the right to receive pursuant to restricted stock units
that will automatically convert into shares of Common Stock following termination of his services as a director.
(4) This information is based upon a Schedule 13G/A filed with the SEC on February 12, 2018 by Impala Asset
Management LLC, whose address is 107 Cherry Street, New Canaan, Connecticut 06840. The Schedule
13G/A reports that Impala Asset Management LLC has sole voting and investment power over all of the
shares shown. Impala Asset Management LLC, in its capacity as the investment adviser or manager to
various private funds, has the power to direct the investment activities of each of the private funds.
(5) This information is based upon a Schedule 13G filed with the SEC on February 9, 2018 by Victory Capital
Management Inc. (“Victory Capital”), whose address is 4900 Tiedeman Road, 4th Floor, Brooklyn, Ohio 44144.
The Schedule 13G reports that Victory Capital has sole voting power over 1,069,358 shares, shared voting
power over no shares and sole investment power over all of the shares shown. The Schedule 13G further
reports that (i) clients of Victory Capital, including investment companies registered under the Investment
Company Act of 1940 and separately managed accounts, have the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, the Common Stock; and (ii) no client of Victory
Capital has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the
sale of, more than 5% of the Common Stock, except the Victory Sycamore Small Company Opportunity Fund,
an investment company registered under the Investment Company Act of 1940, which has an interest of
5.05% of the Common Stock.
(6) This information is based upon a Schedule 13D/A filed jointly with the SEC on August 1, 2018 by ValueAct
Spring Master Fund, L.P., VA Partners I, LLC, ValueAct Capital Management, L.P., ValueAct Capital
Management, LLC, ValueAct Holdings, L.P. and ValueAct Holdings GP, LLC (collectively, “ValueAct Capital”),
each of whose address is One Letterman Drive, Building D, 4th Floor, San Francisco, California 94129. The
Schedule 13D/A reports that ValueAct Capital has sole voting and investment power over all of the shares
shown.
(7) Consists of (i) 5,000 shares that Mr. Ackerman has the right to purchase pursuant to stock options that are
currently exercisable; and (ii) 5,000 shares that Mr. Ackerman has the right to receive pursuant to restricted
stock units that will vest on October 5, 2018 and that will automatically convert into shares of Common Stock
following termination of his employment with the Company.
(8) Consists of (i) 1,510,402 shares owned by Impala Asset Management LLC and Impala Asset Advisors LLC,
which are investment manager and general partner, respectively, to funds that hold such securities; and
to restricted stock units that will
(ii) 10,288 shares that Mr. Bishop has the right
automatically convert into shares of Common Stock following termination of his services as a director.
Mr. Bishop is the founder, the Managing Principal and a member of Impala Asset Management LLC and
Impala Asset Advisors LLC and a limited partner in some of the funds that hold the securities owned by
Impala Asset Management LLC and Impala Asset Advisors LLC, as to which Mr. Bishop has shared voting
and investment power and of which Mr. Bishop disclaims beneficial ownership, except to the extent of his
pecuniary interest therein.
to receive pursuant
8
(9) Consists of 3,135 shares that Mr. Carey has the right to receive pursuant to restricted stock units that will
automatically convert into shares of Common Stock following termination of his services as a director.
(10)
(11)
(12)
Includes (i) 83,500 shares that Mr. Caudle has the right to purchase pursuant to stock options that are
currently exercisable; and (ii) 7,500 shares that Mr. Caudle has the right to receive pursuant to restricted stock
units that will automatically convert into shares of Common Stock following termination of his employment with
the Company.
Includes 11,503 shares that Mr. Charron has the right to receive pursuant to restricted stock units that will
automatically convert into shares of Common Stock following termination of his services as a director.
Includes (i) 6,666 shares that Mr. Cox has the right to purchase pursuant to stock options that are currently
exercisable; and (ii) 31,353 shares that Mr. Cox has the right to receive pursuant to restricted stock units that
will automatically convert into shares of Common Stock following termination of his services as a director.
(13) Consists of (i) 5,000 shares that Mr. Gerstein has the right to purchase pursuant to stock options that are
currently exercisable; and (ii) 5,000 shares that Mr. Gerstein has the right to receive pursuant to restricted
stock units that vested and converted into shares of Common Stock on September 13, 2018.
(14)
(15)
(16)
Includes 8,334 shares that Mr. Hall has the right to purchase pursuant to stock options that are currently
exercisable.
Includes 6,200 shares that Mr. Kilts has the right to receive pursuant to restricted stock units that will
automatically convert into shares of Common Stock following termination of his services as a director.
Includes (i) 5,849 shares owned by Mr. Mead’s wife, as to which Mr. Mead has shared voting and investment
power and of which Mr. Mead disclaims beneficial ownership; and (ii) 10,108 shares that Mr. Mead has the
right to receive pursuant to restricted stock units that will automatically convert into shares of Common Stock
following termination of his services as a director.
(17) Consists of 29,545 shares that Ms. Present has the right to receive pursuant to restricted stock units that will
automatically convert into shares of Common Stock following termination of her services as a director.
(18) Consists of 13,334 shares that Mr. Smosna has the right to purchase pursuant to stock options that are
currently exercisable.
(19)
(20)
Includes (i) 5,000 shares that Mr. Vegas has the right to purchase pursuant to stock options that are currently
exercisable; and (ii) 5,000 shares that Mr. Vegas has the right to receive pursuant to restricted stock units that
will vest and convert into shares of Common Stock on September 20, 2018.
Includes 925,000 shares held by ValueAct Spring Master Fund, L.P., which may be deemed to be indirectly
beneficially owned by (i) VA Partners I, LLC as General Partner of ValueAct Spring Master Fund, L.P.;
(ii) ValueAct Capital Management, L.P. as the manager of ValueAct Spring Master Fund, L.P.; (iii) ValueAct
Capital Management, LLC as General Partner of ValueAct Capital Management, L.P.; (iv) ValueAct Holdings,
L.P. as the sole owner of the limited partnership interests of ValueAct Capital Management, L.P. and the
membership interests of ValueAct Capital Management, LLC and as the majority owner of the membership
interests of VA Partners I, LLC; and (v) ValueAct Holdings GP, LLC as General Partner of ValueAct Holdings,
L.P. (the foregoing entities, collectively, the “ValueAct Entities”). Ms. Zlotnicka and each of the ValueAct
Entities disclaim beneficial ownership of the reported securities except to the extent of her or its pecuniary
interest therein.
9
Proposal 1:
Election of Directors
The Board of Directors currently consists of 11 members. The Board has nominated the 11 persons
listed below for election as directors at the Annual Meeting. If elected, each nominee will serve until his
or her term expires at the 2019 Annual Meeting of Shareholders or until his or her successor is duly
elected and qualified. Each nominee has agreed to be named in this Proxy Statement and to serve if
elected.
All of the nominees are currently serving as directors. Except for Albert P. Carey, who was elected to
the Board of Directors in January 2018, and Eva T. Zlotnicka, who was elected to the Board of
Directors in August 2018, all of the nominees were elected to the Board at the 2017 Annual Meeting of
Shareholders. Mr. Carey and Ms. Zlotnicka were initially identified to the Board as potential directors by
non-management directors of the Company.
Although the Company knows of no reason why any of the nominees would not be able to serve, if any
nominee is unavailable for election, the proxy holders intend to vote your shares for any substitute
nominee proposed by the Board. At the Annual Meeting, proxies cannot be voted for a greater number
of individuals than the 11 nominees named in this Proxy Statement.
The Board of Directors unanimously recommends that you vote “FOR” the election of each of
the 11 nominees listed below.
Unless a proxy card (or voting instruction properly submitted by telephone or via the Internet) is
marked to give a different direction, the persons named as attorneys-in-fact in the proxy card will vote
“FOR” the election of each of the 11 nominees listed below.
Nominees for Director
Listed below are the 11 persons nominated for election to the Board of Directors. The following
paragraphs include information about each director nominee’s business background, as furnished to
the Company by the nominee, and additional experience, qualifications, attributes or skills that led the
Board of Directors to conclude that the nominee should serve on the Board.
Name
Age
Principal Occupation
Robert J. Bishop
Albert P. Carey
Thomas H. Caudle, Jr.
Paul R. Charron
Archibald Cox, Jr.
Kevin D. Hall
James M. Kilts
Kenneth G. Langone
James D. Mead
Suzanne M. Present
Eva T. Zlotnicka
Robert J. Bishop
61
67
66
76
78
59
70
82
74
59
35
Managing Principal, Impala Asset Management LLC
Chief Executive Officer, PepsiCo North America
President & Chief Operating Officer of UNIFI
Independent Management Consultant
Chairman, Sextant Group, Inc.
Chairman of the Board and Chief Executive Officer of UNIFI
Founding Partner, Centerview Capital
President and Chief Executive Officer, Invemed Associates LLC
President, James Mead & Company
Principal, Gladwyne Partners, LLC
Vice President, ValueAct Capital
Director
Since
2016
2018
2016
2016
2008
2017
2016
1969
2015
2011
2018
Mr. Bishop founded Impala Asset Management LLC, a private investment management company, in
2004 and is the Managing Principal of the firm and manages the Impala, Waterbuck, Alpha and
Resource Funds and other managed accounts. From 2002 to 2003, he was Chief Investment Officer at
10
Soros Fund Management overseeing the Quantum Endowment Fund. From 1998 to 2002, he was a
principal at Maverick Capital. Mr. Bishop was a portfolio manager at Kingdon Capital from 1995 to
1998 and, from 1992 to 1995, he was a managing director of Tiger Management. From 1986 to 1992,
Mr. Bishop was an equity analyst at Salomon Brothers and, from 1980 to 1984, he worked as a
legislative assistant/director for Congressmen Toby Roth and Don Ritter.
Mr. Bishop brings valuable financial and managerial expertise to the Board through his extensive
experience in investment and asset management.
Albert P. Carey
Mr. Carey has served as Chief Executive Officer of PepsiCo North America, a consumer products
company, since April 2016. In this role, he is responsible for leading PepsiCo’s beverages, Frito-Lay
and Quaker Foods businesses in North America. Previously, he was Chief Executive Officer of
PepsiCo North America Beverages from July 2015 to April 2016, Chief Executive Officer of PepsiCo
Americas Beverages from 2011 to July 2015 and President and Chief Executive Officer of Frito-Lay
North America from 2006 to 2011. Mr. Carey began his career with PepsiCo in 1981 and has served in
a number of other positions during his career with the company, including President of PepsiCo Sales
from 2003 to 2006, Chief Operating Officer of PepsiCo Beverages and Foods North America from 2002
to 2003 and Senior Vice President of Sales and Retailer Strategies from 1998 to 2002. Prior to joining
PepsiCo, Mr. Carey spent seven years at The Procter & Gamble Company. He also currently serves
on the board of directors of The Home Depot, Inc.
Mr. Carey brings to the Board more than 40 years of experience with consumer product companies. In
addition, having served in a number of senior executive positions at PepsiCo, Mr. Carey brings to the
Board valuable leadership and strategic management skills.
Thomas H. Caudle, Jr.
Mr. Caudle has served as President & Chief Operating Officer of UNIFI since August 2017. Previously,
he was President of the Company from April 2016 to August 2017, Vice President of Manufacturing of
the Company from October 2006 to April 2016 and Vice President of Global Operations of
the
Company from April 2003 to October 2006. Mr. Caudle joined UNIFI in 1982 and, since that time, has
in charge of
served in a variety of other
manufacturing for the Company and Vice President of Manufacturing Services.
including Senior Vice President
leadership roles,
Mr. Caudle’s more than 35 years of experience with UNIFI give him a comprehensive knowledge of the
Company and the textile industry. He also brings important managerial and operational expertise to the
Board.
Paul R. Charron
fashion company,
Mr. Charron has been a management consultant since 2007. He served as Chairman and Chief
Executive Officer of Liz Claiborne Inc., a global
from 1996 to 2006 and was
President and Chief Executive Officer in 1995 and Vice Chairman and Chief Operating Officer in 1994.
Before joining Liz Claiborne Inc., Mr. Charron held executive positions with each of V.F. Corporation
(between 1988 and 1994), Brown & Bigelow (between 1983 and 1987) and Cannon Mills Company
(between 1981 and 1983), after beginning his business career in positions with The Procter & Gamble
Company (1971 to 1978) and General Foods Corporation (1979 to 1981). Mr. Charron served as a
director of Campbell Soup Company from 2003 to 2015 and as Chairman of its board of directors from
2009 to 2015. He served as Senior Advisor at Warburg Pincus, a global private equity firm, from 2008
to 2012. Mr. Charron has also been a member of Escada SE’s (Germany) Supervisory Board since
2013.
11
Mr. Charron brings to the Board extensive experience in a number of critical areas,
including
leadership, strategic management and corporate strategy. Mr. Charron also brings to the Board
valuable experience with global consumer product companies.
Archibald Cox, Jr.
Mr. Cox has served as Chairman of Sextant Group, Inc., a financial advisory and private equity firm,
since 1993. Mr. Cox is the former Chairman of Barclays Americas, a position he held from May 2008 to
June 2011. Mr. Cox was a director of Hutchinson Technology Incorporated from May 1996 to
September 2009. He was also Chairman of Magnequench, Inc., a manufacturer of magnetic material,
from September 2005 to September 2006 and President and Chief Executive Officer of Magnequench,
Inc. from October 1995 to August 2005. Mr. Cox was Chairman of Neo Material Technologies Inc., a
manufacturer of rare earth, zirconium and magnetic materials, from September 2005 to September
2006. Mr. Cox also serves on the boards of several private companies and as Chairman of two of
these companies. Since July 2012, Mr. Cox has served on the board of trustees of St. Paul’s School, a
secondary educational institution located in Concord, New Hampshire, where he currently serves as
board president. Mr. Cox has served as Lead Independent Director of UNIFI since October 2017.
Mr. Cox brings to the Board executive decision-making skills, operating and management experience,
expertise in finance, and investment and business development experience. In addition, Mr. Cox brings
to the Board considerable experience with financial and strategic planning matters critical to the
oversight of
reporting, compensation practices and business strategy
implementation.
the Company’s financial
Kevin D. Hall
Mr. Hall has served as Chief Executive Officer of UNIFI since May 2017 and as Chairman of the Board
since October 2017. Prior to joining UNIFI, Mr. Hall served as Chief Executive Officer of NatPets LLC,
a high-growth natural/organic premium pet company, from September 2016 to May 2017. From 2014
to 2015, Mr. Hall was President and Chief Executive Officer of Geneva Watch Group, a global fashion
watch and accessories business. Between 2012 and 2014, Mr. Hall ran the KDH Advisory Group, a
strategic marketing, branding and consulting firm, where he served as a consultant/advisor to a
number of companies, including Pact at Revelry Brands, Vogue International and Inmar, Inc. From
2006 to 2011, Mr. Hall served as Chief Marketing Officer at Hanesbrands Inc. and then was promoted
to President of
that
included Champion Activewear, Just My Size and Hanes Casualwear. From 2001 to 2006, Mr. Hall
was Senior Vice President of Marketing at Fidelity Investments Retirement Services Company. Prior to
that, Mr. Hall held various brand marketing and general manager positions at The Procter & Gamble
Company from 1985 to 2001.
the Outerwear strategic business unit of Hanesbrands Inc., a business unit
Mr. Hall brings to the Board more than 30 years of strategic marketing and brand development
leadership and managerial
experience.
experience in the apparel industry.
In addition, Mr. Hall brings to the Board his substantial
James M. Kilts
Mr. Kilts is the founding partner of Centerview Capital, a private equity firm which was founded in 2006.
Mr. Kilts served as Chairman and Chief Executive Officer of The Gillette Company from 2001, and as
President from 2003, until it merged with The Procter & Gamble Company in 2005, at which time he
became Vice Chairman of The Procter & Gamble Company. Prior to Gillette, Mr. Kilts served as
President and Chief Executive Officer of Nabisco Group Holdings Corporation from 1998 until
its
acquisition by the Philip Morris Companies in 2000. Before joining Nabisco, Mr. Kilts was an Executive
12
Vice President of the Philip Morris Companies from 1994 to 1997 and headed the Worldwide Food
Group. In that role, Mr. Kilts was responsible for integrating Kraft and General Foods and for shaping
the group’s domestic and international strategy. Mr. Kilts has served as a member of the board of
directors of MetLife, Inc. since 2005, Pfizer Inc. since 2007 and The Simply Good Foods Company
(formerly known as Conyers Park Acquisition Corp.) since 2016. Mr. Kilts was also Chairman of
Nielsen Holdings N.V. until 2013, Chairman of Nielsen Company B.V. until 2014, Chairman of Big
Heart Pet Brands until 2015 and a director of MeadWestvaco Corporation until 2014 and Nielsen
Holdings plc until 2017.
As Chief Executive Officer of Gillette and Nabisco and as Vice Chairman of Procter & Gamble, Mr. Kilts
developed valuable business, leadership and strategic management skills, including expertise in cost
management, value creation and resource allocation, which he brings to the Board. Mr. Kilts also
brings to the Board valuable experience with consumer product companies.
Kenneth G. Langone
Mr. Langone has been President and Chief Executive Officer of
Invemed Associates LLC, an
investment banking firm, since he founded the firm in 1974. From 2011 to 2013, he served as Chief
Executive Officer, President and Chairman of Geeknet, Inc., a retailer of a wide range of products
aimed at technology enthusiasts. Mr. Langone was a co-founder, and served as a director from 1978 to
2008, of The Home Depot, Inc. Mr. Langone was a director of ChoicePoint Inc. from 2002 to 2008,
Geeknet, Inc. from 2010 to 2015, General Electric Company from 1999 to 2005 and YUM! Brands, Inc.
from 1997 to 2012.
Mr. Langone brings to the Board extensive operating and management experience, including as Chief
Executive Officer of a financial services business, financial expertise, and public company directorship
and committee experience. In addition, Mr. Langone’s extensive service on the Board of Directors
provides the Board with a valuable historical perspective through which it can contextualize and direct
the Company’s performance and strategic planning.
James D. Mead
Mr. Mead is the founder, owner and President of James Mead & Company, an executive search and
management consulting firm. Since founding James Mead & Company in 1988, Mr. Mead has handled
executive search and management consulting assignments for numerous major publicly held
companies and for several portfolio companies of major private equity firms. Prior to that, Mr. Mead
held several positions with The Procter & Gamble Company from 1970 to 1984, including serving as
the head of Procter & Gamble’s worldwide sales personnel and as a multi-division manager in Europe
and North America.
Mr. Mead brings to the Board extensive experience in a number of critical areas, including leadership
and strategic management.
Suzanne M. Present
Ms. Present is a co-founder and has been a principal of Gladwyne Partners, LLC, a private partnership
fund manager, since 1998. She has also served, since 2014, as executive director of Ken’s Krew, Inc.,
a non-profit organization that provides training and other support services to individuals with intellectual
and developmental disabilities to assist with entering the workforce. Ms. Present currently serves on
the board of directors of Anshe Chung Studios, Limited, a privately held Chinese-based developer of
content for virtual worlds, and she served on the board of directors of Geeknet, Inc. until 2010.
Through her experiences at Gladwyne Partners and service on various boards of directors,
Ms. Present developed extensive financial expertise important to the oversight of the Company’s audit
functions and analysis of business strategies, which she brings to the Board.
13
Eva T. Zlotnicka
Ms. Zlotnicka is a Vice President of ValueAct Capital, an investment adviser. Prior to joining ValueAct
Capital in February 2018, Ms. Zlotnicka was an Environmental, Social and Governance (“ESG”) equity
research analyst for nearly seven years. Most recently, Ms. Zlotnicka was US lead for the Sustainability
Research team at Morgan Stanley, a global financial services firm, from January 2015 to February
2018, and held a similar role at UBS Investment Bank, a division of UBS Group AG, a Swiss
multinational investment bank and financial services company, from July 2011 to January 2015. Prior
to becoming an ESG equity research analyst, she spent five years at Morgan Stanley primarily focused
on fixed income securities and derivatives. Ms. Zlotnicka also co-founded Women Investing for a
Sustainable Economy (WISE), a global professional community.
Ms. Zlotnicka brings to the Board valuable expertise in sustainability and sustainable investing.
Ms. Zlotnicka also brings to the Board extensive experience in a number of critical areas, including
investment management and finance.
14
The Board of Directors
Corporate Governance
The Company is governed by the Board of Directors and its various committees. The Board and its
committees have general oversight responsibility for the affairs of the Company. In exercising its
fiduciary duties, the Board represents and acts on behalf of UNIFI’s shareholders. The Board has
adopted written corporate governance policies, principles and guidelines, known as the Corporate
Governance Guidelines. The Board also has adopted (i) a Code of Ethics for Senior Financial and
Executive Officers (the “Code of Ethics for Senior Financial and Executive Officers”), which applies to
the Company’s Chief Executive Officer, Chief Financial Officer, Vice President & Treasurer, Vice
President of Finance and other senior financial and executive officers and employees; (ii) a Code of
Business Conduct and Ethics (the “Code of Ethics”), which applies to the Company’s directors and
executive officers; and (iii) an Ethical Business Conduct Policy Statement
(the “Ethics Policy
Statement”), which applies to the Company’s directors, officers and employees. The Code of Ethics for
Senior Financial and Executive Officers, the Code of Ethics and the Ethics Policy Statement include
guidelines relating to the ethical handling of actual or potential conflicts of interest, compliance with
laws, accurate financial reporting and other related topics.
Documents Available
All of the Company’s corporate governance materials, including the charters for the Audit Committee,
the Compensation Committee and the Corporate Governance and Nominating Committee, as well as
the Corporate Governance Guidelines, the Code of Ethics for Senior Financial and Executive Officers,
the Code of Ethics and the Ethics Policy Statement, are published on the investor relations portion of
the Company’s website at www.unifi.com. These materials are also available in print free of charge to
any shareholder upon request by contacting the Company at Unifi, Inc., 7201 West Friendly Avenue,
Greensboro, North Carolina 27410, Attention: Investor Relations, or by telephone at (336) 294-4410.
Any modifications to these corporate governance materials will be reflected, and the Company intends
to post any amendments to, or waivers from, the Code of Ethics for Senior Financial and Executive
Officers (to the extent required to be disclosed pursuant to Form 8-K) on the investor relations portion
of the Company’s website at www.unifi.com. By referring to the Company’s website, www.unifi.com, or
any portion thereof, including the investor relations portion of the Company’s website, the Company
does not incorporate its website or its contents into this Proxy Statement.
Director Independence
The Board believes that a majority of its members are independent under both the applicable NYSE
rules and the applicable SEC rules. The NYSE rules provide that a director does not qualify as
“independent” unless the board of directors affirmatively determines that the director has no material
relationship with the company (either directly or as a partner, shareholder or officer of an organization
that has a relationship with the company). The NYSE rules recommend that a board of directors
consider all of the relevant facts and circumstances in determining the materiality of a director’s
relationship with a company. The Board has adopted Director Independence Standards, which
incorporate the independence standards of the NYSE rules, to assist the Board in determining whether
a director has a material relationship with UNIFI. The Director Independence Standards are available
on the investor relations portion of the Company’s website, www.unifi.com, as an appendix to the
Corporate Governance Guidelines.
the Corporate Governance and
In August 2018,
Nominating Committee, conducted an evaluation of director independence based on the Director
Independence Standards, the NYSE rules and the SEC rules. The Board considered all relationships
the Board of Directors, with the assistance of
15
and transactions between each director (and his or her immediate family members and affiliates) and
each of UNIFI, its management and its independent registered public accounting firm, as well as the
transactions described below under “—Related Person Transactions.” As a result of this evaluation, the
Board determined those relationships that do exist or did exist within the last three fiscal years (except
for Messrs. Hall’s and Caudle’s relationships as employees of UNIFI) all fall below the thresholds in the
Director Independence Standards. Consequently, the Board of Directors determined that each of
Messrs. Bishop, Carey, Charron, Cox, Kilts, Langone and Mead and Mses. Present and Zlotnicka is an
independent director under the Director Independence Standards, the NYSE rules and the SEC rules.
The Board also determined that each member of the Audit, Compensation and Corporate Governance
and Nominating Committees (see membership information below under “—Board Committees”) is
independent, including that each member of the Audit Committee is “independent” as that term is
defined under Rule 10A-3(b)(1)(ii) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).
Board Leadership Structure
Kevin D. Hall currently holds the positions of Chairman of the Board and Chief Executive Officer of the
Company. The Company’s Corporate Governance Guidelines provide that
the Board has no
established policy with respect to combining or separating the offices of Chairman of the Board and
Chief Executive Officer, but rather that this decision is made depending on what the Board determines
to be in the best interests of the Company and its shareholders at any given point in time. The
Company’s Corporate Governance Guidelines further provide that if the Chairman is not determined by
the Board as independent, the independent directors may determine that the Board should have a
Lead Independent Director. In the event that the independent directors make such a determination, the
Lead Independent Director is appointed by a majority of the independent directors. In October 2017,
the independent directors appointed Archibald Cox, Jr. to serve as Lead Independent Director.
The duties of the Lead Independent Director include: (i) providing leadership to the Board; (ii) chairing
Board meetings in the absence of the Chairman; (iii) organizing, setting the agenda for and leading
executive sessions of the independent directors without the attendance of management; (iv) serving as
a liaison between management and the independent directors; (v) consulting with the Chairman to
approve the agenda for each Board meeting and the information that shall be provided to the directors
for each scheduled meeting; (vi) approving meeting schedules to assure that there is sufficient time for
discussion of all agenda items;
(vii) meeting with the Chairman between Board meetings as
appropriate in order to facilitate Board meetings and discussions; (viii) advising the Corporate
Governance and Nominating Committee on the selection of committee chairpersons; and (ix) having
the authority to call meetings of the independent directors.
16
Board Committees
The Board has a standing Audit Committee, Compensation Committee, and Corporate Governance
and Nominating Committee. Committee members and committee chairs are appointed by the Board of
Directors. The members of these committees are identified in the following table:
Name
Robert J. Bishop
Albert P. Carey
Thomas H. Caudle, Jr.
Paul R. Charron
Archibald Cox, Jr.
Kevin D. Hall
James M. Kilts
Kenneth G. Langone
James D. Mead
Suzanne M. Present
Eva T. Zlotnicka
Compensation
Committee
Corporate
Governance and
Nominating
Committee
Chair
Member
Member
Member
Chair
Member
Audit
Committee
Member
Member
Chair
17
Each committee of the Board of Directors functions pursuant to a written charter adopted by the Board.
The following table provides information about the operation and key functions of these committees:
Committee
Audit
Committee
Number of
Meetings
in Fiscal
2018
9
Key Functions and Additional Information
(cid:129) Assists the Board in its oversight of (i) the Company’s
accounting and financial reporting processes, (ii) the integrity of
the Company’s financial statements, (iii) the Company’s
compliance with legal and regulatory requirements, (iv) the
qualifications and independence of the Company’s independent
registered public accounting firm and (v) the performance of the
Company’s internal audit function and the Company’s
independent registered public accounting firm.
(cid:129) Appoints, compensates, retains and oversees the Company’s
independent registered public accounting firm.
(cid:129) Reviews and discusses with management and the Company’s
independent registered public accounting firm the annual and
quarterly financial statements.
(cid:129) Reviews and discusses with management the quarterly
earnings releases.
(cid:129) Reviews and pre-approves all audit and non-audit services
proposed to be performed by the Company’s independent
registered public accounting firm.
(cid:129) Reviews and, if appropriate, approves or ratifies related person
transactions.
(cid:129) Discusses with management, the Company’s independent
registered public accounting firm and Company personnel
responsible for the Company’s internal audit function the quality
and adequacy of the Company’s internal controls.
(cid:129) Assists the Board in its oversight of enterprise risk
management.
(cid:129) The Board of Directors has determined that each of Ms. Present
and Mr. Charron is an “audit committee financial expert” within
the meaning of the SEC rules and that each of Ms. Present and
Messrs. Bishop and Charron is “financially literate” and has
accounting or related financial management expertise, in each
case as determined by the Board, in its business judgment.
Compensation
Committee
(cid:129) Oversees the administration of the Company’s compensation
plans.
6
(cid:129) Reviews and approves the compensation of the executive
officers and oversees decisions concerning compensation of
other officers.
(cid:129) Reviews and makes recommendations to the independent
directors on the Board with respect to any employment
agreements, consulting arrangements, severance or retirement
arrangements or change of control agreements and provisions
covering any current or former executive officer of the
Company.
(cid:129) Conducts annual performance evaluation of management.
(cid:129) Oversees regulatory compliance regarding compensation
matters.
18
Number of
Meetings
in Fiscal
2018
5
Committee
Corporate
Governance
and Nominating
Committee
Key Functions and Additional Information
(cid:129)
Identifies, evaluates and recommends director candidates to the
Board.
(cid:129) Determines the criteria for membership on the Board and its
committees and recommends such criteria to the Board for
approval.
(cid:129) Makes recommendations to the Board concerning committee
appointments and Board and committee leadership.
(cid:129) Makes recommendations to the Board with respect to
determinations of director independence.
(cid:129) Reviews and recommends to the Board the form and amount of
director compensation.
(cid:129) Oversees annual performance evaluation of the Board, the
committees of the Board, leadership of the Board (including the
Chairman of the Board and the Lead Independent Director) and
individual directors.
(cid:129) Oversees director education and new director onboarding.
(cid:129) Considers and recommends to the Board other actions relating
to corporate governance.
The Board may also establish other committees from time to time as it deems necessary.
Director Meeting Attendance
The Board of Directors held six meetings during fiscal 2018. Each incumbent director attended 75% or
more of the aggregate number of meetings of the Board and committees of the Board on which the
director served during fiscal 2018.
the directors should attend the
Company’s annual meeting of shareholders absent extenuating circumstances. All of the Company’s
nine directors in office at the time attended the 2017 Annual Meeting of Shareholders.
is the Board’s policy that
It
Pursuant to the Company’s Corporate Governance Guidelines, the independent directors meet in
regularly scheduled executive sessions without management. Mr. Cox, as the Lead Independent
Director, presides over these executive sessions.
Director Nomination Process
The Corporate Governance and Nominating Committee is responsible for identifying and evaluating
individuals qualified to become members of
the Board and for recommending to the Board the
individuals for nomination as members. In considering whether to recommend any particular candidate
for inclusion in the Board’s slate of recommended director nominees, the Corporate Governance and
Nominating Committee considers the following criteria, in addition to other factors it may determine
appropriate: (i) the candidate’s roles and contributions valuable to the business community; (ii) the
candidate’s diversity, integrity, accountability, informed judgment, financial literacy, passion, creativity
and vision; (iii) the candidate’s knowledge about
the Company’s business or industry; (iv) the
candidate’s independence; (v) the candidate’s willingness and ability to devote adequate time and
effort to Board responsibilities in the context of the existing composition and needs of the Board and its
committees; and (vi) the NYSE rules.
19
Neither the Corporate Governance and Nominating Committee nor the Board has a specific policy with
regard to the consideration of diversity in identifying director nominees. However, the Board believes
that men and women of different ages, races, and ethnic and cultural backgrounds can contribute
the Company’s
different and useful perspectives, and can work effectively together
objectives, and, as noted above, a candidate’s diversity is one of the criteria that the Corporate
Governance and Nominating Committee considers in evaluating potential director nominees.
to further
The Corporate Governance and Nominating Committee may, at its discretion, hire third parties to
assist in the identification and evaluation of director nominees.
Shareholder Recommendations of Director Candidates
Recommendations by shareholders for director candidates to be considered for the 2019 Annual
Meeting of Shareholders must be in writing and received by the Company’s Secretary at Unifi, Inc.,
7201 West Friendly Avenue, Greensboro, North Carolina 27410 no earlier than July 3, 2019 and no
later than August 2, 2019. However, if the date of the 2019 Annual Meeting of Shareholders is more
than 30 days before or more than 90 days after October 31, 2019, then the written notice must be
received by the Company’s Secretary no earlier than 120 days prior to the date of the 2019 Annual
Meeting of Shareholders and no later than the close of business on the later of (i) 90 days prior to the
date of such annual meeting or (ii) 10 days following the day on which the Company first announced
publicly (or mailed notice to the shareholders of) the date of such meeting.
(ii)
including,
the nominee’s background and qualification,
forth in the Company’s Amended and Restated By-laws. With respect
The notice must contain certain information about both the nominee and the shareholder submitting the
nomination as set
to the
nominee, the notice must contain, among other things, (i) the nominee’s name, age and business and
residential addresses;
the principal
occupation or employment of the nominee; (iii) the class and number of shares or other securities of
the Company owned of record or beneficially by the nominee or any Shareholder Associated Person
(as defined in the Company’s Amended and Restated By-laws); (iv) any derivative positions held of
record or beneficially by the nominee or any Shareholder Associated Person related to, or the value of
which is derived in whole or in part from, the value of any class of the Company’s shares or other
securities and whether and the extent
to which any hedging or other transaction or series of
transactions has been entered into by or on behalf of, or any other agreement, arrangement or
understanding has been made, the effect or intent of which is to mitigate loss to, or to manage the risk
or benefit from share price changes for, or to increase or decrease the voting power of, the nominee or
any Shareholder Associated Person with respect to the Company’s shares or other securities; (v) a
written statement executed by the nominee (A) acknowledging that as a director of the Company, the
to the Company and its
nominee will owe a fiduciary duty under New York law with respect
shareholders, (B) disclosing whether the nominee is a party to an agreement, arrangement or
understanding with, or has given any commitment or assurance to, any person or entity as to how the
nominee,
the Company, will act or vote on any issue or question,
(C) disclosing whether the nominee is a party to an agreement, arrangement or understanding with any
person or entity other than the Company with respect
to any direct or indirect compensation,
reimbursement or indemnification in connection with the nominee’s service or action as a director of
the Company, (D) agreeing to update continually the accuracy of the information required by the
immediately preceding clauses (B) and (C) for as long as the nominee is a nominee or a director of the
Company and (E) agreeing, if elected as a director of the Company, to comply with all codes of
conduct and ethics, corporate governance, conflicts of interest, confidentiality and stock ownership and
trading policies and guidelines of the Company applicable to directors; and (vi) any other information
regarding the nominee or any Shareholder Associated Person that would be required to be disclosed in
a proxy statement or other filings required to be made in connection with a contested solicitation of
proxies for the election of directors or that the Company may reasonably require to determine the
if elected as a director of
20
eligibility of the nominee to serve as a director of the Company. With respect to the shareholder
submitting the nomination, the notice must contain: (1) the name and address, as they appear on the
Company’s books, of such shareholder and any Shareholder Associated Person; (2) the class and
the Company owned of record or beneficially by such
number of shares or other securities of
shareholder or any Shareholder Associated Person; (3) any derivative positions held of record or
beneficially by such shareholder or any Shareholder Associated Person related to, or the value of
which is derived in whole or in part from, the value of any class of the Company’s shares or other
securities and whether and the extent
to which any hedging or other transaction or series of
transactions has been entered into by or on behalf of, or any other agreement, arrangement or
understanding has been made, the effect or intent of which is to mitigate loss to, or to manage the risk
or benefit
from share price changes for, or to increase or decrease the voting power of, such
shareholder or any Shareholder Associated Person with respect to the Company’s shares or other
securities; (4) any other information regarding such shareholder or any Shareholder Associated Person
that would be required to be disclosed in a proxy statement or other filings required to be made in
connection with a contested solicitation of proxies for the election of directors; and (5) a representation
whether either such shareholder or any Shareholder Associated Person intends to, or is part of a group
which intends to, deliver a proxy statement and/or form of proxy to holders of at least the percentage of
the Company’s outstanding capital stock required to elect the nominee and/or otherwise to solicit
proxies from shareholders in support of such nomination.
A shareholder who is interested in recommending a director candidate should request a copy of the
Company’s Amended and Restated By-laws by writing to the Company’s Secretary at Unifi, Inc., 7201
West Friendly Avenue, Greensboro, North Carolina 27410. Recommended candidates will be subject
to a background check by a qualified firm of the Company’s choosing. Appropriate submission of a
recommendation by a shareholder does not guarantee the selection of the shareholder’s candidate or
the inclusion of the candidate in the Company’s proxy materials; however, the Corporate Governance
and Nominating Committee will consider any such candidate in accordance with the director
nomination process described above.
Annual Evaluation of Directors and Board Committee Members
The Board of Directors evaluates the performance of each director, each committee of the Board, the
Chairman, the Lead Independent Director and the Board of Directors as a whole on an annual basis. In
connection with this annual self-evaluation, each director records his or her views on the performance
of each director standing for reelection, each committee and the Board of Directors. The entire Board
of Directors reviews the results of these reports and determines what, if any, actions should be taken in
the upcoming year to improve its effectiveness and the effectiveness of each director and committee.
No Hedging, Pledging or Short Selling
UNIFI maintains policies that apply to all directors, officers and employees that prohibit hedging,
pledging or short selling (profiting if the market price decreases) of the Company’s securities.
Policy for Review of Related Person Transactions
Pursuant to the Company’s Related Persons Transactions Policy, which is available on the investor
relations portion of the Company’s website at www.unifi.com, the Company reviews relationships and
transactions in which the Company and its directors and executive officers or their immediate family
members are participants to determine whether such related persons have a direct or indirect material
is primarily
interest
responsible for the development and implementation of processes and controls to obtain information
from the directors and executive officers with respect to related person transactions and for then
in the relationships or transactions. The Company’s executive management
21
determining, based on the facts and circumstances, whether a related person has a direct or indirect
interest in any such transaction. As required under the SEC rules, transactions that are
material
determined to be directly or indirectly material
to a related person are disclosed in this Proxy
Statement. In addition, the Audit Committee reviews and, if appropriate, approves or ratifies any
related person transaction that is required to be disclosed under the SEC rules. As set forth in the Audit
Committee’s charter, which is available on the investor relations portion of the Company’s website at
www.unifi.com, in the course of its review and, if appropriate, approval or ratification of a disclosable
related person transaction,
facts and circumstances,
the Audit Committee considers the relevant
including the material terms of the transaction, risks, benefits, costs, availability of other comparable
services or products and, if applicable, the impact on a director’s independence.
Related Person Transactions
In fiscal 2018, the Company paid Salem Leasing Corporation, a wholly owned subsidiary of Salem
Holding Company, approximately $3.979 million in connection with leases of tractors and trailers and
for related services. In addition, the Company earned income from Salem Global Logistics, Inc., a
wholly owned subsidiary of Salem Holding Company, of approximately $147,000 in connection with
providing for-hire freight services for Salem Global Logistics, Inc. Mr. Langone, a director of the
Company, owns a non-controlling 33% equity interest in, and is a director and the Non-Executive
Chairman of, Salem Holding Company. Mr. Langone is not an employee of Salem Holding Company or
any of its subsidiaries and is not involved in the day-to-day operations of any such company. The terms
of the Company’s leases with Salem Leasing Corporation are, in the Company’s opinion, no less
favorable than the terms the Company would have been able to negotiate with an independent third
party. The terms of payment to the Company by Salem Global Logistics, Inc. for the freight services
were, in the Company’s opinion, no less favorable than the terms the Company would have been able
to negotiate with an independent third party. The foregoing transactions were approved under UNIFI’s
Related Persons Transactions Policy.
The Board’s Role in Risk Oversight
The Board of Directors oversees the Company’s risk profile and management’s processes for
assessing and managing risk, both as a whole Board and through its committees. The full Board
reviews strategic risks and opportunities facing the Company. Among other areas,
the Board is
involved in overseeing risks related to the Company’s overall strategy, business results, capital
structure, capital allocation and budgeting, and executive officer succession. Certain other important
categories of risk are assigned to designated Board committees (which are compromised solely of
independent directors) that report back to the full Board. In general, the committees oversee the
following risks:
(cid:129)
(cid:129)
(cid:129)
Audit Committee oversees risks related to internal financial and accounting controls, legal,
regulatory and compliance risks, work performed by the Company’s independent
registered public accounting firm and the Company’s internal audit function, related person
transactions, and the overall risk management governance structure and risk management
function;
Compensation Committee oversees the Company’s compensation programs and
practices. For a detailed discussion of the Company’s efforts to manage compensation-
related risks,
see “Compensation Discussion and Analysis—Risk Analysis of
Compensation Programs and Practices” beginning on page 37; and
Corporate Governance and Nominating Committee oversees issues that may create
governance risks, such as Board composition and structure, director selection and director
succession planning.
22
The Board believes that its ability to oversee risk is enhanced by having one person serve as the
Chairman of
the Board and the Chief Executive Officer. With his in-depth knowledge and
understanding of the Company’s operations and the apparel industry, the Board believes Mr. Hall, as
Chairman of the Board and Chief Executive Officer, is better able to bring key strategic and business
issues and risks to the Board’s attention than would a Non-Executive Chairman of the Board or a
non-director Chief Executive Officer.
Compensation Committee Advisors
The Compensation Committee has sole authority under its charter to retain compensation consultants
and other advisors and to approve such consultants’ and advisors’ fees and retention terms. The
Compensation Committee has retained Korn Ferry to serve as its independent advisor and to provide it
with advice and support on executive compensation issues.
The Compensation Committee has reviewed and confirmed the independence of Korn Ferry as the
Compensation Committee’s compensation consultant. Neither Korn Ferry nor any of
its affiliates
provides any services to UNIFI except for services provided to the Compensation Committee. In
addition to Korn Ferry, the Compensation Committee has reviewed the independence of each other
outside advisor in advance of receiving advice from such person.
Communications with the Board of Directors
Shareholders and other interested parties can communicate directly with any of
the Company’s
directors, by sending a written communication to a director at Unifi, Inc. c/o Secretary, 7201 West
Friendly Avenue, Greensboro, North Carolina 27410. Shareholders and other interested parties
wishing to communicate with Mr. Cox, as Lead Independent Director, or with the independent directors
as a group may do so by sending a written communication to Mr. Cox at the above address. In
addition, any party who has concerns about accounting, internal controls or auditing matters may
contact the Audit Committee directly by sending a written communication to the Chair of the Audit
Committee at the above address or by calling toll-free 1-800-514-5265. Such communications may be
confidential or anonymous. All such communications are promptly reviewed before being forwarded to
the addressee. Any concerns relating to accounting,
internal controls, auditing matters or officer
conduct are sent immediately to the Chair of the Audit Committee. UNIFI generally will not forward to
directors a shareholder communication that it determines to be primarily commercial in nature, relates
to an improper or irrelevant topic or requests general information about the Company.
23
Director Compensation
Pursuant
to the Company’s Director Compensation Policy, each director who is considered
“independent” within the meaning of the Director Independence Standards adopted by the Board of
Directors, which incorporate the independence standards of the NYSE rules, receives compensation
for his or her service on the Board, while each non-independent director receives no compensation for
his or her service as a director. In fiscal 2018, the Company’s non-independent directors were Messrs.
Thomas H. Caudle, Jr., and Kevin D. Hall. The following table sets forth the compensation paid to each
independent director who served on the Board in fiscal 2018:
Name
Robert J. Bishop
Albert P. Carey(2)
Paul R. Charron
Archibald Cox, Jr.
James M. Kilts
Kenneth G. Langone
James D. Mead
Suzanne M. Present
2018 Director Compensation Table
Fees Earned or
Paid in Cash
($)
Stock Awards
($)(1)
—
—
10,000
30,000
—
—
50,000
—
150,000
113,514
150,000
150,000
150,000
150,000
100,000
165,000
Total
($)
150,000
113,514
160,000
180,000
150,000
150,000
150,000
165,000
(1) Represents the full grant date fair value of either (i) Common Stock, in the case of Mr. Kilts, or (ii) restricted
stock unit awards, in the case of all independent directors other than Mr. Kilts, computed in accordance with
Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic
718”). Generally,
the full grant date fair value is the amount that the Company would expense in the
consolidated financial statements over the award’s vesting schedule. For additional information regarding the
assumptions made in calculating these amounts, see Note 16 to the consolidated financial statements
included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 24, 2018. These
amounts reflect the accounting expense and do not correspond to the actual value that will be recognized by
the directors.
As of June 24, 2018, Mr. Cox held 6,666 unexercised options to purchase shares of Common Stock and
Mr. Mead held 3,944 unvested restricted stock units, scheduled to vest and convert to shares of Common
Stock on July 25, 2018, in connection with executive recruiting services rendered by Mr. Mead in fiscal 2017.
As of June 24, 2018, no other independent director held any unexercised options to purchase shares of
Common Stock or any unvested restricted stock units.
(2) Mr. Carey was elected to the Board on January 24, 2018.
The Corporate Governance and Nominating Committee reviews the form and amount of director
compensation and makes recommendations to the Board for its consideration and approval. The
Corporate Governance and Nominating Committee and the Board of Directors approved the
Company’s Director Compensation Policy on October 25, 2017. The compensation for UNIFI’s
independent directors is as follows:
(cid:129)
(cid:129)
(cid:129)
$150,000 annual retainer, where up to 50% of such amount is payable (at the director’s
election) in cash and the remainder of such amount is an equity grant payable in shares of
Common Stock;
$20,000 annual retainer for the Lead Independent Director, payable (at the director’s
election) in cash or shares of Common Stock;
$15,000 annual retainer for the Chair of the Audit Committee, payable (at the director’s
election) in cash or shares of Common Stock;
24
(cid:129)
(cid:129)
$10,000 annual retainer for the Chairs of the Compensation Committee and the Corporate
Governance and Nominating Committee, payable (at such director’s election) in cash or
shares of Common Stock; and
reimbursement of reasonable expenses incurred for attending Board and committee
meetings.
A director may be issued stock units, in lieu of shares of Common Stock, which would be payable upon
the director’s cessation of service as a member of the Board. The number of any shares of Common
Stock or stock units granted to a director shall be determined based on the fair market value of the
Common Stock on the date of the director’s election to the Board.
Any independent director who is initially appointed or elected to the Board other than at the annual
meeting of shareholders will receive his or her annual retainer calculated on a pro rata basis based
upon the period between the date of such appointment or election and the anticipated date of the next
annual meeting of shareholders.
25
Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides an overview of
compensation program, including:
the Company’s executive
(cid:129)
the process the Compensation Committee used to determine compensation and benefits
for the following named executive officers (“NEOs”) for fiscal 2018:
Kevin D. Hall
Chairman of the Board and Chief Executive Officer
Jeffrey C. Ackerman
Executive Vice President & Chief Financial Officer
Thomas H. Caudle, Jr.
President & Chief Operating Officer
Richard E. Gerstein
John D. Vegas
Christopher A. Smosna
Executive Vice President, Global Branded Premium
Value-Added Products & Chief Marketing Officer
Executive Vice President & Global Chief Human
Resources Officer
Vice President & Treasurer
(Former Interim Chief Financial Officer from June 26,
2017 to September 5, 2017)
(cid:129)
(cid:129)
the material elements of the Company’s executive compensation program; and
the key principles and objectives, including the Company’s focus on pay for performance,
that guide the Company’s executive compensation program.
Executive Summary
Completion of Previously Announced Executive Team Additions
In fiscal 2018, the Company focused on enhancing its global supply chain, growing the market for its
premium value-added (“PVA”) products and using cash flow from operations to fund select capital
projects and strategic growth opportunities while also building out its commercial and management
team through talent recruitment. As part of these efforts, the Company completed a multi-year senior
leadership team transition with the addition of Jeffrey C. Ackerman as Executive Vice President &
Chief Financial Officer, Richard E. Gerstein as Executive Vice President, Global Branded Premium
Value-Added Products & Chief Marketing Officer and John D. Vegas as Executive Vice President &
Global Chief Human Resources Officer. These additional appointments provide a talented and deeply
experienced team to capitalize on the strategic investments the Company has made across its
business for sustainable growth and increases in shareholder value.
Company Performance Highlights
The Company’s net sales for fiscal 2018 increased 4.9% primarily due to the continued emphasis on
global sales of the Company’s PVA products (including REPREVE®). However, despite the relative
growth in PVA sales and overall sales, the Company experienced profitability challenges in fiscal 2018
during which operating income decreased from $43.8 million to $28.8 million. The primary challenges
related to (i) persistently rising raw material costs and an inherent lag in implementing responsive price
increases against cost-competitive imports, (ii) suppressed yarn demand in the Polyester and Nylon
Segments, (iii) a less-profitable sales mix and (iv) increased selling, general and administrative
expenses for talent acquisition, marketing and commercial expansion.
26
For purposes of executive officer performance evaluation, the Company achieved Adjusted EBITDA1
(as hereinafter defined) of $56.2 million and Global PVA Revenue2 of $302.2 million.
Executive Compensation Highlights
As described in greater detail below, the Company believes its executive compensation program
follow a pay-for-performance compensation model and link
should attract
the Company took the following
executive retention to long-term shareholder value. Accordingly,
actions during fiscal 2018 with respect to compensation of its NEOs:
top executive talent,
(cid:129)
(cid:129)
awarded cash bonus payments to the NEOs at threshold payout levels based on the
Company’s performance for fiscal 2018; and
entered into an employment agreement with each of Messrs. Ackerman, Gerstein and
Vegas in connection with their
to the Company that provides them
compensation and benefits (including stock option and restricted stock unit awards) in-line
with the market and their respective positions with the Company.
recruitment
Compensation Philosophy, Principles and Policies
The Company’s executive compensation philosophy is to:
Attract Top
Executive Talent
Follow a Pay-for-Performance
Compensation Model
The Company’s executive
compensation program should attract
high-quality executives who possess
the skills and talent necessary to
support and achieve the Company’s
strategic objectives.
Executives should be rewarded for
their achievement of near-term and
long-term operating performance
goals established by the Board.
Link Executive Retention to
Long-Term
Shareholder Value
The Company seeks to promote its
executives’ loyalty and retention by
utilizing a stock ownership policy
and other arrangements that
further link executive compensation
to sustained shareholder value and
consistent Company performance.
the focus of
Therefore,
the Company’s executive compensation program and the Compensation
Committee is to ensure that an appropriate relationship exists between executive pay and the creation
of shareholder value, while at the same time enabling the Company to attract, retain, reward and
motivate talented and experienced executives. The Compensation Committee monitors the results of
its executive compensation policy to ensure that compensation payable to executive officers creates
proper incentives to enhance shareholder value, rewards superior performance, is justified by returns
available to shareholders and discourages employees from taking unnecessary or excessive risks that
could ultimately threaten the value of the Company.
In establishing compensation for the NEOs, the following principles and policies guide the Company’s
executive compensation decisions:
(cid:129)
set all components of executive compensation so that the Company can continue to
attract, retain, reward and motivate talented and experienced executives;
1 Adjusted EBITDA is a non-GAAP financial performance measure. A reconciliation of Net income attributable to
Unifi, Inc., which is the most directly comparable GAAP measure, to Adjusted EBITDA is presented in Appendix A
to this Proxy Statement.
2 Global PVA Revenue represents the Company’s aggregate net sales of PVA products in fiscal 2018.
27
(cid:129)
(cid:129)
(cid:129)
ensure alignment of executive compensation with the Company’s corporate strategies and
business objectives and the long-term interests of shareholders;
increase the incentive to achieve key strategic and financial performance measures by
linking incentive award opportunities to the achievement of performance goals in those
areas; and
enhance the NEOs’
promote retention of key personnel, by providing a portion of
opportunities in the form of direct ownership in the Company through stock ownership.
incentive to increase the Company’s long-term value, as well as
total compensation
The Compensation Committee reviews and approves all components of the NEOs’ compensation. The
Compensation Committee also monitors the compensation levels in general for all other senior level
employees of the Company. In addition, the Compensation Committee has the discretion to hire
compensation and benefits consultants to assist
in developing and reviewing overall executive
compensation strategies.
What the Company Does
What the Company Doesn’t Do
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
The Company’s pay-for-performance
philosophy means the majority of executive
officer compensation is “at risk” and tied to
the creation of shareholder value.
The Company’s stock ownership guidelines
align the interests of the Company’s
executives with those of its shareholders.
The Company uses an objective financial
performance measure in the annual
incentive plan closely tied to the Company’s
business strategy.
The Company has caps on payouts for
annual incentive compensation.
The Company has a robust clawback policy
for annual and long-term incentive awards.
The Company has engaged an independent
compensation consultant.
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
The Company doesn’t discount, reload or
reprice stock option awards.
The Company doesn’t pay gross-ups for
golden parachute excise taxes.
The Company doesn’t permit hedging,
pledging or short selling (profiting if the
market price decreases) of UNIFI securities.
The Company doesn’t design compensation
plans that encourage unnecessary or
excessive risk.
The Company doesn’t provide guaranteed
minimum payouts of annual incentive
opportunities.
The Company doesn’t provide excessive
perquisites.
28
Overview of Compensation Components
The Compensation Committee views executive compensation in four component parts:
Base Salary
Annual
Incentives
Total
Compensation
Long-Term
Incentives
Other
Personal
Benefits
A brief description of each of these components is provided below, together with a summary of its
objectives:
Compensation
Element
Base Salary
Annual Incentives
Long-Term
Incentives
Other Personal
Benefits
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Description
Objectives
Fixed compensation that is
reviewed annually based on
performance.
“At-risk” variable compensation
earned based on performance
measured against
pre-established annual goals.
“At-risk” variable compensation in
the form of equity awards whose
value fluctuates according to
shareholder value and that vest
based on continued service.
Supplemental retirement
contributions based on
executives’ respective base
salaries earned over time subject
to continued service.
Broad-based benefits provided to
all of the Company’s employees
(e.g., health and group term life
insurance), a retirement savings
plan and certain perquisites.
29
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Provide a base level of
compensation that fairly accounts
for the job and scope of the role
being performed.
Attract, retain, reward and
motivate talented and
experienced executives.
Provide incentives for achieving
annual operating goals that
ultimately contribute to long-term
value for shareholders.
Align the economic interests of
the Company’s executives with its
shareholders by rewarding
executives for stock price
improvement.
Promote retention (through time-
based vesting schedules).
Provide a competitive total
compensation package to attract
and retain key executives.
Compensation Mix
Consistent with the philosophy, principles and policies of the executive compensation program, the
program places approximately 60% of total executive compensation “at risk” based on the performance
of the Company and the executive through an annual cash bonus incentive program and equity-based
long-term incentive awards. The Company currently uses the Unifi, Inc. 2013 Incentive Compensation
Plan (the “2013 Plan”) to provide those equity-based awards. The Company believes the substantial
weighting of performance-based compensation encourages its executives to achieve near-term and
long-term operating performance goals designed to create or enhance shareholder value.
Control by the Compensation Committee
The Compensation Committee reviews and approves corporate goals and objectives relevant to the
compensation of each NEO, evaluates each NEO’s performance in light of these goals and objectives
(with input from the principal executive officer for NEOs other than the principal executive officer), and
sets each NEO’s compensation level based on this evaluation and consultation. The Compensation
Committee also advises senior management with respect to the range of compensation to be paid to
other employees of the Company, administers and makes recommendations to the Board concerning
benefit plans for the Company’s directors, officers and employees and recommends benefit programs
and future goals and objectives for the Company.
As in the past, the Compensation Committee continued to consider a wide range of factors in making
its fiscal 2018 compensation decisions for the Company’s NEOs, including the historical practices of
the Company; the individual NEO’s leadership and role in advancement of the Company’s long-term
strategy, plans and objectives; the individual NEO’s performance and contribution to the Company’s
success; budget guidelines established by the Board; and an assessment of the Company’s financial
condition. Additionally, the Compensation Committee considered the Company’s fiscal 2017 operating
and Adjusted EBITDA results, along with the current economic climate. Based on this information and
these factors, the Compensation Committee set executive compensation for fiscal 2018.
During fiscal 2018, the Compensation Committee engaged Korn Ferry as an independent advisor to
assist the Compensation Committee with developing market-based compensation and benefit levels
for newly recruited members of the Company’s senior leadership team. The Compensation Committee
does not believe it is appropriate to tie executive compensation directly to the compensation awarded
by other companies or to a particular survey or group of surveys.
the Compensation
Committee consults with Korn Ferry to gain a general understanding of compensation practices and
trends of similarly situated companies. The Compensation Committee members use that knowledge as
a tool in considering the overall compensation of the Company’s executives. No specific compensation
decision for any individual was based on or justified by any market comparison reports or information.
Instead,
Detailed Review of Compensation Components
Base Salaries
The Compensation Committee believes in maintaining a close relationship between the Company’s
the compensation for each NEO. The factors
performance and the base salary component of
considered by the Compensation Committee in setting the NEOs’ base salaries include:
(cid:129)
(cid:129)
the executive’s leadership and role in advancement of the Company’s long-term strategy,
plans and objectives;
the executive’s performance and contribution to the Company’s success;
30
(cid:129)
(cid:129)
budget guidelines established by the Board; and
an assessment of the Company’s financial condition.
In addition to reviewing the above factors, the Compensation Committee also believes that strong and
effective communication with management helps the Company adhere to its compensation philosophy,
principles and policies. Therefore, the Compensation Committee consults with the principal executive
officer and reviews his recommendations regarding the compensation of all NEOs (other than the
principal executive officer) before making its final compensation decisions. Periodically, the principal
executive officer meets with the other NEOs regarding their performance.
The base salaries for the NEOs for fiscal 2018 are set forth in the table below:
Name
Kevin D. Hall
Jeffrey C. Ackerman
Thomas H. Caudle, Jr.
Richard E. Gerstein
John D. Vegas
Christopher A. Smosna
Fiscal 2018
Base Salary
($)
Fiscal 2017
Base Salary
($)
Percentage
Change
775,000
480,000
770,000
400,000
400,000
227,115
775,000
N/A
770,000
N/A
N/A
220,500
0.0%
N/A
0.0%
N/A
N/A
3.0%
The Compensation Committee made no adjustments to the base salaries of the NEOs (other than
Mr. Smosna) during fiscal 2018, because the base salary for Mr. Hall was set when he joined the
Company during the latter part of fiscal 2017, and Mr. Caudle received a salary increase in connection
with his appointment as President of the Company in April 2016. The base salaries for Messrs.
Ackerman, Gerstein and Vegas were set when they joined the Company’s senior management team.
The Compensation Committee approved a 3.0% increase in Mr. Smosna’s base salary which matched
the average salary increase granted to other employees of the Company.
Annual Incentive Compensation
the Company has
To encourage executives to achieve near-term operating performance goals,
established an annual
incentive compensation program in the form of a cash bonus. All NEOs
employed as of the beginning of the fiscal year or who are employed by January 1 of the fiscal year are
eligible to earn annual bonuses based on the Company’s fiscal year performance. Any bonus payouts
for NEOs employed after the beginning of a fiscal year but prior to January 2 of the fiscal year are
prorated.
For fiscal 2018, the Compensation Committee established a performance target of $70.2 million of
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), adjusted to exclude certain
items, such as equity in earnings of Parkdale America, LLC, and other operating or non-operating
income or expense items necessary to understand and compare the underlying results of the Company
(“Adjusted EBITDA”). The target Adjusted EBITDA level was based on the Board-approved business
plan for fiscal 2018 and represented an increase of approximately $0.9 million above the fiscal 2017
Adjusted EBITDA target of $69.3 million.
incentive
The Compensation Committee uses Adjusted EBITDA as a measure for annual
compensation purposes because the Compensation Committee believes Adjusted EBITDA serves as a
high-level proxy for cash generated from operations, which is a key performance indicator used by the
31
Board and management to assess the Company’s operating results generally. The Compensation
Committee also believes that a Company-wide performance measure, such as Adjusted EBITDA, is
appropriate for each NEO because each NEO plays a vital role in the overall success of the Company.
Therefore, the Compensation Committee believes that the annual variable compensation received by
the NEOs should reflect the Company’s near-term operating performance.
for a portion of
The incentive program included Global PVA Revenue as a performance target
Mr. Gerstein’s 2018 annual
incentive compensation. The Compensation Committee included this
measure for Mr. Gerstein because it measures the performance of the business for which he has
primary operating responsibility.
The annual incentive bonus awarded to NEOs may be decreased by the Compensation Committee as
the individual’s performance and/or contribution to the Company’s achievement of its
a result of
financial objectives. Each NEO’s performance, including the principal executive officer’s, is evaluated
against specific financial goals prior to payment of bonuses, and the final bonus payment may be
adjusted relative to the achievement of those goals. The performance criteria in the annual incentive
bonus program may be adjusted by either the Compensation Committee or the Board to account for
unusual events, such as extraordinary transactions, asset dispositions and purchases, and mergers
and acquisitions, if, and to the extent, either the Compensation Committee or the Board considers the
effect of such events indicative of
the Compensation
Committee or the Board has the discretion to award additional bonus compensation even if a NEO
would not be entitled to any bonus based on the targets previously determined. The Compensation
Committee did not use discretion in fiscal 2018 to award any additional bonus compensation.
the Company’s performance. Additionally,
For fiscal 2018, the Compensation Committee set annual incentive opportunities, threshold, target and
maximum performance levels and corresponding potential annual incentive payments to the eligible
NEOs (based on percentages of base salary) as set forth in the tables below.
Name
Kevin D. Hall
Jeffrey C. Ackerman
Thomas H. Caudle, Jr.
Richard E. Gerstein
John D. Vegas
Christopher A. Smosna
Name
Kevin D. Hall
Jeffrey C. Ackerman
Thomas H. Caudle, Jr.
John D. Vegas
Christopher A. Smosna
Richard E. Gerstein
Annual Incentive Opportunity
(as a % of Base Salary)
Threshold
50.0%
37.5%
42.5%
30.0%
30.0%
20.0%
Target
100.0%
75.0%
85.0%
50.0%
50.0%
35.0%
Maximum
200.0%
150.0%
170.0%
100.0%
100.0%
50.0%
Performance Measure
Weight
Target Performance
($)
Adjusted EBITDA
100.0%
70.2 million
Adjusted EBITDA
Global PVA Revenue
75.0%
25.0%
70.2 million
280.0 million
32
The following table shows the threshold, target and maximum performance levels for each of the
performance measures established by the Compensation Committee for fiscal 2018 as well as the
Company’s actual performance in fiscal 2018.
Performance Metric
Adjusted EBITDA
Global PVA Revenue
Threshold
Performance
($)
56.2 million
224.0 million
Target
Performance
($)
70.2 million
280.0 million
Maximum
Performance
($)
84.2 million
336.0 million
Actual
Fiscal 2018
Performance
($)
56.2 million
302.2 million
The fiscal 2018 Adjusted EBITDA performance shown above reflects the Company’s publicly reported
results, with Adjusted EBITDA further adjusted to exclude approximately $4.7 million in nonrecurring
charges that were not anticipated when the fiscal 2018 performance measures were approved at the
beginning of the fiscal year. The excluded charges include officer recruitment and severance costs of
approximately $2.9 million, special project costs of approximately $1.0 million,
foreign currency
transaction losses of approximately $0.5 million and unbudgeted director compensation expense of
approximately $0.3 million. After the exclusion of these charges, the Company’s Adjusted EBITDA for
fiscal 2018 was approximately $57.0 million or approximately $0.8 million above the threshold
performance level for fiscal 2018 Adjusted EBITDA.
After completing its review of the Company’s fiscal 2018 performance, the Compensation Committee
exercised its discretionary authority to reduce Adjusted EBITDA to the threshold performance level.
The Compensation Committee concluded that the resulting threshold level payouts under the 2018
annual incentive plan for the Company’s Adjusted EBITDA performance were more appropriate than
an above-threshold payout level that would have resulted from excluding 100% of the nonrecurring
charges described above from the calculation of Adjusted EBITDA.
Based on the performance measures established by the Compensation Committee for fiscal 2018 and
the Company’s actual performance (adjusted as described above), the NEOs earned 2018 annual
incentive awards as follows:
Name
Kevin D. Hall
Jeffrey C. Ackerman(1)
Thomas H. Caudle, Jr.
Richard E. Gerstein(1)
John D. Vegas(1)
Christopher A. Smosna
2018 Annual Incentive Payout
% of Base Salary
50.0%
30.1%
42.5%
34.4%
25.3%
20.0%
Amount
($)
387,500
144,493
327,200
137,556
101,260
45,423
(1) The payouts for Messrs. Ackerman, Gerstein and Vegas were prorated because they were not employed for
the entire 2018 fiscal year.
In addition to his 2018 annual incentive award, Mr. Smosna received a $10,000 bonus in recognition of
his service as Interim Chief Financial Officer.
Long-Term Incentive Compensation
The Compensation Committee believes that stock-based performance compensation is essential to
align the interests of the Company’s management and its shareholders in enhancing the long-term
33
value of the Company’s equity and to encourage executives to retain their employment with the
Company. Among the varied types of equity awards the Compensation Committee is authorized to use
under the 2013 Plan, the Compensation Committee has determined that incentive stock options are
preferable for use with NEOs, because their value depends upon a future increase in the value of the
Common Stock. The Compensation Committee also has determined that restricted stock unit grants to
NEOs should be used for more limited purposes, such as retention or recruiting incentives or to
recognize outstanding performance. For vice president-level employees other
the
Compensation Committee has determined that an equal blend of incentive stock options and restricted
stock units is preferable to provide a mix composed of awards whose value depends upon a future
increase in the value of the Common Stock (incentive stock options) and awards that serve primarily as
a retention and recruitment tool (restricted stock units). For other key employees, the Compensation
Committee has determined that restricted stock units are preferable, because they serve as important
retention and recruiting tools.
than NEOs,
Consistent with those determinations, in fiscal 2018, the Compensation Committee awarded stock
options and restricted stock units to Messrs. Ackerman, Gerstein and Vegas in connection with their
recruitment to the Company and stock options and restricted stock units to Mr. Smosna in connection
with the annual award process, all as shown in the table below. Messrs. Hall and Caudle did not
receive equity awards in fiscal 2018 because each of them received awards during the second half of
fiscal 2017 in connection with Mr. Hall’s appointment as Chief Executive Officer of the Company and
Mr. Caudle’s appointment as Chief Operating Officer of the Company.
Name
Jeffrey C. Ackerman
Richard E. Gerstein
John D. Vegas
Christopher A. Smosna
Grant Date
9/5/2017
8/14/2017
8/21/2017
3/1/2018
Number of
Stock Options
(#)
Exercise Price of
Stock Options
($)
Number of
Restricted Stock Units
(#)
15,000
15,000
15,000
1,538
31.23
30.96
30.23
35.09
20,000
20,000
20,000
550
The stock option awards vest and become exercisable in three equal installments beginning on the first
anniversary of the grant date. As “incentive stock options” (to the applicable maximum permitted under
the 2013 Plan), these stock options offer the NEO the opportunity to receive favorable tax treatment if
he retains the shares acquired upon exercise for at least one year. The restricted stock units vest 25%
30 days after the first anniversary of the grant date, 25% on the second anniversary of the grant date
and 50% on the third anniversary of the grant date. For additional information on the stock options and
restricted stock units granted in fiscal 2018, see “Executive Compensation Tables—Grants of Plan-
Based Awards” below.
Perquisites and Other Benefits
Perquisites. The Compensation Committee’s general philosophy is to provide executives, including
the NEOs, with only limited perquisites. Therefore, the Company does not provide its NEOs with
perquisites, such as car allowances, reimbursements for car expenses or payment of country club
dues.
In order to provide employees at all levels with greater incentives, the Company
Retirement Benefits.
makes available to all employees, including the NEOs, the opportunity to make contributions to the
Unifi, Inc. Retirement Savings Plan (the “401(k) Plan”), under which employees may elect to defer up
to 75% of their total compensation, not to exceed the amount allowed by applicable Internal Revenue
Service regulations. Pursuant to the 401(k) Plan, in fiscal 2018, the Company matched contributions
equal to 100% of the employee’s first 3% of compensation contributed to the 401(k) Plan and 50% of
the next 2% of compensation contributed to the 401(k) Plan.
34
Health Plan, Life Insurance and Other Benefits. The Company makes available health and insurance
benefits to all employees (subject to standard eligibility waiting periods), including the NEOs. The cost
of the health plans is covered partially through employee payroll deductions, with the remainder
covered by the Company. Disability and life insurance benefits are paid by the Company for all salaried
employees; however, the NEOs receive additional life insurance coverage provided by the Company.
Supplemental Key Employee Retirement Plan. As an additional means of attracting top executive
talent and encouraging executives to remain employed with the Company, the Company maintains the
Unifi, Inc. Supplemental Key Employee Retirement Plan (the “SERP”). Participation in the SERP is
limited to a select group of management employees who are selected by the Compensation
Committee. As described in greater detail preceding the Nonqualified Deferred Compensation table on
page 44, the SERP provides additional retirement benefits payable to the Company’s NEOs following
their termination of employment.
Employment Agreements. The Company is party to an employment agreement with each of Messrs.
Hall, Ackerman, Caudle, Gerstein and Vegas. Each employment agreement provides that each
executive will (i) receive an annual base salary at the annual rate set forth in the agreement, (ii) be
eligible to receive bonuses and to participate in compensation plans of the Company in accordance
with any plan or decision that the Board may determine from time to time, (iii) be paid or reimbursed for
business expenses and (iv) be entitled to participate in other employment benefits generally available
to other executives of the Company. The employment agreement also contains provisions regarding
the termination of an executive’s employment and related severance obligations. The executives
agreed in their employment agreements to neither compete with the Company or its affiliated entities
nor solicit their respective customers, suppliers or employees for the 12 months immediately following
termination of employment.
A calculation of the estimated severance payments and benefits payable under the employment
agreements are set
“Executive Compensation Tables—Potential Payments Upon
Termination of Employment or Change in Control” beginning on page 45.
forth under
Policy on Executive Officer and Employee Incentive Compensation
Recoupment
The Company has a written policy to address the recoupment of performance-based compensation
awarded to or earned by an executive officer if there is a restatement of the Company’s financial
results due to material noncompliance of the Company with any financial reporting requirement under
the federal securities laws. In the event of a restatement, the Board shall review the performance-
based compensation awarded to or earned by the executive officers for the three-year period prior to
the restatement event and,
the Board determines in its reasonable discretion that any such
performance-based compensation would not have been awarded to or earned by an executive officer
based on the restated financial results, the Board shall seek to recover from such executive officer any
portion of the performance-based compensation that is greater than that which would have been
awarded or earned had it been calculated on the basis of the restated financial results.
if
The Company’s recoupment policy also addresses the recoupment of performance-based
compensation awarded to or earned by any current or former employee if such employee engaged in
certain misconduct (e.g., embezzlement, fraud or theft or unethical behavior that harms the Company’s
business, reputation or other employees). In such event, the Board may require reimbursement of
compensation granted, earned or paid under any Company annual incentive or long-term incentive
cash plans to such employee and cancellation of outstanding equity awards and reimbursement of any
gains realized on the exercise, settlement or sale of equity awards held by such employee at any time
during the three-year period ending on the date on which such misconduct is discovered.
35
Officers Stock Ownership Policy
The Company has adopted an Officers Stock Ownership Policy to enhance the Company’s ongoing
objective to align the compensation paid to its officers with the long-term interests of shareholders. The
policy applies to any NEO, any person who holds the position of Vice President, Treasurer or higher
with the Company, its primary operating subsidiary and possible other significant operating subsidiaries
(“VP-Level Personnel”), and to certain other persons below those levels who may be designated for
coverage by the Compensation Committee (for purposes of the policy, collectively, “covered officers”).
The policy provides for a ramp-up period for complying with the expected stock ownership levels, both
upon the initial implementation of the policy and thereafter upon each person first becoming a NEO or
other covered officer. If a covered officer fails to comply with the stock ownership expectation, the
Compensation Committee considers that fact in setting future salary, bonus or other compensation for
the covered officer. The Company tests for compliance with the stock ownership expectation at the end
of the fiscal year.
The stock ownership expectation, calculation of shares of Common Stock counted towards the
ownership expectation and valuation of shares of Common Stock for purposes of the policy are as set
forth below. All covered officers are in compliance with their respective stock ownership expectations
under the terms of the policy.
Stock Ownership
Expectation
(cid:129)
(cid:129)
NEOs: At least three times
annual base salary.
VP-Level Personnel
(non-NEOs): At least one and
one-half times annual base
salary.
(cid:129) Other designated covered
(cid:129)
(cid:129)
officers: In the discretion of the
Compensation Committee, at
least one times annual base
salary.
Shares of Common Stock
Counted Towards
Ownership Expectation
Shares owned directly by
the officer, his or her
spouse or minor children, or
a trust for the exclusive
benefit of one or more such
persons.
Shares covered by the
portion of stock options or
restricted stock units that
are vested or not subject to
forfeiture.
Valuation of Shares
of Common Stock
(cid:129) Greater of (i) the closing
price on the last trading
day of the applicable fiscal
period or (ii) the 30-day
average closing price
ending on such last trading
day.
(cid:129)
Shares underlying vested
stock options, restricted
stock units and other stock
awards are calculated as if
they were exercised using
the current market price on
the applicable measurement
date and assuming shares
are immediately sold to pay
the exercise price and
applicable taxes.
Tax Impact on Compensation
The Compensation Committee has considered the impact of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the “Code”), on the Company’s executive compensation program. Code
for
Section 162(m) denies a public company a deduction, except
compensation paid to “covered employees” – which includes the NEOs, other than the Company’s
principal financial officer – to the extent such compensation exceeds $1 million. Based on its review of
the likely impact of Code Section 162(m) and other factors, the Compensation Committee previously
recommended to the Board, the Board adopted and the Company’s shareholders approved, the 2013
Plan. The 2013 Plan allows the Company’s annual cash incentive bonus program for the NEOs, as
to qualify for an exception to the Code
well as equity and equity-based awards to the NEOs,
in limited circumstances,
36
Section 162(m) deduction limitation. The Compensation Committee may in the future adopt or change
benefit plans in order to cause the compensation paid to covered employees under the plans to qualify
for the exception. In any event, the Compensation Committee may authorize payments or equity
awards to retain and motivate key executives, in any situation it believes to be appropriate, without
regard to tax deductibility considerations.
Legislation enacted at the end of 2017 expanded the number of individuals covered by Section 162(m)
of the Code and eliminated the exception for performance-based compensation effective for fiscal
2019. Therefore, compensation in excess of $1 million paid to covered employees in fiscal 2019 and
later years will not be deductible unless it qualifies for
transition relief applicable to certain
arrangements in place as of November 2, 2017.
Risk Analysis of Compensation Programs and Practices
While the Company’s compensation programs and practices are designed to motivate its employees
and encourage performance that improves the Company’s financial and other operating results, the
Company and the Compensation Committee also seek to design and implement compensation
programs and practices that discourage employees from taking unnecessary or excessive risks that
could ultimately threaten the value of the Company or otherwise have a material adverse effect on the
Company. Management and the Compensation Committee periodically review and assess potential
risks associated with the Company’s compensation programs and practices. Management and the
Compensation Committee believe that the Company’s incentive compensation programs and practices
are appropriately balanced between value created indirectly by the performance of the Common Stock
and payments resulting from the achievement of specific financial performance objectives, so as to
minimize the likelihood of unnecessary or excessive risk-taking by Company employees. Management
and the Compensation Committee have concluded that any risks from such programs and practices
are not reasonably likely to have a material adverse effect on the Company. The Compensation
Committee reached its conclusion after considering a number of
the Company’s
compensation structure that are designed to mitigate risk, such as:
features of
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
The Company uses a balance of fixed and variable compensation in the form of cash and
equity, which is designed to provide both near-term and long-term focus.
The overall compensation of the Company’s NEOs is not overly weighted towards the
achievement of performance criteria in a particular fiscal year, and an appropriate portion
of compensation is awarded in the form of equity awards that vest over a multi-year period,
subject to continued service by the recipient. This further aligns the interests of the NEOs
to long-term shareholder value and helps retain management.
Payouts under
long-term
incentive programs are based on performance criteria that the Compensation Committee
believes to be challenging, yet reasonable and attainable without excessive risk-taking.
incentive compensation and other
the Company’s annual
The Company caps payouts from its annual incentive plan.
The Company has a compensation recoupment policy that allows the Company to recover
certain compensation in the event of a restatement of its financial statements due to the
material noncompliance of the Company with any financial reporting requirement under the
federal securities laws or in the event of certain fraud or other misconduct by an employee.
The Company has a stock ownership policy under which its NEOs and other key personnel
are expected to own a significant amount of Common Stock, further aligning their interests
with those of the Company’s other shareholders.
37
(cid:129)
The Compensation Committee maintains an open dialogue with management regarding
executive compensation programs and practices and the appropriate incentives to use in
achieving near-term and long-term operating performance goals.
Shareholder Say-on-Pay Vote
At the 2017 Annual Meeting of Shareholders, the Company’s shareholders had the opportunity to vote,
on an advisory basis, on a proposal to approve the compensation of the NEOs for fiscal 2017. This is
referred to as a “say-on-pay” proposal. Approximately 96% of the votes cast at the 2017 Annual
Meeting of Shareholders on the say-on-pay proposal were voted in favor of
the proposal. The
Compensation Committee believes this vote result reflects the general concurrence by the Company’s
shareholders with the Company’s philosophy and approach to executive compensation. Therefore, the
Company has continued its philosophy and approach to executive compensation as discussed above.
At the Annual Meeting, shareholders will have the opportunity to indicate their views on the Company’s
NEO compensation for fiscal 2018. For additional
information, see “Proposal 2: Advisory Vote to
Approve Named Executive Officer Compensation.” The Compensation Committee will continue to
consider the vote results for say-on-pay proposals in future years when making compensation
decisions for the Company’s NEOs.
38
Executive Compensation Tables
The following tables, narratives and footnotes describe the total compensation and benefits for the
NEOs for fiscal 2018, as well as the total compensation and benefits for the NEOs for the two
preceding fiscal years.
Summary Compensation Table
Salary
($)
775,000
77,500
Year
2018
2017
Bonus
($)
Stock
Awards
($)(1)
Option
Awards
($)(1)
—
—
—
2,058,000
—
230,741
Non-Equity
Incentive Plan
Compensation
($)(2)
387,500
—
All Other
Compensation
($)(3)
84,539
14,750
Total
($)
1,247,039
2,380,991
2018 387,692
— 624,600 154,543
144,493
33,156
1,344,484
770,000
2018
836,884
2017
2016
370,785
2018 350,062
—
—
108,449
—
—
206,026
2,090,250
152,036
—
— 619,100 154,107
327,250
638,138
274,312
137,556
164,000
94,718
58,543
49,442
1,261,250
3,866,016
964,125
1,310,267
Name
Kevin D. Hall
Jeffrey C.
Ackerman(4)
Thomas H.
Caudle, Jr.
Richard E.
Gerstein(5)
Position
Chairman of the
Board and Chief
Executive Officer
Executive Vice
President &
Chief Financial
Officer
President &
Chief Operating
Officer
Executive
Vice President,
Global Branded
Premium
Value-Added
Products & Chief
Marketing Officer
John D. Vegas(6) Executive Vice
2018 338,462
— 604,500 150,420
101,260
56,132
1,250,774
Christopher A.
Smosna(7)
President &
Global Chief
Human Resources
Officer
Vice President &
Treasurer
(Former Interim
Chief Financial
Officer)
2018
2017
2016
223,807
210,000
191,571
10,000
—
—
19,300
—
—
19,323
51,506
101,357
45,423
71,925
67,795
23,584
22,294
21,073
341,437
355,725
381,796
(1)
Amounts reflect the grant date fair value computed in accordance with FASB ASC Topic 718, related to stock and option
awards granted in the fiscal year noted. See Note 16 to the consolidated financial statements included in the Company’s
Annual Report on Form 10-K for the fiscal year ended June 24, 2018 for more information about the value of equity awards.
(2) Amounts are attributable to cash payments earned under the annual
incentive plan for the applicable fiscal year, as
described above under “Compensation Discussion and Analysis” with respect to the fiscal years noted.
(3) All Other Compensation for each of the NEOs for fiscal 2018 consists of the following:
Life Insurance ($)
Matching 401(k) Plan Contribution ($)
Contributions to SERP ($)
Holiday Gift ($)(a)
Health Savings Account Contribution
($)
Relocation Assistance
Benefits ($)
Tax Gross-Up on Relocation
Assistance Benefits ($)
Total ($)
Kevin D.
Hall
14,176
15,569
39,525
300
—
10,600
4,369
84,539
Jeffrey C.
Ackerman
5,548
14,254
12,554
300
500
—
Thomas H.
Caudle, Jr.
86,950
11,300
65,450
300
—
—
Richard E.
Gerstein
3,062
14,002
12,423
300
John D.
Vegas
1,884
8,921
11,769
300
Christopher
A. Smosna
303
11,142
11,839
300
—
—
14,771
27,265
—
—
—
33,156
—
164,000
4,884
49,442
5,993
56,132
—
23,584
(a)
In December 2017, each NEO was awarded a nominal gift in connection with the holiday season.
(4) Mr. Ackerman was appointed Executive Vice President & Chief Financial Officer effective September 5, 2017.
39
(5) Mr. Gerstein was appointed Executive Vice President, Global Branded Premium Value-Added Products & Chief Marketing
Officer effective August 14, 2017.
(6) Mr. Vegas was appointed Executive Vice President & Global Chief Human Resources Officer effective August 21, 2017.
(7) Mr. Smosna served as Interim Chief Financial Officer from June 26, 2017 until Mr. Ackerman’s appointment as Executive
Vice President & Chief Financial Officer effective September 5, 2017. Mr. Smosna received a $10,000 bonus in recognition
of his service as Interim Chief Financial Officer.
40
Grants of Plan-Based Awards
Grant Type
Name
Kevin D. Hall Annual Cash
Jeffrey
C. Ackerman
Thomas
H. Caudle, Jr.
Richard E.
Gerstein
Incentive
Annual Cash
Incentive
Stock Options
Restricted
Stock Units
Annual Cash
Incentive
Annual Cash
Incentive
Date of
Committee
Action (If
Different
from
Grant
Date)
Grant
Date
Estimated Possible
Payouts Under Non-Equity
Incentive Plan Awards(1)
Threshold
($)
Target
($)
Maximum
($)
387,500
775,000 1,550,000
144,493
288,986
577,973
All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)(2)
All
Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(3)
Grant
Date
Fair
Value of
Stock
and
Option
Awards
($)(4)
Exercise
or Base
Price of
Option
Awards
($ / Share)
9/5/2017 8/30/2017
9/5/2017 8/30/2017
15,000
31.23
154,543
20,000
624,600
Stock Options 8/14/2017
Restricted
Stock Units 8/14/2017
John D. Vegas Annual Cash
Christopher
A. Smosna
Incentive
Stock Options 8/21/2017
Restricted
Stock Units 8/21/2017
Annual Cash
Incentive
Stock Options
Restricted
Stock Units
3/1/2018 1/23/2018
3/1/2018 1/23/2018
327,250
654,500 1,309,000
103,562
172,602
345,205
101,260
168,767
337,534
45,423
79,490
113,558
15,000
30.96
154,107
20,000
619,100
15,000
30.23
150,420
20,000
604,500
1,538
35.09
19,323
550
19,300
(1)
(2)
(3)
(4)
Represents the threshold, target and maximum payments the NEOs were eligible to earn pursuant to the Company’s fiscal 2018
annual cash incentive plan. The 2018 annual incentive plan, including the threshold, target and maximum payout amounts for
each of the NEOs, the performance metrics, weightings and target performance levels and the Company’s performance for fiscal
2018 are described under “Compensation Discussion and Analysis—Detailed Review of Compensation Components—Annual
Incentive Compensation” beginning on page 31. The annual incentive awards earned by the NEOs for fiscal 2018 are reported in
the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. The annual incentive amounts
reflected for each of Messrs. Ackerman, Gerstein and Vegas are prorated to reflect less than a full year of service in fiscal 2018.
Represents restricted stock units granted to Messrs. Ackerman, Gerstein and Vegas in connection with their recruitment by
the Company and an annual equity incentive grant to Mr. Smosna. The restricted stock units become vested 25% 30 days
after the first anniversary of the grant date, 25% on the second anniversary of the grant date and 50% on the third
anniversary of the grant date.
Represents stock options granted to the NEOs pursuant to the 2013 Plan during fiscal 2018. The stock options become
vested in one-third increments on the first, second and third anniversaries of the grant date.
The amounts in this column do not represent amounts the NEOs received or are entitled to receive. As required by the SEC
rules, this column represents the full grant date fair value of the stock options granted to the NEOs during fiscal 2018. The
full grant date fair value is the amount that the Company will recognize in its consolidated financial statements over the
award’s vesting schedule, subject to any forfeitures. The grant date fair value was determined under FASB ASC Topic 718.
See Note 16 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal
year ended June 24, 2018.
41
Outstanding Equity Awards at Fiscal Year-End
Name
Kevin D. Hall
Jeffrey C. Ackerman
Thomas H. Caudle, Jr.
Richard E. Gerstein
John D. Vegas
Christopher A. Smosna
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of Stock
That Have
Not Vested
(#)
Market Value of
Shares or Units of
Stock That Have
Not Vested
($)
8,334
—
—
—
36,666
6,000
3,000
6,000
11,000
5,000
6,667
—
—
—
—
—
5,000
5,000
5,000
3,334
1,667
—
—
16,666
—
15,000
—
—
—
—
—
—
2,500
13,333
—
15,000
—
15,000
—
—
—
—
1,666
3,333
1,538
—
27.44
—
31.23
—
5.73
12.47
11.23
22.08
27.38
32.36
29.09
—
30.96
—
30.23
—
11.09
22.08
27.38
32.36
29.09
35.09
—
5/19/2027(1)
—
—
56,250(2)
9/5/2027(3)
—
7/28/2019
7/27/2021
7/25/2022
7/24/2023
7/22/2024
7/22/2025(5)
10/26/2026(6)
—
20,000(4)
—
—
—
—
—
—
—
—
56,250(7)
8/14/2027(8)
—
—
8/21/2027(10)
—
7/27/2022
7/24/2023
7/22/2024
7/22/2025(12)
10/26/2026(13)
3/1/2028(14)
—
20,000(9)
—
20,000(11)
—
—
—
—
—
—
550(15)
—
1,773,000
—
630,400
—
—
—
—
—
—
—
1,773,000
—
630,400
—
630,400
—
—
—
—
—
—
17,336
(1) Represents stock options granted on May 19, 2017, with one-third vested on May 19, 2018, one-third
scheduled to vest on May 19, 2019 and one-third scheduled to vest on May 19, 2020, contingent upon
Mr. Hall’s continued service through the applicable vesting date.
(2) Represents the unvested portion of 75,000 restricted stock units granted on May 19, 2017, with 25% vested
on June 18, 2018, 25% scheduled to vest on May 19, 2019 and 50% scheduled to vest on May 19, 2020,
contingent upon Mr. Hall’s continued service through the applicable vesting date.
(3) Represents stock options granted on September 5, 2017, scheduled to vest in one-third increments on each
of September 5, 2018, September 5, 2019 and September 5, 2020, contingent upon Mr. Ackerman’s
continued service through the applicable vesting date.
(4) Represents restricted stock units granted on September 5, 2017, scheduled to vest 25% on October 5, 2018,
25% on September 5, 2019 and 50% on September 5, 2020, contingent upon Mr. Ackerman’s continued
service through the applicable vesting date.
(5) Represents stock options granted on July 22, 2015, with one-third vested on July 22, 2016, one-third vested
on July 22, 2017 and one-third scheduled to vest on July 22, 2018, contingent upon Mr. Caudle’s continued
service through the applicable vesting date.
(6) Represents stock options granted on October 26, 2016, with one-third vested on October 26, 2017, one-third
scheduled to vest on October 26, 2018 and one-third scheduled to vest on October 26, 2019, contingent upon
Mr. Caudle’s continued service through the applicable vesting date.
42
(7) Represents the unvested portion of 75,000 restricted stock units granted on February 21, 2017, with 25%
vested on February 21, 2018, 25% scheduled to vest on February 21, 2019 and 50% scheduled to vest on
February 21, 2020, contingent upon Mr. Caudle’s continued service through the applicable vesting date.
(8) Represents stock options granted on August 14, 2017, scheduled to vest in one-third increments on each of
August 14, 2018, August 14, 2019 and August 14, 2020, contingent upon Mr. Gerstein’s continued service
through the applicable vesting date.
(9) Represents restricted stock units granted on August 14, 2017, scheduled to vest 25% on September 13,
2018, 25% on August 14, 2019 and 50% on August 14, 2020, contingent upon Mr. Gerstein’s continued
service through the applicable vesting date.
(10) Represents stock options granted on August 21, 2017, scheduled to vest in one-third increments on each of
August 21, 2018, August 21, 2019 and August 21, 2020, contingent upon Mr. Vegas’ continued service
through the applicable vesting date.
(11) Represents restricted stock units granted on August 21, 2017, scheduled to vest 25% on September 20,
2018, 25% on August 21, 2019 and 50% on August 21, 2020, contingent upon Mr. Vegas’ continued service
through the applicable vesting date.
(12) Represents stock options granted on July 22, 2015, with one-third vested on July 22, 2016, one-third vested
on July 22, 2017 and one-third scheduled to vest on July 22, 2018, contingent upon Mr. Smosna’s continued
service through the applicable vesting date.
(13) Represents stock options granted on October 26, 2016, with one-third vested on October 26, 2017, one-third
scheduled to vest on October 26, 2018 and one-third scheduled to vest on October 26, 2019, contingent upon
Mr. Smosna’s continued service through the applicable vesting date.
(14) Represents stock options granted on March 1, 2018, scheduled to vest in one-third increments on each of
March 1, 2019, March 1, 2020 and March 1, 2021, contingent upon Mr. Smosna’s continued service through
the applicable vesting date.
(15) Represents restricted stock units granted on March 1, 2018, scheduled to vest 25% on April 1, 2019, 25% on
March 1, 2020 and 50% on March 1, 2021, contingent upon Mr. Smosna’s continued service through the
applicable vesting date.
43
Option Exercises and Stock Vested
Name
Kevin D. Hall
Jeffrey C. Ackerman
Thomas H. Caudle, Jr.
Richard E. Gerstein
John D. Vegas
Christopher A. Smosna
Option Awards
Stock Awards
Number of Shares
Acquired on Exercise
(#)
Value Realized
on Exercise
($)
Number of Shares
Acquired on Vesting
(#)(1)
Value Realized
on Vesting
($)(2)
—
—
—
—
—
—
—
—
—
—
—
—
18,750
—
18,750
—
—
—
607,041
—
657,563
—
—
—
(1) Shares included in this column represent the shares of Common Stock underlying restricted stock units that
vested during fiscal 2018.
(2) Calculated based on the market price of the shares of Common Stock underlying the restricted stock units,
which was computed as the average of the high and low trading prices on the date of vesting.
Nonqualified Deferred Compensation
The Company maintains the SERP to provide additional retirement benefits to a select group of highly
compensated employees, including each of its NEOs. On an annual basis, the Company credits to the
participant’s account an amount equal to 8.5% for executive officers or 5.5% for non-executive officers
(as was the case for Mr. Smosna due to his position in the Company as a non-NEO at the time of the
is always 100% vested in the
credit), multiplied by the participant’s base salary. Each participant
participant’s SERP account and earns a return on the participant’s account balance as if it had been
invested in a money market fund. Participants are not entitled to a distribution from the SERP until their
termination of employment with the Company, at which time they must wait six months to receive a
lump-sum payment equal to the balance of their respective accounts. If a participant’s termination is due
to death or disability, this six-month delay period is waived.
Name
Kevin D. Hall
Jeffrey C. Ackerman
Thomas H. Caudle, Jr.
Richard E. Gerstein
John D. Vegas
Christopher A. Smosna
Executive
Contributions
in Last
Fiscal Year
($)
Company
Contributions
in Last
Fiscal Year
($)(1)
Aggregate
Earnings (Loss)
in Last
Fiscal Year
($)
Aggregate
Withdrawals
and/or
Distributions
($)
Aggregate
Balance at
Last Fiscal
Year-End
($)
—
—
—
—
—
—
39,525
12,554
65,450
12,423
11,769
11,839
566
180
86,617
178
168
10,380
—
—
—
—
—
—
40,091
12,734
849,209
12,601
11,937
105,295
(1) Amounts represent Company contributions to the SERP on behalf of the NEOs during fiscal 2018. These
amounts are reported in the “All Other Compensation” column of the Summary Compensation Table.
44
Potential Payments Upon Termination of Employment or Change in Control
Employment Agreements. Each of Messrs. Hall, Ackerman, Caudle, Gerstein and Vegas is party to an
Employment Agreement with the Company. Messrs. Hall, Ackerman, Gerstein and Vegas entered into
their Employment Agreements in connection with their recent appointment as executive officers of the
Company. Mr. Caudle, who was party to a Change in Control Agreement with the Company that
expired on December 31, 2017, entered into an Employment Agreement with the Company on
September 5, 2018.
Each Employment Agreement contains provisions regarding the termination of each NEO’s
employment and related severance obligations. If the Company terminates a NEO who is party to an
Employment Agreement for “Cause” or if the NEO resigns without “Good Reason” (as each term is
defined in the Employment Agreement), the Company will pay the NEO all accrued and unpaid base
salary and any accrued and unpaid benefits through the date of termination, after which the Company
will have no further obligation under the Employment Agreement to the NEO. If the employment of a
NEO who is party to an Employment Agreement terminates due to his death or “Disability” (as defined
in the Employment Agreement), the NEO or his estate will receive all accrued and unpaid base salary
and any accrued and unpaid benefits through the date of termination, after which all right to benefits
will terminate and the Company will have no further obligation under the Employment Agreement to the
NEO. If the employment of a NEO who is party to an Employment Agreement is terminated for any
reason other than death, Disability or Cause, or if the NEO resigns with Good Reason, the NEO will be
entitled to (i) cash severance payments equal to 12 months of the NEO’s annual base salary at the
time of
the NEO elects COBRA
continuation coverage, reimbursement for the monthly cost of such continuation coverage for medical
and health insurance benefits until the earlier of (A) the date the NEO ceases to maintain such
continuation coverage in effect or (B) 12 months from the termination of the NEO’s employment. The
foregoing severance benefits are subject to the NEO entering into and not revoking a release of claims
in favor of the Company and its affiliated entities. The severance benefits payable upon termination for
any reason other than death, Disability or Cause, or resignation with Good Reason also are subject to
the NEO abiding by certain restrictive covenants. Additionally, upon the death or Disability of a NEO
who is party to an Employment Agreement or a “Change of Control” (as defined in the 2013 Plan), all
outstanding unvested equity awards issued to the NEO by the Company shall vest in full.
termination, payable in equal monthly installments, and (ii) if
Outstanding Equity Awards. Upon a “Change of Control” or a “Change in Control” of the Company (as
either term is defined in the Company’s incentive compensation plans), all outstanding stock options
and other stock awards under
the plans will become fully vested and/or will be immediately
exercisable.
The Company’s NEOs may also become vested in restricted stock units and certain stock options that
vest based on continued service with the Company, including the stock options granted to them in
fiscal 2018, upon a termination of employment due to death or Disability. In addition, all of the
Company’s unvested restricted stock unit awards granted to NEOs provide for accelerated vesting of
all unvested restricted stock units upon the Company’s termination of a NEO’s employment without
Cause after the NEO has attained age 65.
45
Hypothetical Payments Table. The table below summarizes the potential severance payments and
benefits payable to Messrs. Hall, Ackerman, Caudle, Gerstein and Vegas under their respective
Employment Agreements and the value of the accelerated vesting of all of the NEOs’ equity awards
upon a “Change of Control” or a “Change in Control” of the Company (as either term is defined in the
Company’s incentive compensation plans) as of June 22, 2018, the last business day of fiscal 2018.
Termination
Without
Cause or
Resignation
for Good
Reason
($)
Termination
Without
Cause After
Attaining
Age 65
($)
Change of
Control
($)
Termination
Due to
Death or
Disability
($)
Termination
Due to
Approved
Retirement
($)
Termination
Without
Cause or
Resignation
for Good
Reason
After a
Change
of Control
($)(1)
—
796,390
—
—
—
796,390
1,840,997
1,840,997
—
796,390
1,773,000
1,773,000
1,840,997
1,840,997
67,997
67,997
1,840,997
2,637,387
—
497,662
—
—
—
497,662
634,750
634,750
—
497,662
630,400
630,400
634,750
634,750
4,350
4,350
634,750
1,132,412
—
787,758
—
—
—
787,758
1,805,399
1,805,399
—
787,758
1,773,000
1,773,000
1,805,399
1,805,399
32,399
32,399
1,805,399
2,593,157
—
421,390
—
—
—
421,390
638,800
638,800
—
421,390
630,400
630,400
638,800
638,800
8,400
8,400
638,800
1,060,190
—
400,000
—
—
—
400,000
649,825
649,825
—
400,000
630,400
630,400
649,825
649,825
19,425
19,425
649,825
1,049,825
25,435
—
17,336
25,435
—
25,435
Name
Kevin D. Hall
Jeffrey C. Ackerman
Thomas H. Caudle, Jr.
Richard E. Gerstein
John D. Vegas
Type
of Payment
or Benefit
Severance and
Benefit
Continuation(2)
Accelerated
Equity
Awards(3)(4)
Total
Severance and
Benefit
Continuation(2)
Accelerated
Equity
Awards(3)(4)
Total
Severance and
Benefit
Continuation(2)
Accelerated
Equity
Awards(3)(4)
Total
Severance and
Benefit
Continuation(2)
Accelerated
Equity
Awards(3)(4)
Total
Severance and
Benefit
Continuation(2)
Accelerated
Equity
Awards(3)(4)
Total
Christopher A. Smosna Accelerated
Equity
Awards(3)(4)
(1) Amounts shown assume the Company experienced a Change of Control and the NEO was terminated without
Cause or resigned for Good Reason on June 22, 2018, the last business day of fiscal 2018.
(2) Consists of severance benefits and health and welfare benefits. Health and welfare benefits represent the
aggregate estimated net cost to the Company for reimbursement of the cost of 12 months of COBRA
continued medical coverage provided under the Employment Agreement between the Company and each of
Messrs. Hall, Ackerman, Caudle, Gerstein and Vegas. The amount of severance benefits and health and
welfare benefits presented for Mr. Caudle assumes the Employment Agreement he entered into with the
Company on September 5, 2018 had been in effect at the end of fiscal 2018.
46
(3) As described above, all outstanding and unvested stock options and restricted stock units will become vested
upon a Change of Control of the Company. In addition, upon a NEO’s termination of employment due to
approved retirement, the unvested stock options that vest solely based on the NEO’s continued service (“time-
based options”) are subject to accelerated vesting; upon a NEO’s termination of employment due to death or
Disability, all unvested time-based options and all unvested restricted stock units are subject to accelerated
vesting; and upon a NEO’s termination of employment without “Cause” (as defined in the applicable award
agreements) after specified dates, all unvested restricted stock units are subject to accelerated vesting.
(4) For purposes of this table, it is assumed that: (i) all vested stock options are exercised on June 22, 2018, the
last business day of fiscal 2018, and the aggregate value of such vested stock options is calculated by
multiplying the number of stock options by the difference between the exercise price and the closing market
price; and (ii) as of the date of termination or Change of Control, as applicable, each vested restricted stock
unit is converted into one share of Common Stock and the aggregate value of such vested restricted stock
units is calculated by multiplying the number of restricted stock units by the closing market price on June 22,
2018, the last business day of fiscal 2018.
47
Pay Ratio Disclosure
Beginning with the Annual Meeting, the SEC rules require the Company to disclose annually (i) the
median annual total compensation of all employees of the Company (excluding Kevin D. Hall, the
Company’s principal executive officer); (ii) the annual total compensation of Mr. Hall; and (iii) the ratio
of Mr. Hall’s annual total compensation to the median annual total compensation of all employees
(excluding Mr. Hall).
Based on the methodology and material assumptions described below, the Company has estimated
these amounts to be as follows:
Median annual total compensation of all employees (excluding
Mr. Hall) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual total compensation of Mr. Hall . . . . . . . . . . . . . . . . . . . . .
Ratio of Mr. Hall’s annual total compensation to median annual
total compensation of all employees (excluding Mr. Hall) . . . .
$30,117
$1,247,039
41:1
To determine the median employee, the Company compiled a list of all employees (excluding Mr. Hall)
as of March 31, 2018, sorted the list of employees by their gross cash compensation for the period
from July 1, 2017 through June 30, 2018 and selected the employee with the median gross cash
compensation amount. The Company annualized the gross cash compensation of any employee who
was not employed for the entire period from July 1, 2017 through June 30, 2018. The gross cash
compensation amounts did not include the value of Company-provided benefits such as retirement and
medical and life insurance benefits. As of March 31, 2018, the Company employed 2,796 persons, of
which 584 employees were employed outside the United States. The compensation of employees in
foreign countries was converted to an equivalent U.S. dollar amount using foreign exchange rates
averaged over the 12-month period ended December 31, 2017.
The annual total compensation of Mr. Hall is the total amount of his compensation presented in the
Summary Compensation Table beginning on page 39. The Company calculated the annual total
compensation of the median employee using the same rules applicable to the completion of the
Summary Compensation Table for Mr. Hall and the NEOs.
48
Equity Compensation Plan Information
The table below provides information as of June 24, 2018, with respect to the securities authorized for
issuance to the Company’s employees, officers and directors under the 2013 Plan. The 2013 Plan,
which was approved by the Company’s shareholders at the 2013 Annual Meeting of Shareholders,
replaced the 2008 Unifi, Inc. Long-Term Incentive Plan (the “2008 LTIP”) for purposes of all incentive
awards issued to the Company’s employees, officers and directors after October 22, 2013. As a result,
no further awards were made after that date or will be made under the 2008 LTIP. Any option or
restricted stock unit previously granted under the 2008 LTIP that is forfeited or cancelled may be
reissued under the terms of the 2013 Plan and is included in the number of securities remaining
available for future issuance reflected in column (c) in the table below.
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
(#)
(a)
Weighted-Average
Exercise Price of
Outstanding
Options,
Warrants and
Rights
($)
(b)
Number of Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans (Excluding
Securities
Reflected in
Column (a))
(#)
(c)
751,090(1)
23.73(1)
513,733(2)
—
—
—
751,090(1)
23.73(1)
513,733(2)
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security
holders
Total
(1)
Includes securities issuable upon exercise of outstanding options and upon lapse of service-based vesting
restrictions under restricted stock units that were issued pursuant to the 2013 Plan or the 2008 LTIP. As of
June 24, 2018, (i) an aggregate of approximately 404,712 options remained outstanding; and (ii) an aggregate
of approximately 346,378 restricted stock units remained outstanding. The weighted-average exercise price
does not take into account restricted stock units, which do not have an exercise price.
(2) The 2013 Plan will terminate at the close of business on October 24, 2018 and no further awards may be
made after such termination. The Board approved an amendment and restatement of the 2013 Plan effective
October 24, 2018, subject to shareholder approval at the Annual Meeting. If approved, 1,250,000 shares will
be available for future issuance under the amended and restated 2013 Plan.
49
Section 16(a) Beneficial Ownership Reporting Compliance
the outstanding Common Stock (collectively,
Section 16(a) of the Exchange Act requires UNIFI’s executive officers and directors and persons who
the “reporting
beneficially own more than 10% of
persons”) to file with the SEC initial reports of their beneficial ownership of Common Stock and reports
of changes in their beneficial ownership of Common Stock. Based solely on a review of such reports
and written representations made by UNIFI’s executive officers and directors with respect to the
completeness and timeliness of their filings, the Company believes that the reporting persons complied
with all applicable Section 16(a) filing requirements on a timely basis during fiscal 2018, except for
(i) Mr. Bishop, a director, who failed to timely report on Form 4 three separate purchases of shares of
Common Stock, which were reported by Mr. Bishop on a Form 5 filed with the SEC on July 12, 2018;
and (ii) Mr. Gerstein, an executive officer, who filed a late Form 4 to report a grant of restricted stock
units and a grant of stock options.
Compensation Committee Interlocks and Insider Participation
Archibald Cox, Jr., James M. Kilts and Kenneth G. Langone served on the Compensation Committee
in fiscal 2018. None of the directors who served on the Compensation Committee in fiscal 2018 has
ever served as one of the Company’s officers or employees or had any relationship with the Company
or any of its subsidiaries since the beginning of fiscal 2018 pursuant to which disclosure would be
required under the SEC rules pertaining to the disclosure of transactions with related persons. During
fiscal 2018, none of the Company’s executive officers served as a director or a member of the
compensation committee (or other committee performing equivalent functions) of any other entity of
which an executive officer of such other entity served on the Board or its Compensation Committee.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and
Analysis included in this Proxy Statement with management and, based on such review and
discussions, recommended to the Board that the Compensation Discussion and Analysis be included
in this Proxy Statement and in the Company’s Annual Report on Form 10-K for the fiscal year ended
June 24, 2018.
Respectfully submitted by the Compensation Committee of the Board,
Archibald Cox, Jr., Chair
James M. Kilts
Kenneth G. Langone
50
Audit Committee Report
The primary purpose of the Audit Committee is to act on behalf of the Board in its oversight of all
material aspects of the accounting and financial reporting processes, internal controls and internal
audit functions of the Company, including its compliance with Section 404 of the Sarbanes-Oxley Act of
2002. Management has primary responsibility for the Company’s consolidated financial statements and
reporting processes,
including its internal controls and disclosure controls and procedures. The
Company’s independent registered public accounting firm, KPMG LLP, is responsible for performing an
independent audit of the consolidated financial statements in accordance with the standards of the
Public Company Accounting Oversight Board and expressing an opinion on the conformity of those
audited consolidated financial statements with generally accepted accounting principles.
responsibilities,
In fulfilling its oversight
the Audit Committee reviewed and discussed with
management the audited consolidated financial statements included in the Company’s Annual Report
on Form 10-K for the fiscal year ended June 24, 2018. This review included a discussion of the quality
and acceptability of the Company’s financial reporting and internal controls. During the past fiscal year,
the Audit Committee discussed with the Company’s independent registered public accounting firm the
matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit
Committees,” as adopted by the Public Company Accounting Oversight Board. The Audit Committee
also received during the past fiscal year the written disclosures and the letter from the independent
the Public Company
registered public accounting firm required by applicable requirements of
Accounting Oversight Board regarding the independent
registered public accounting firm’s
communications with the Audit Committee concerning independence, and has discussed with the
independent registered public accounting firm its independence.
Based on the reviews, discussions and disclosures referred to above,
the Audit Committee
recommended to the Board that the audited consolidated financial statements of the Company for the
fiscal year ended June 24, 2018 be included in its Annual Report on Form 10-K for such fiscal year.
Respectfully submitted by the Audit Committee of the Board,
Suzanne M. Present, Chair
Robert J. Bishop
Paul R. Charron
51
Proposal 2:
Advisory Vote to Approve
Named Executive Officer Compensation
As required by Section 14A of the Exchange Act, this proposal, commonly known as a “say-on-pay”
proposal, gives the Company’s shareholders the opportunity to vote to approve or not approve, on an
advisory basis, the compensation of the Company’s NEOs, which is described in the “Compensation
Discussion and Analysis” and “Executive Compensation Tables” sections of this Proxy Statement. This
vote is not intended to address any specific item or element of compensation or the compensation of
any particular officer, but rather the overall compensation of the Company’s NEOs and the philosophy,
principles and policies used to determine compensation.
At the 2017 Annual Meeting of Shareholders, the Company provided shareholders with an opportunity
to cast an advisory vote to approve or not approve the compensation of its NEOs, and shareholders
approved the Company’s NEO compensation with approximately 96% of the votes cast in favor. At the
2017 Annual Meeting of Shareholders, the Company also asked shareholders to indicate whether a
say-on-pay vote should occur every one, two or three years, with the Board recommending an annual
advisory vote. Because the Board views it as a good corporate governance practice, and because at
the 2017 Annual Meeting of Shareholders a majority of the votes cast were in favor of an annual
advisory vote, shareholders will have the opportunity at the Annual Meeting to provide feedback to the
Compensation Committee on the Company’s executive compensation program by endorsing or not
endorsing the compensation of its NEOs.
As described in detail in the “Compensation Discussion and Analysis” section of this Proxy Statement,
the Company’s executive compensation program is designed not only to attract and retain talented and
experienced executives, but also to motivate them to contribute substantially to the Company’s future
success for the long-term benefit of shareholders and to reward them for doing so. Accordingly, the
Compensation Committee and the Board believe that there should be a strong relationship between
pay and corporate performance (both financial results and stock price), and that the Company’s
executive compensation program reflects this belief.
Shareholders are urged to read the “Compensation Discussion and Analysis” and “Executive
Compensation Tables” sections of
this Proxy Statement, which more thoroughly discuss the
Company’s compensation principles and policies. The Compensation Committee and the Board
believe that
these principles and policies are effective in implementing the Company’s overall
compensation philosophy.
Accordingly, the Company is asking shareholders to vote, on an advisory basis, “FOR” the following
resolution at the Annual Meeting:
RESOLVED, that the compensation paid to the Company’s NEOs, as disclosed in this Proxy
including the
Statement pursuant
Compensation Discussion and Analysis, the compensation tables and the related narrative
discussion, is hereby approved.
to the compensation disclosure rules of
the SEC,
This vote is advisory, which means that the shareholder vote on this proposal will not be binding on
the Compensation
UNIFI,
Committee values the opinions of the Company’s shareholders and will carefully consider the outcome
of the vote when making future compensation decisions for UNIFI’s NEOs.
the Board of Directors. However,
the Compensation Committee or
The Board of Directors unanimously recommends that you vote “FOR” the approval, on an
advisory basis, of the compensation of the Company’s NEOs in fiscal 2018 as disclosed in this
Proxy Statement.
52
Unless a proxy card (or voting instruction properly submitted by telephone or via the Internet) is
marked to give a different direction, the persons named as attorneys-in-fact in the proxy card will vote
“FOR” the approval, on an advisory basis, of the compensation of the Company’s NEOs in fiscal 2018
as disclosed in this Proxy Statement.
53
Proposal 3:
Approval of the Unifi, Inc. Amended and Restated
2013 Incentive Compensation Plan
The Board of Directors proposes that shareholders approve the Unifi, Inc. Amended and Restated
2013 Incentive Compensation Plan (the “Amended 2013 Plan”). The Board has approved the
Amended 2013 Plan, subject to shareholder approval. The principal features of the Amended 2013
Plan are summarized below. This summary is not intended to be a complete description of the
Amended 2013 Plan and is qualified in its entirety by reference to the full text of the Amended 2013
Plan, which is attached to this Proxy Statement as Appendix B.
Introduction
The Company currently maintains the 2013 Plan under which the Company may award stock options,
stock appreciation rights, restricted stock, restricted stock units and performance shares to the
Company’s key employees, officers and directors. The 2013 Plan was originally approved by the
Company’s shareholders on October 23, 2013. The 2013 Plan will terminate at the close of business
on October 24, 2018, and no awards may be granted under the 2013 Plan after its termination.
Outstanding awards previously granted under the 2013 Plan will continue in effect in accordance with
the terms and conditions of the 2013 Plan and the agreements pursuant to which the awards were
made.
The Board believes that stock-based compensation is essential to align the interests of the Company’s
management and its shareholders in enhancing the long-term value of the Company’s equity and to
the Board
encourage executives to continue their employment with the Company. Accordingly,
proposes that shareholders approve the Amended 2013 Plan to permit the grant of stock-based
compensation after the termination of the 2013 Plan.
Overview of Features and Objectives
The Amended 2013 Plan is designed to support the overall compensation philosophy and objectives of
the Company’s executive compensation program to:
(cid:129)
attract and retain persons eligible to participate in the Amended 2013 Plan;
(cid:129) motivate participants in the Amended 2013 Plan by means of appropriate equity-based
incentives to achieve performance goals;
(cid:129)
(cid:129)
provide incentive compensation opportunities that are competitive with those of other
similar companies; and
provide the Company the ability to further align the interests of participants in the Amended
2013 Plan with the interests of the Company’s shareholders through compensation that is
based on performance criteria that target enhancement of the value of the Company.
In doing so, the Amended 2013 Plan will promote the long-term financial interest of the Company,
including the growth in value of the Company’s equity and enhancement of long-term shareholder
return. The Amended 2013 Plan is also intended to allow for grants of stock incentives to compensate
our independent directors.
The Board has reserved 1,250,000 shares of Common Stock for issuance under the Amended 2013
Plan. The Board anticipates the shares reserved for issuance under the Amended 2013 Plan will
54
support the Company’s compensation policy of making annual awards of stock-based compensation
through approximately the end of fiscal 2023. The Common Stock is traded on the New York Stock
Exchange (the “NYSE”) under the symbol “UFI.” On September 4, 2018, the closing price per share
was $31.36.
Eligibility and Administration
the Company and its related
All present and future employees and other service providers of
companies are eligible to receive awards under the Amended 2013 Plan. An employee or other service
provider who receives an award becomes a participant in the Amended 2013 Plan. Also, all present
and future independent directors of the Company are eligible to receive director awards under the
Amended 2013 Plan. The Company currently has approximately 2,900 employees (five of whom are
executive officers) and nine independent directors who may be eligible for awards under the Amended
2013 Plan.
Unless otherwise determined by the Board, the Compensation Committee (which is referred to in this
Proposal as the “Committee”) will administer the Amended 2013 Plan with respect to awards for
employees and other service providers. The Committee has the power and complete discretion to
select employees and service providers to receive awards and to determine for each employee or
service provider the nature of the award and the terms and conditions of each award. The Board has
to awards for independent directors, and
these same powers and responsibilities with respect
reference to the Committee herein with respect to awards for independent directors shall mean the
Board.
The Amended 2013 Plan is intended to comply with the provisions of Rule 16b-3 of the Exchange Act.
Awards under the Amended 2013 Plan that constitute nonqualified deferred compensation are
intended to meet the requirements of Code Section 409A, as discussed below under “Federal Income
Tax Consequences.”
Types of Awards that may be Granted
The Amended 2013 Plan authorizes a variety of equity-based awards to provide flexibility in our
compensation program.
Employees and other service providers may receive the following types of awards under the Amended
2013 Plan: performance shares, shares of restricted stock, restricted stock units, performance share
units, incentive stock options, nonstatutory stock options and stock appreciation rights.
Independent directors may receive the following types of awards under the Amended 2013 Plan:
shares of restricted stock, restricted stock units, performance share units, vested shares, vested share
units, nonstatutory stock options and stock appreciation rights.
A description of each of these types of awards is provided below.
Amount of Stock Available
The Board has reserved 1,250,000 shares of Common Stock for issuance under the Amended 2013
Plan. Any shares of Common Stock covered by an award that are not delivered to a participant or
beneficiary because the award is forfeited or cancelled, or the shares are not delivered because the
award is settled in cash, will not be deemed to have been delivered for purposes of determining the
maximum number of shares of Common Stock available for delivery under the Amended 2013 Plan.
55
The number of shares that may be issued under the Amended 2013 Plan will be proportionately
adjusted in the event of a recapitalization event such as a stock dividend, stock split or other similar
event affecting Common Stock. The Amended 2013 Plan prohibits option repricing without shareholder
approval, except in connection with a recapitalization event.
In addition, any shares of Common Stock delivered under the Amended 2013 Plan in settlement,
assumption or substitution of outstanding awards (or obligations to grant future awards) under the
plans or arrangements of another entity will not reduce the maximum number of shares available for
delivery under the Amended 2013 Plan, to the extent that such settlement, assumption or substitution
is a result of the Company acquiring another entity (or an interest in another entity).
Performance Shares
Performance shares are shares of Common Stock that will be issued if performance goals established
by the Committee are attained. The performance goals established by the Committee will be based on
the achievement of performance criteria selected by the Committee which may include the market
value of the Common Stock, financial performance such as net income, earnings per share, revenues,
operating costs and efficiencies, net cash flow and EBITDA.
A performance share award is paid only upon determination by the Committee that the performance
goals with respect to the award have been met. All or a portion of performance share awards may be
settled in cash instead of shares of Common Stock. The value of any portion of a performance share
award that is settled in cash will be determined based on the fair market value as of the date of
payment of the shares of Common Stock otherwise payable under the award.
The Committee may permit recipients of performance share awards to defer payment of their awards,
subject to such terms established by the Committee and compliance with applicable law.
Restricted Stock and Vested Share Awards
Restricted stock awards are shares of Common Stock that are issued subject to service-based and/or
performance-based restrictions on transferability. The Committee determines the restrictions as well as
the conditions under which the restrictions may lapse. Restricted stock awards that vest based on
achievement of performance goals or other performance conditions, generally may not vest less than
one year from the date of grant. Restricted stock awards that vest based on factors other than the
achievement of performance goals or other performance conditions, such as continued service to the
Company or its related companies, generally may not have a vesting period that is less than three
years from the date of grant. However, the Committee may, in its discretion, provide for accelerated
removal of the restrictions upon certain events as the participant’s “Disability,” death or “Retirement,” or
the occurrence of a “Change of Control” (as each term is defined in the Amended 2013 Plan) of the
Company.
Holders of restricted stock have all the rights of shareholders during the restricted period, including the
right to vote the shares and receive dividends thereon. However, dividends and other distributions paid
with respect to the shares subject to a restricted stock award may be paid to the holder only to the
extent the restrictions on the shares of restricted stock have lapsed or been removed, and any
dividends and other distributions paid with respect to shares that do not become vested will be
forfeited.
Independent directors may receive vested share awards. Vested shares are shares of Common Stock
that are issued without any restrictions on transferability, other than restrictions necessary to comply
with applicable securities laws.
56
Restricted Stock Units, Performance Share Units and Vested Share Units
Restricted stock units and performance share units are rights to receive shares of Common Stock (or
cash in lieu of the shares) subject to service and/or performance-based vesting conditions. Restricted
stock units and performance share units are similar to restricted stock, except that shares of Common
Stock are not issued (or cash in lieu of the shares is not paid) until on or after the time when the
vesting conditions are satisfied, as determined by the Committee. Restricted stock units and
performance share units may be settled in cash or in shares of Common Stock or in a combination of
both, or the Committee may reserve the right to determine the method of settlement at the time the
award is settled.
Restricted stock unit or performance share unit awards that vest based on achievement of
performance goals or other performance conditions, generally may not vest less than one year from
the date of grant. Restricted stock unit or performance share unit awards that vest based on factors
other than the achievement of performance goals or other performance conditions, such as continued
service to the Company or its related companies, generally may not have a vesting period that is less
than three years from the date of grant. However, the Committee may, in its discretion, provide for
accelerated removal of the restrictions upon certain events such as the participant’s Disability, death or
Retirement, or the occurrence of a Change of Control of the Company.
The Committee may, in its discretion, provide that a recipient of a restricted stock unit or performance
share unit award will receive dividend equivalents on outstanding units. However, dividend equivalents
paid with respect to the units subject to a restricted stock unit or performance share unit award may be
paid to the holder only to the extent the units are earned and become vested, and any dividend
equivalents paid with respect to units that are not earned or do not become vested will be forfeited.
Independent directors may receive vested share unit awards. Vested share units represent the vested
right to receive shares of Common Stock at the time specified in the grant agreement for the vested
share units. The holder of vested share units is entitled to receive dividend equivalents on the
outstanding vested share units.
Stock Options and Stock Appreciation Rights
The Amended 2013 Plan authorizes grants of incentive stock options or nonstatutory stock options.
Incentive stock options are designed to qualify for favorable tax treatment under Code Section 422,
while nonstatutory stock options are not. The exercise price of either type of option may not be less
than 100% of the fair market value per share of Common Stock covered by the option on the date the
option is granted. Fair market value is the mean between the lowest and highest reported sales prices
per share of Common Stock, as reported by the NYSE, on the date on which the value of Common
Stock must be determined (or if the date is not a trading day, on the most recent prior trading day).
Options may be exercised at the times specified by the Committee. The maximum term of any option is
10 years from the date of grant. Incentive stock options may not be exercised after the first to occur of
(i) 10 years from the date of grant, (ii) three months from the participant’s termination of employment
for reasons other than death or Disability or (iii) one year from the participant’s termination of
employment due to death or Disability.
The value of incentive stock options, based on the exercise price, that can be exercisable for the first
time in any calendar year under the Amended 2013 Plan (or any other similar plan the Company may
maintain) is limited to $100,000 for each participant. A participant may pay the purchase price of an
option in cash or, if the participant’s award agreement and applicable law so permit, by having the
Company withhold shares sufficient to pay the exercise price, by delivering shares owned by the
participant or by exercising in a broker-assisted transaction.
57
Absent specific written authorization by the Committee, options may not be repriced except
in
connection with a recapitalization event, and otherwise generally may not be materially modified after
the date of grant or extended or renewed beyond their original terms. The Committee may suspend the
right to exercise an option any time it determines that the issuance of Common Stock would violate any
securities or other laws and may provide that the exercise period is tolled during any period of
suspension.
Stock appreciation rights are similar to nonstatutory stock options except
that, rather than the
participant paying an exercise price to exercise the stock appreciation rights, the excess of the fair
market value of Common Stock covered by the stock appreciation right on the date of settlement over
the fair market value of Common Stock on the date of grant is distributed to the participant. Stock
appreciation rights may be settled in cash or in shares of Common Stock or in a combination of both,
or the Committee may reserve the right to determine the method of settlement at the time the rights are
settled.
Stock appreciation rights may be granted in tandem with nonstatutory stock options. When the
participant exercises either the option or the stock appreciation right, the other part of the tandem
award is cancelled without payment.
Transferability of Awards
Participants’ interests in awards of performance shares, restricted stock units and performance share
units are not transferable prior to payment, settlement or exercise of the awards, as the case may be.
Restricted stock is not transferable until the restrictions have lapsed or been removed. Nonstatutory
stock options and stock appreciation rights are transferable only to the extent provided by the
Committee in the award agreement and permitted by applicable securities laws. Incentive stock options
are not transferable except by will or the laws of descent and distribution. Vested share awards and
vested share units are freely transferable, subject to restrictions necessary to comply with applicable
securities laws.
Amendment of the Plan and Awards
The Board may amend the Amended 2013 Plan from time to time as it deems advisable and may
terminate the Amended 2013 Plan at any time. However, any amendment to increase the total number
of shares of Common Stock reserved for issuance under the Amended 2013 Plan, to modify materially
the requirements for eligibility for participation in the Amended 2013 Plan or that otherwise constitutes
a material change to the Amended 2013 Plan under applicable tax or securities laws or the listing
standards of the NYSE, requires shareholder approval.
The Board must obtain the consent of a participant
that adversely affects a
participant’s rights under an outstanding award. However, the Board may unilaterally amend the
Amended 2013 Plan and awards with respect to participants to ensure compliance with applicable laws
and regulations.
to an amendment
The Committee may require in any award agreement that any participant reimburse the Company for
all or any portion of any award; terminate any outstanding, unexercised, unexpired or unpaid award;
rescind any exercise, payment or delivery pursuant to an award; or recapture any Common Stock
(whether restricted or unrestricted) or proceeds from the participant’s sale of Common Stock issued
pursuant to an award to the extent required by the Company’s Compensation Recoupment Policy or
other similar policies adopted by the Committee or to comply with the requirements of any applicable
laws.
58
Federal Income Tax Consequences
Generally, a participant in the Amended 2013 Plan will not incur federal income tax when he or she
initially receives a performance share, restricted stock unit, performance share unit, incentive stock
option, nonstatutory stock option or stock appreciation right. A participant generally will not incur
federal income tax when he or she is awarded a share of restricted stock unless the participant makes
a valid election under Code Section 83(b) with respect to the award.
If a participant makes a valid election under Code Section 83(b) with respect to an award of restricted
stock, the participant generally will recognize ordinary income equal to the fair market value of the
stock subject to the award on the date of grant. The amount included in income will become the
participant’s basis in the shares. If the participant is an employee, this income is subject to applicable
tax withholding. The participant generally will not recognize any additional income at the time or times
the restrictions lapse. Any profit or loss realized on the later sale or exchange of the stock relative to
the participant’s basis in the shares will be treated as a capital gain or a capital loss.
If a participant does not make a valid election under Code Section 83(b) with respect to an award of
restricted stock, the participant generally will recognize compensation income equal to the fair market
value of the stock subject to the award at the time or times the restrictions lapse. The amount included
in income will become the participant’s basis in the shares. If the participant is an employee, this
income is subject to applicable tax withholding. Any profit or loss realized on the later sale or exchange
of the stock relative to the participant’s basis in the shares will be treated as a capital gain or a capital
loss.
A participant who is awarded one or more restricted stock units and/or performance share units will not
recognize income, and the Company will not be allowed a deduction, at the time the award is made.
When the participant receives payment for such awards in cash or shares of Common Stock, the
amount of the cash and the fair market value of the shares of Common Stock received will be ordinary
income to the participant and will be allowed as a deduction for federal income tax purposes to the
Company. The Company will be entitled to a deduction equal in amount to the ordinary income realized
by the participant in the year paid.
Upon exercise of a nonstatutory stock option, a participant generally will recognize ordinary income
equal to the difference between the fair market value of the stock acquired on the date of the exercise
and the exercise price. Generally, the amounts will be included in the participant’s gross income in the
taxable year in which exercise occurs. The purchase price paid by the participant plus the amount
included in income will become the participant’s basis in the shares. If the participant is an employee,
this income is subject to applicable tax withholding. Any profit or loss realized on the later sale or
exchange of the stock relative to the participant’s basis in the shares will be treated as a capital gain or
a capital loss.
Upon exercise of an incentive stock option, a participant generally will not recognize income subject to
tax, unless the participant is subject to the alternative minimum tax. The purchase price paid by the
participant will become the participant’s basis in the shares. If the participant holds the stock purchased
upon exercise of an incentive stock option until the later of two years after the option was awarded to
the participant or one year after the stock was issued to the participant, then any profit or loss realized
on the later sale or exchange of the stock relative to the participant’s basis in the shares will be treated
as a capital gain or a capital loss. If the participant sells or exchanges the stock prior to expiration of
the holding period, the participant generally will recognize ordinary income at the time of the sale or
exchange equal to the excess of the fair market value of the shares at the time of exercise (or, if less,
the amount realized upon the sale or exchange) over the exercise price. This income will become the
participant’s new basis in the shares. Any additional profit or loss relative to this basis will be treated as
a capital gain or a capital loss.
59
If the grant agreement so provides, a participant may pay the exercise price of a nonstatutory stock
option or an incentive stock option by delivery of shares of Common Stock. Usually when a participant
delivers shares of Common Stock in satisfaction of all or any part of the exercise price, no taxable gain
is recognized on any appreciation in the value of the delivered shares, unless the shares were
previously acquired upon the exercise of an incentive stock option and the applicable holding period
with respect to the shares has not expired. In that case, the participant will recognize ordinary income
with respect to the delivered shares in accordance with the principles described above. Special rules
apply to determine the basis of shares of Common Stock purchased upon the exercise of an option by
the delivery of previously owned shares.
A vested share award will generally be treated as ordinary income to a participant at the time of the
award. Payment under a performance share award, restricted stock unit award or performance share
unit award, or upon settlement of a stock appreciation right, will also generally be treated as ordinary
income to the participant at the time of payment or settlement of the award or right. If payment or
settlement is made in shares of Common Stock, the amount includable in income will be equal to the
fair market value of the shares on the date of payment. The amount included in income will become the
participant’s basis in the shares. If the participant is an employee, this income is subject to applicable
tax withholding. Any profit or loss realized on the later sale or exchange of the stock relative to the
participant’s basis in the shares will be treated as a capital gain or a capital loss.
Assuming that a participant’s compensation is otherwise reasonable and that the statutory limitations
on compensation deductions (including the limitations under Code Sections 162(m) and 280G) do not
apply, the Company will usually be entitled to a business expense deduction when (and for the amount
that) a participant recognizes ordinary compensation income in connection with an award, as described
above. The Company generally does not receive a deduction in connection with the exercise of an
incentive stock option, unless the participant disposes of the stock purchased on exercise in violation
of the holding period requirements.
The discussion above is subject to the general federal tax doctrines of constructive receipt and
economic benefit and to the applicable provisions of Code Section 409A. If at any time a participant is
in constructive receipt of an award or receives the economic benefit of the award, the participant may
incur federal income tax liabilities with respect to the award earlier than the times (and in a character
other than the characters) described above.
In addition, if at any time the Amended 2013 Plan, any award under the Amended 2013 Plan, or any
arrangement required to be aggregated with the Amended 2013 Plan or any award under the
Amended 2013 Plan, fails to comply with the applicable requirements of Code Section 409A, then all
amounts (including earnings) deferred under the Amended 2013 Plan or the award for the taxable year
(and all preceding taxable years) by any participant with respect to whom the failure relates are
includible in that participant’s gross income for the taxable year, to the extent the amounts are not
subject to a substantial risk of forfeiture and have not previously been included in the participant’s
gross income. These amounts are also subject to an additional income tax equal to 20% of the amount
required to be included in gross income and to interest equal to the underpayment rate (as specified by
the Internal Revenue Service, plus one percentage point) imposed on the underpayments that would
have occurred had the compensation been included in income for the taxable year when first deferred,
or if later, when no longer subject to a substantial risk of forfeiture.
The above description of tax consequences is general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their interpretations, and their application
may vary in individual circumstances. In addition, the consequences under applicable state and local
income tax laws may not be the same as under federal income tax laws.
60
Effective Date and Termination
The Amended 2013 Plan will become effective as of October 24, 2018 if it is approved by the
the Amended 2013 Plan will
Company’s shareholders. Unless sooner terminated by the Board,
terminate on the 10th anniversary of the effective date. No awards may be made under the Amended
2013 Plan after its termination.
New Plan Benefits
It is not possible at this time to determine the benefits that will be received by executive officers, by
other employees or consultants or by independent directors under the Amended 2013 Plan if the
Amended 2013 Plan is approved by the Company’s shareholders. However, the Committee and the
Board currently intend to make future awards of stock options and restricted stock units under the
Amended 2013 Plan generally consistent with past practice. The awards and the benefits received
under the awards will depend on future actions of the Committee or the Board, the fair market value of
the Common Stock at various future dates,
to which performance goals set by the
Committee are met and the individual performance of the particular award recipient.
the extent
Historical Grant Data
The following table summarizes awards granted during fiscal 2016, 2017 and 2018 under the 2013
Plan:
Year
2016
2017
2018
Grantee(s)
Chief Executive Officer
Named Executive Officers
(other than the Chief
Executive Officer)
Other Employees
Independent Directors
Total
Chief Executive Officer
Named Executive Officers
(other than the Chief
Executive Officer)
Other Employees
Independent Directors
Total
Chief Executive Officer
Named Executive Officers
(other than the Chief
Executive Officer)
Other Employees
Independent Directors
Total
Type of Award
Restricted Stock or
Restricted Stock Units
—
20,000
—
27,873
47,873
75,000
75,000
—
30,939
180,939
—
60,550
25,570
30,653
116,773
Stock Options
15,000
32,500
35,000
—
82,500
25,000
30,000
98,000
—
153,000
—
46,538
26,153
—
72,691
61
Historical Burn Rate and Potential Dilution
Over the past three fiscal years, the rate at which the Company has granted equity awards relative to
the diluted weighted-average shares of Common Stock outstanding (sometimes referred to as the
“burn rate”) has averaged less than 1.5%. The potential dilution level under the Amended 2013 Plan if
it is approved by the Company’s shareholders is approximately 10.7%. The potential dilution level
reflects the sum of the shares of Common Stock underlying outstanding stock options and restricted
stock units as of June 24, 2018 plus the shares of Common Stock that would be available for future
grants under the Amended 2013 Plan if it is approved by the Company’s shareholders divided by the
diluted weighted-average shares of Common Stock outstanding as of June 24, 2018.
Vote Recommendation
The Board of Directors unanimously recommends that you vote “FOR” the approval of the
Amended 2013 Plan.
Unless a proxy card (or voting instruction properly submitted by telephone or via the Internet) is
marked to give a different direction, the persons named as attorneys-in-fact in the proxy card will vote
“FOR” the approval of the Amended 2013 Plan.
62
Proposal 4:
Ratification of the Appointment of
Independent Registered Public Accounting Firm
registered public accounting firm for
the Board of Directors has appointed KPMG LLP to serve as UNIFI’s
The Audit Committee of
independent
fiscal 2019. KPMG LLP has served as the
Company’s independent registered public accounting firm since 2011. The Audit Committee reviewed
and discussed the performance of KPMG LLP for fiscal 2018 prior to its appointment of KPMG LLP to
serve as UNIFI’s independent registered public accounting firm for fiscal 2019.
The Company expects that representatives of KPMG LLP will be present at the Annual Meeting, and
they desire to do so. The
the representatives will have an opportunity to make a statement
representatives also are expected to be available to respond to appropriate questions from
shareholders.
if
Shareholder ratification of the Audit Committee’s appointment of KPMG LLP to serve as UNIFI’s
independent registered public accounting firm for fiscal 2019 is not required by the Company’s
Amended and Restated By-laws or otherwise. Nevertheless, the Board is submitting the appointment
of KPMG LLP to the Company’s shareholders for
ratification as a matter of good corporate
governance. If the Company’s shareholders fail to ratify the appointment, the Audit Committee will
reconsider its appointment of KPMG LLP. Even if this appointment is ratified, the Audit Committee, in
its discretion, may direct the appointment of a different independent registered public accounting firm at
any time during the fiscal year if the Audit Committee determines that such a change would be in the
best interests of the Company and its shareholders.
The Board of Directors unanimously recommends that you vote “FOR” the ratification of the
appointment of KPMG LLP as the Company’s independent registered public accounting firm for
fiscal 2019.
Unless a proxy card (or voting instruction properly submitted by telephone or via the Internet) is
marked to give a different direction, the persons named as attorneys-in-fact in the proxy card will vote
“FOR” the ratification of the appointment of KPMG LLP as the Company’s independent registered
public accounting firm for fiscal 2019.
Fees Paid to Independent Registered Public Accounting Firm
The following table presents fees for professional audit services rendered by KPMG LLP for the audit
of the Company’s consolidated financial statements for the fiscal years ended June 24, 2018 and
June 25, 2017 and fees billed for other services rendered by KPMG LLP during those periods.
Audit Fees(1)
Audit-Related Fees(2)
Tax Fees(3)
All Other Fees
Total
Fiscal 2018
($)
1,261,957
46,761
331,425
—
1,640,143
Fiscal 2017
($)
1,412,022
—
227,712
—
1,639,734
(1) Audit Fees consists of fees billed for the respective year for professional services associated with the annual
financial statement audit and quarterly financial statement reviews, services related to compliance with
Section 404 of the Sarbanes-Oxley Act of 2002 and consultations in connection with statutory and regulatory
filings or engagements.
63
(2) Audit-Related Fees consists of fees billed for fiscal 2018 for financial due diligence services in connection with
a potential business combination transaction.
(3) Tax Fees consists of fees billed for the respective year for tax compliance, consultation and related matters.
Audit Committee Pre-Approval of Audit and Non-Audit Services
The Audit Committee has implemented procedures under the Unifi, Inc. Audit Committee Pre-Approval
Policy for Audit and Non-Audit Services (the “Pre-Approval Policy”) to ensure that all audit and
permitted non-audit services to be provided to the Company have been pre-approved by the Audit
Committee. Specifically, the Audit Committee pre-approves the use of the Company’s independent
registered public accounting firm for specific audit and non-audit services, within pre-approved
monetary limits. If a proposed service has not been pre-approved pursuant to the Pre-Approval Policy,
then it must be specifically pre-approved by the Audit Committee before the service may be provided
by the Company’s independent
registered public accounting firm. Any pre-approved services
exceeding the pre-approved monetary limits require specific approval by the Audit Committee. For
fiscal 2018, all of the audit fees were approved by the Audit Committee in accordance with the above
procedures. All of the other fees billed by KPMG LLP to the Company for fiscal 2018 were approved by
the Audit Committee by means of specific pre-approvals. All non-audit services provided in fiscal 2018
were reviewed with the Audit Committee, which concluded that the provision of such services by
KPMG LLP was compatible with the maintenance of that firm’s independence in the conduct of its
auditing functions.
64
Additional Information
Shareholder Proposals for the 2019 Annual Meeting of Shareholders
Any shareholder proposal
intended to be included in UNIFI’s proxy statement and form of proxy
relating to the 2019 Annual Meeting of Shareholders must be in writing and received by the Company
no later than May 16, 2019. Any such shareholder proposal must also comply with Rule 14a-8 of the
Exchange Act, which lists the requirements for the inclusion of shareholder proposals in company-
sponsored proxy materials. Shareholder proposals should be addressed to the attention of
the
Company’s Secretary at Unifi, Inc., 7201 West Friendly Avenue, Greensboro, North Carolina 27410.
Pursuant to the SEC rules, submitting a proposal will not guarantee that it will be included in the
Company’s proxy materials.
intended to be presented at
In addition, any shareholder proposal
the 2019 Annual Meeting of
Shareholders, but that will not be included in the Company’s proxy statement and form of proxy relating
to the 2019 Annual Meeting of Shareholders (i.e., any proposal other than a proposal submitted
pursuant to Rule 14a-8 of the Exchange Act), must be in writing and received by the Company’s
Secretary at Unifi, Inc., 7201 West Friendly Avenue, Greensboro, North Carolina 27410 no earlier than
July 3, 2019 and no later than August 2, 2019. However, if the date of the 2019 Annual Meeting of
Shareholders is more than 30 days before or more than 90 days after October 31, 2019, then the
written notice must be received by the Company’s Secretary no earlier than 120 days prior to the date
of the 2019 Annual Meeting of Shareholders and no later than the close of business on the later of
(i) 90 days prior to the date of such annual meeting or (ii) 10 days following the day on which the
Company first announced publicly (or mailed notice to the shareholders of) the date of such meeting.
include the specified information concerning the proposal and the
Shareholder proposals must
shareholder submitting the proposal as set forth in the Company’s Amended and Restated By-laws. A
copy of the Company’s Amended and Restated By-laws may be obtained by writing to the Company’s
Secretary at Unifi, Inc., 7201 West Friendly Avenue, Greensboro, North Carolina 27410.
2018 Annual Report to Shareholders
This Proxy Statement is accompanied by the Annual Report on Form 10-K for the fiscal year ended
June 24, 2018, and these materials are also available at www.proxyvote.com and the investor relations
portion of the Company’s website at www.unifi.com. The Annual Report on Form 10-K, which contains
the audited consolidated financial statements and other information about
is not
incorporated in this Proxy Statement and is not to be deemed a part of the proxy soliciting material.
the Company,
Annual Report on Form 10-K
The Company also will provide without charge to each person solicited pursuant to this Proxy
Statement, upon the written request of any such person, a copy of the Company’s Annual
Report on Form 10-K for the fiscal year ended June 24, 2018, including the financial statements
and the financial statement schedules required to be filed with the SEC, or any exhibit thereto.
Requests should be in writing and addressed to the attention of the Company’s Secretary at
Unifi, Inc., 7201 West Friendly Avenue, Greensboro, North Carolina 27410.
Householding
The SEC has adopted rules permitting companies to mail one annual report and proxy statement, or
notice of internet availability of proxy materials, as applicable, in one envelope to all shareholders
residing at the same address if certain conditions are met. This is called “householding” and can result
65
in significant savings of paper and mailing costs. The Company has not implemented householding
with respect to its shareholders of record; however, a number of brokerage firms have instituted
householding that may impact certain beneficial owners of shares held in street name. If members of
your household have multiple accounts through which they hold Common Stock, you may have
received a householding notification from the shareholder of record (e.g., your bank, broker or other
nominee).
Please contact the shareholder of record directly if you have any questions or wish to revoke your
decision to household or to receive an additional copy of this Proxy Statement, the Annual Report on
Form 10-K for the fiscal year ended June 24, 2018 or the Notice of Internet Availability for members of
your household.
66
Appendix A
Non-GAAP Financial Performance Measures
Unifi, Inc. (the “Company”) prepares its consolidated financial statements and reports in accordance
with U.S. generally accepted accounting principles (“GAAP”). The Company’s executive compensation
program uses Adjusted EBITDA, which represents Net income attributable to Unifi, Inc. before net
interest expense, income tax expense and depreciation and amortization expense, adjusted to exclude
equity in earnings of Parkdale America, LLC and certain other adjustments necessary to understand
and compare the underlying results of
the Company’s financial
performance for purposes of determining the annual
incentive compensation earned by executives
under the program. The Company’s methods of determining Adjusted EBITDA may differ from the
methods used by other companies. Accordingly, this non-GAAP financial performance measure may
not be comparable to measures used by other companies.
the Company, as a measure of
In determining Adjusted EBITDA for annual incentive compensation purposes, fiscal 2018 Adjusted
EBITDA presented in the Company’s Annual Report on Form 10-K for the fiscal year ended June 24,
2018 was further adjusted to exclude certain officer recruitment and severance costs, special project
costs, foreign currency transaction losses and unbudgeted director compensation expense, all of which
the Compensation Committee adjusted for as being outside of management’s control for operating
results and cash generation or not anticipated when the fiscal 2018 performance measures were
approved at the beginning of the fiscal year.
incentive
The Compensation Committee uses Adjusted EBITDA as a measure for annual
compensation purposes because the Compensation Committee believes Adjusted EBITDA serves as a
high-level proxy for cash generated from operations, which is a key performance indicator used by the
Board of Directors and management to assess the Company’s operating results generally. However,
this financial performance measure is not calculated in accordance with GAAP and should not be
considered in isolation from, or as a substitute for, net income and other financial results reported in
the Company’s consolidated financial statements prepared in accordance with GAAP.
A-1
The following table sets forth the reconciliation of the amount reported under GAAP for Net income
attributable to Unifi, Inc. to Adjusted EBITDA for the fiscal year ended June 24, 2018 (in thousands):
Net income attributable to Unifi, Inc.
Interest expense, net
Benefit for income taxes
Depreciation and amortization expense
EBITDA
Equity in earnings of Parkdale America, LLC
Adjusted EBITDA per Form 10-K(1)
Officer recruitment and severance costs
Special project costs
Foreign currency transaction losses
Unbudgeted director compensation expense
$ 31,702
4,375
(1,491)
22,218
$ 56,804
(4,533)
$ 52,271
2,870
992
542
288
Adjusted EBITDA per Incentive Plan(2)
$ 56,963
(1) As reported in the Company’s Annual Report on Form 10-K for the fiscal year
ended June 24, 2018.
(2) As utilized by the Compensation Committee for determining annual incentive
compensation.
A-2
Appendix B
AMENDED AND RESTATED 2013 INCENTIVE COMPENSATION PLAN
UNIFI, INC.
UNIFI, INC.
AMENDED AND RESTATED 2013 INCENTIVE COMPENSATION PLAN
TABLE OF CONTENTS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted Stock Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B-1
B-1
B-7
B-7
B-8
B-8
B-9
Performance Share Units and Restricted Stock Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-10
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-11
Stock Appreciation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-13
Director Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-16
Recoupment of Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-16
Continuing Securities Law Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-16
Termination, Modification, Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-17
Change in Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-17
Administration of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-18
Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-19
No Effect on Other Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-19
Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
Effective Date of the Plan; Limited Effect of Restatement
. . . . . . . . . . . . . . . . . . . . . . . . . . B-20
B-i
AMENDED AND RESTATED 2013 INCENTIVE COMPENSATION PLAN
UNIFI, INC.
1.
(b) motivate Participants, by means of appropriate equity-based incentives,
Purpose. This Plan is an amendment and restatement of the Unifi, Inc. 2013 Incentive
Compensation Plan. The effective date of this Plan is October 24, 2018, subject to shareholder
approval of the amended and restated Plan. The Plan is designed to support the overall compensation
philosophy and objectives of the Company to (a) attract and retain persons eligible to participate in the
Plan;
to achieve
performance goals; (c) provide incentive compensation opportunities that are competitive with those of
other similar companies; and (d) provide the Company the ability to further align Participants’ interests
with those of the Company’s shareholders through compensation that is based on the Company’s
common stock; and thereby promote the long-term financial interest of the Company, including the
growth in value of the Company’s equity and enhancement of long-term shareholder return. The Plan
is also intended to allow for grants of stock incentives to compensate non-employee members of the
Company’s Board of Directors.
2.
Definitions. As used in the Plan, the following terms have the meanings indicated:
(a)
“Act” means the Securities Exchange Act of 1934, as amended.
(b)
“Affiliate” means, with respect to any Person, any other Person that directly or
indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common
Control with, such first Person.
(c)
“Applicable Withholding Taxes” means the aggregate amount of federal, state
and local income and employment taxes that an Employer is required to withhold in connection
with any award of Performance Shares, any lapse of restrictions on Restricted Stock, any
compensatory dividends paid on Restricted Stock, any vesting of Restricted Stock Units or
Performance Share Units, or any exercise of a Nonstatutory Stock Option or Stock
Appreciation Right.
(d)
“Award” means any Incentive Award or Director Award.
(e)
“Beneficial Owner” (and variants thereof) has the meaning given in Rule 13d-3
promulgated under the Act and, only to the extent such meaning is more restrictive than the
meaning given in Rule 13d-3, the meaning determined in accordance with Code section
318(a).
(f)
(g)
“Board” means the Board of Directors of the Company.
“Change of Control” means, the occurrence of any of the following events:
(i)
any Person is or becomes the Beneficial Owner, directly or indirectly, of
more than 50% of either (A) the combined fair market value of the then outstanding
stock of the Company (the “Total Fair Market Value”) or (B) the combined voting power
of the then outstanding securities entitled to vote generally in the election of directors of
the Company (the “Total Voting Power”); excluding, however, the following: (1) any
acquisition by the Company or any of its Controlled Affiliates, (2) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company or
any of its Controlled Affiliates, (3) any Person who becomes such a Beneficial Owner in
connection with a transaction described in the exclusion within subsection (iv) below
B-1
and (4) any acquisition of additional stock or securities by a Person who owns more
than 50% of
the Company
the Total Fair Market Value or Total Voting Power of
immediately prior to such acquisition; or
(ii)
any Person is or becomes the Beneficial Owner, directly or Indirectly, of
securities of
together with any securities acquired directly or
the Company that,
indirectly by such Person within the immediately preceding twelve-consecutive month
period, represent 30% or more of the Total Voting Power of the Company; excluding,
through (4) of subsection
however, any acquisition described in subclauses (1)
(i) above; or
(iii)
for purposes of
the Board; provided, however,
a change in the composition of the Board such that the individuals who,
as of the Effective Date, constitute the Board (such individuals shall be hereinafter
referred to as the “Incumbent Directors”) cease for any reason to constitute at least a
majority of
this definition, that any
individual who becomes a director subsequent to the Effective Date, whose election, or
nomination for election by the Company’s shareholders, was made or approved by a
vote of at least a majority of the Incumbent Directors (or directors whose election or
nomination for election was previously so approved) shall be considered an Incumbent
Director; but, provided, further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 promulgated under the Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a person or legal entity other than
the Board shall not be considered an Incumbent Director; provided finally, however,
that, as of any time, any member of the Board who has been a director for at least
twelve (12) consecutive months immediately prior to such time shall be considered an
Incumbent Director for purposes of this definition, other than for the purpose of the first
proviso of this definition; or
(iv)
there is consummated a merger or consolidation of the Company or any
direct or indirect subsidiary of the Company or a sale or other disposition of the assets
of the Company that have a total gross fair market value equal to or greater than 40%
of the total gross fair market value of the assets of the Company immediately prior to
such acquisition (“Corporate Transaction”); excluding, however, such a Corporate
Transaction pursuant to which all or substantially all of the individuals and entities who
are the Beneficial Owners, respectively, of the outstanding Company Stock and Total
Voting Power immediately prior to such Corporate Transaction will Beneficially Own,
directly or indirectly, more than 50%, respectively, of the outstanding Company Stock
and the combined voting power of
the then outstanding Company Stock and the
combined voting power of the then outstanding securities entitled to vote generally in
the election of directors of the company resulting from such Corporate Transaction
(including, without limitation, a company that, as a result of such transaction, owns the
Company or all or substantially all of the Company’s assets either directly or through
one or more subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Corporate Transaction of the outstanding Company Stock
and Total Voting Power, as the case may be.
Notwithstanding anything in this Section 2(g) to the contrary, an event that does not constitute
a change in the ownership of the Company, a change in the effective control of the Company,
or a change in the ownership of a substantial portion of the assets of the Company, each as
defined in Section 1.409A-3(i)(5) of the Treasury Regulations, shall not constitute a Change of
Control for purposes of this Plan.
B-2
(h)
“Code” means the Internal Revenue Code of 1986, as amended.
(i)
Director.
“Consultant” means a Service Provider who is not an Employee or Independent
(j)
“Control”
(and variants thereof) has the meaning specified in Rule 12b-2
promulgated under the Act.
(k)
“Committee” means the Compensation Committee of
the Board (or any
successor Board committee designated by the Board to administer the Plan), provided that, if
any member of the Compensation Committee does not qualify as (i) a non-employee director
for purposes of Rule 16b-3 promulgated under the Act, and (ii) an independent director for
purposes of the rules of the principal exchange on which Company Stock is traded, the
remaining members of the Committee who do so qualify (but not less than two members) shall
be constituted as a subcommittee to act as the Committee for purposes of the Plan.
(l)
“Company” means Unifi,
Inc., a New York corporation, and any successor
corporation.
(m)
“Company Stock” means the common stock of the Company, par value $0.10
per share. In the event of a change in the capital structure of the Company (as provided in
Section 15), the shares resulting from the change shall be deemed to be Company Stock
within the meaning of the Plan.
(n)
“Date of Grant” means (i) with respect to a Non-Option Award, the date on which
the Committee (or, with respect to a Director Award, the Board) grants the award; (ii) with
respect to a Nonstatutory Option or Stock Appreciation Right, the date on which the Committee
(or, with respect to a Director Award, the Board) completes the corporate action necessary to
create a legally binding right constituting the Nonstatutory Stock Option or Stock Appreciation
Right; or (iii) with respect to an Incentive Stock Option, the date on which the Committee
completes the corporate action constituting an offer of stock for sale to a Participant under the
terms and conditions of the Incentive Stock Option. With respect to any Award, the Committee
(and, with respect to any Director Award, the Board) may specify a future date on which the
Award is to be granted or to become effective.
(o)
“Director Award” means any Nonstatutory Option, Stock Appreciation Right,
share of Restricted Stock, Vested Share, Vested Share Unit, Restricted Stock Unit or
Performance Share Unit awarded to an Independent Director under the Plan.
(p)
“Disability” means, as to an Incentive Stock Option, a Disability within the
meaning of Code section 22(e)(3). As to all other Awards, Disability (or variants thereof)
means, unless otherwise provided in the Grant Agreement with respect to the Award,
(i)
the Participant’s inability to engage in any substantial gainful activity by
reason of any medically determinable physical or mental
that can be
expected to result in death or can be expected to last for a continuous period of not less
than twelve (12) months, or entitlement to and receipt of disability benefits under a
disability insurance program of the Company that pays benefits on the basis of the
foregoing definition;
impairment
(ii)
is, by reason of a medically determinable physical or
mental impairment that can be expected to result in death or can be expected to last for
the Participant
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a continuous period of not less than twelve (12) months, receiving either (A) income
replacement benefits for a period of not less than three (3) months under an accident
and health plan covering employees of the Company or (B) disability benefits under a
disability insurance program that pays benefits on the basis of the foregoing definition;
or
(iii)
Administration.
The Participant is determined to be totally disabled by the Social Security
The Committee (or, with respect to a Director Award, the Board) shall determine whether a
Disability exists and the determination shall be conclusive.
(q)
(r)
“Effective Date” means the date described in Section 20 of the Plan.
“Employee” means an individual employed by the Company or a Related
Company as a common-law employee.
(s)
“Employer” means the Company or Related Company with respect to which an
Employee provides services.
(t)
“Fair Market Value” means:
(i)
if the Company Stock is at the time listed or admitted to trading on any
stock exchange, the “Fair Market Value” shall be the mean between the lowest and
highest reported sale prices of the Company Stock on the date in question on the
principal exchange on which the Company Stock is then listed or admitted to trading. If
no reported sale of Company Stock takes place on the date in question on the principal
exchange, then the mean between the lowest and highest reported sale prices of the
Company Stock on the closest date prior to the date in question on the principal
exchange shall be determinative of “Fair Market Value”;
(ii)
if the Company Stock is not at the time listed or admitted to trading on a
stock exchange, the “Fair Market Value” shall be the mean between the lowest and
highest reported sale prices of the Company Stock on the date in question in the
over-the-counter market, as such prices are reported in a publication of general
circulation selected by the Committee and regularly reporting the market price of
Company Stock in such market; or
(iii)
if the Company Stock is not listed or admitted to trading on any stock
exchange or traded in the over-the-counter market, the “Fair Market Value” shall be as
determined in good faith by the Committee.
(u)
“Fiscal Year” means the fiscal period used by the Company for reporting taxes
on its income under the Code.
(v)
“Grant Agreement” means the written agreement between the Company and a
Participant containing the terms and conditions with respect to an Award.
(w)
“Independent Director” means a member of
the Board who satisfies the
requirements for a non-employee director as provided in Section 16(b) of the Act.
(x)
“Incentive Award” means any Performance Share, Option, Stock Appreciation
Right, share of Restricted Stock, Vested Share, Vested Share Unit, Restricted Stock Unit or
Performance Share Unit awarded to a Service Provider under the Plan.
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(y)
“Incentive Stock Option” means an Option (i) intended to meet the requirements
of, and qualify for favorable federal income tax treatment under, Code section 422 and (ii) that
meets such requirements.
(z)
“Non-Option Award” means an Award other
than an Option or Stock
Appreciation Right.
(aa)
“Nonstatutory Stock Option” means an Option that does not meet
the
requirements of Code section 422, or, even if meeting the requirements of Code section 422,
is not intended to be an Incentive Stock Option and is so designated.
(bb)
“Option” means a right to purchase Company Stock granted under the Plan, at a
price determined in accordance with Section 9.
(cc)
“Participant” means any Service Provider or Independent Director who receives
an Award under the Plan.
(dd)
“Performance Criteria” means the performance of the Company, any Related
Company, any subsidiary, division, business unit thereof, or any individual using one or more
of the following measures or any other measures selected by the Committee, in each case,
either on an operating or GAAP basis where applicable (or on the basis of such other
standards as may replace or succeed GAAP), adjusted to include or exclude one or more
nonrecurring, operating, non-operating or other items as applicable, and including measuring
the performance of any of the following relative to a defined peer group of companies or an
index: market value of the Company Stock; pre-tax profits; unit production costs; asset growth;
pre-tax earnings; debt
to equity ratio; earnings per share; revenues; operating income;
operating costs and efficiencies; operating cash flow; net income, before or after taxes; net
income before income taxes, incentive payments and accounting for minority interest; return
on total capital, equity, revenue or assets; market share; unit production and sales volume;
earnings before interest, taxes, depreciation, rent and amortization expenses; earnings before
interest, taxes, depreciation and amortization; earnings before interest and taxes; any of the
prior measures or earnings before taxes and unusual or nonrecurring items as measured
either against the annual budget or as a ratio to revenue or return on total capital; net earnings;
profit margin; operating margin; operating income; net worth; cash flow; cash flow per share;
total shareholder return; revenues; capital expenditures; improvements in capital structure;
industry indices; expenses and expense ratio management; debt reduction; profitability of an
identifiable business unit or product; or levels of expense, cost or liability by category,
operating unit or any other delineation. If the Committee determines that a change in the
business, operations, corporate structure or capital structure of the Company, or the manner in
which it conducts its business, or other events or circumstances render the Performance
Criteria unsuitable, the Committee may in its discretion modify such Performance Criteria or
the related minimum acceptable level of achievement, in whole or in part, as the Committee
deems appropriate and equitable.
(ee)
“Performance Goal” means an objectively determinable performance goal
established by the Committee that relates to one or more Performance Criteria.
(ff)
“Performance Share” means a right to receive a share of Company Stock subject
to the satisfaction of performance conditions as set forth in Section 6.
(gg)
“Performance Share Unit” means a right to receive Company Stock or cash
awarded upon the terms and subject to grant and vesting conditions as set forth in Section 8.
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(hh)
“Person” shall have the meaning given in Section 3(a)(9) of the Act, as modified
by Sections 13(d) and 14(d) of the Act, and only to the extent such meaning is more restrictive
than the meaning given in Section 3(a)(9) of
the meaning
determined in accordance with Sections 1.409A-3(i)(5)(v)(B), (vi)(D) or (vii)(C) of the Treasury
Regulations (or any successor provisions), as applicable.
the Act (as modified above),
(ii)
“Plan” means
this Unifi,
Inc. Amended and Restated 2013 Incentive
Compensation Plan, as it may be amended from time to time.
(jj)
(within the meaning of Section 1.409A-1(b)(5)(E)(1) of
“Related Company” means, (i) for purposes of determining eligibility to receive an
Incentive Stock Option, any “parent corporation” with respect
to the Company within the
meaning of Code section 424(e) or any “subsidiary corporation” with respect to the Company
within the meaning of Code section 424(f); (ii) for purposes of determining eligibility to receive
a Nonstatutory Stock Option or Stock Appreciation Right, any corporation or other entity in a
chain of corporations or other entities in which each corporation or other entity has a
controlling interest
the Treasury
Regulations (or any successor provision)) in another corporation or other entity in the chain,
beginning with a corporation or other entity in which the Company has a controlling interest;
and (iii) for all other purposes under the Plan, any corporation, trade or business that would be
required to be treated as a single employer with the Company under Code sections 414(b) or
for purposes of
(c), provided that,
determining a controlled group of corporations, or in applying Section 1.414(c)-2 of
the
Treasury Regulations for purposes of determining trades or businesses under common control,
the phrase “at least 50%” shall replace the phrase “at least 80%” each time it appears in those
sections.
in applying Code sections 1563(a)(1),
(2) and (3)
(kk)
“Repricing” means, with respect to an Option or Stock Appreciation Right, any of
the following: (i) the lowering of the exercise price after the Date of Grant; (ii) the taking of any
other action that is treated as a repricing under generally accepted accounting principles; or
(iii) the cancellation of the Option or Stock Appreciation Right at a time when its exercise price
(or, with respect to the Stock Appreciation Right, the Fair Market Value of the Company Stock
covered by the Stock Appreciation Right on the Date of Grant) exceeds the Fair Market Value
of the underlying Company Stock in exchange for any other Award, unless the cancellation
and exchange occurs in connection with a Corporate Event (as defined in Section 15(b)
below).
(ll)
“Restricted Stock” means Company Stock awarded upon the terms and subject
to restrictions as set forth in Section 7.
(mm)
“Restricted Stock Unit” means a right
to receive Company Stock or cash
awarded upon the terms and subject to vesting conditions as set forth in Section 8.
(nn)
“Retirement” means, unless otherwise provided in the Grant Agreement for a
particular Award, a Participant’s termination of employment or other separation from service on
or after age 65.
(oo)
“Rule 16b-3” means Rule 16b-3 promulgated under the Act, as amended from
time to time.
(pp)
“Service Provider” means an Employee, Consultant or other natural person
employed by or providing bona fide services to the Company or a Related Company, excluding
any Independent Director.
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(qq)
“Stock Appreciation Right” means a right to receive Company Stock or cash
granted under Section 10.
(rr)
“Tandem Right” means a kind of Stock Appreciation Right granted in connection
with a Nonstatutory Stock Option as described in Section 10.
(ss)
“Ten Percent Shareholder” means a person who owns, directly or indirectly,
stock possessing more than ten percent of the total combined voting power of all classes of
stock of
Indirect ownership of stock shall be
determined in accordance with Code section 424(d).
the Company or any Related Company.
(tt)
“Treasury Regulations” mean the final, temporary or proposed regulations issued
by the Treasury Department and/or Internal Revenue Service as codified in Title 26 of the
United States Code of Federal Regulations. Any references made in the Plan to specific
Treasury Regulations shall also refer to any successor or replacement regulations thereto.
(uu)
forth in Section 11.
“Vested Share” means a share of Company Stock awarded upon the terms set
(vv)
“Vested Share Unit” means a right
to receive a share of Company Stock
awarded upon the terms set forth in Section 11.
3.
General. The following types of Awards may be granted under the Plan: Performance
Shares, shares of Restricted Stock, Vested Shares, Vested Share Units, Restricted Stock Units,
Performance Share Units, Options, or Stock Appreciation Rights. Options granted under the Plan may
be Incentive Stock Options or Nonstatutory Stock Options.
4.
Stock.
(a)
Reserve. Subject to Section 15 of the Plan, the number of shares of Company
Stock with respect to which Awards may be granted under the Plan during the term of the Plan
beginning on the Effective Date shall be one million two hundred fifty thousand (1,250,000)
shares of Company Stock, which shall be authorized but unissued shares.
(b)
Share Use. Any shares of Company Stock granted under the Plan that are
forfeited because of the failure to meet an Award contingency or condition shall again be
available for delivery pursuant to new Awards granted under the Plan.
To the extent any shares of Company Stock covered by an Award are not delivered to a
Participant or beneficiary because the Award is forfeited or cancelled, or the shares of Stock
are not delivered because the Award is settled in cash, such shares shall not be deemed to
have been delivered for purposes of determining the maximum number of shares of Company
Stock available for delivery under the Plan.
Shares of Company Stock delivered under the Plan in settlement, assumption or
substitution of outstanding awards under the plans or arrangements of another entity shall not
reduce the maximum number of shares of Company Stock available for delivery under the
Plan, to the extent that such settlement, assumption or substitution is a result of the Company
acquiring another entity (or an interest in another entity).
Shares of Company Stock may be issued under this Plan without cash consideration.
B-7
5.
Eligibility.
(a)
Incentive Awards. All present and future Service Providers of the Company or
any Related Company (whether now existing or hereafter created or acquired) who have
contributed or who can be expected to contribute significantly to the Company or a Related
Company shall be eligible to receive Incentive Awards under the Plan. The Committee shall
have the power and complete discretion, as provided in Section 16, to select eligible Service
Providers to receive Incentive Awards and to determine for each Service Provider the nature of
the award and the terms and conditions of each Incentive Award.
(b)
Director Awards. All present and future Independent Directors shall be eligible to
receive Director Awards under the Plan. The Board shall have the power and complete
discretion to select eligible Independent Directors to receive Director Awards and to determine
for each Independent Director the nature of the award and the terms and conditions of each
Director Award.
(c)
No Contract of Employment or Services. The grant of an Award shall not obligate
the Company or any Related Company to pay any Service Provider or Independent Director
any particular amount of remuneration, to continue the employment or services of the Service
Provider or Independent Director after the grant or to make further grants to the Service
Provider or Independent Director at any time thereafter.
(d)
Awards to International Employees. When granting Awards to Service Providers
or Independent Directors who are not United States residents, the Committee (or with respect
to Director Awards, the Board) shall have complete discretion and authority to grant such
Awards in compliance with all present and future laws of the country or countries with laws that
may apply to the grant of the Award or the issuance of Company Stock pursuant to the Award.
Such authorization shall extend to and include establishing one or more separate sub-plans
that include provisions not inconsistent with the Plan that comply with statutory or regulatory
requirements imposed by the country or countries in which the Participant resides.
6.
Performance Shares.
(a)
The Committee may grant Performance Shares to eligible Service Providers.
Whenever the Committee grants Performance Shares, a Grant Agreement shall be given to
the Service Provider stating the number of Performance Shares granted and the terms and
conditions to which the Award of Performance Shares is subject, and, at that time, the Service
Provider shall become a Participant.
(b)
The Committee may reserve the right in a Grant Agreement to settle all or any
portion of an award of Performance Shares in cash instead of shares of Company Stock, with
the cash portion to be determined based on the Fair Market Value as of the date of payment of
the shares of Company Stock otherwise payable under the award, or to allow the Participant to
defer payment under the award, subject to such terms as the Committee may determine in
accordance with Code section 409A.
(c)
A Participant shall have no rights as a shareholder until shares of Company
Stock are issued under the Performance Share award and all requirements with respect to the
issuance of such shares have been satisfied.
(d)
A Participant’s interest in an award of Performance Shares may not be sold,
assigned, transferred, pledged, hypothecated or otherwise encumbered.
B-8
(e)
Each Participant who is an Employee may be required to agree at the time of
receiving an Award of Performance Shares, and as a condition thereof, to pay to the Employer,
or make arrangements satisfactory to the Employer regarding the payment to the Employer of,
Applicable Withholding Taxes. Until the amount has been paid or arrangements satisfactory to
the Employer have been made, the Employer may delay issuing a stock certificate to the
Participant. Payment to the Employer in satisfaction of Applicable Withholding Taxes may be in
cash. In addition, (i) payment to the Employer in satisfaction of Applicable Withholding Taxes
may be made in shares of Company Stock (valued at their Fair Market Value as of the date of
payment) to which the Participant has good title, free and clear of all liens and encumbrances;
(ii) the Participant may elect to have his or her Employer retain that number of shares of
Company Stock (valued at their Fair Market Value as of the date of such retention) that would
satisfy all or a specified portion of the Applicable Withholding Taxes; or (iii) unless prohibited
by law, the Participant may deliver irrevocable instructions to a broker to deliver promptly to the
Employer, from the sale or loan proceeds with respect to the sale of Company Stock or a loan
secured by Company Stock, the amount necessary to pay the Applicable Withholding Taxes.
7.
Restricted Stock Awards.
(a)
The Committee may grant Restricted Stock to eligible Service Providers.
Whenever the Committee deems it appropriate to grant Restricted Stock, a Grant Agreement
shall be given to the Service Provider stating the number of shares of Restricted Stock granted
and the terms and conditions to which the Restricted Stock is subject, and, at that time, the
Service Provider shall become a Participant.
(b)
The Committee shall establish as to each award of Restricted Stock the terms
and conditions upon which the restrictions set forth in paragraph (c) below shall lapse. The
terms and conditions may include the continued performance of services or the achievement of
performance conditions measured on an individual, corporate or other basis, or any
combination thereof. A Restricted Stock Award, the vesting of which is not conditioned on the
achievement Performance Goals or other performance conditions, shall have a vesting period
of not less than three (3) years from the Date of Grant of the Restricted Stock Award. A
Restricted Stock Award,
the vesting of which is conditioned on the achievement of
Performance Goals or other performance conditions, shall not vest less than one (1) year from
the Date of Grant. Notwithstanding the preceding two sentences, the Committee may, in its
discretion and without limitation, provide in the Grant Agreement that restrictions will
lapse
prior to the expiration of the service or performance period as a result of the Disability, death or
Retirement of the Participant or the occurrence of a Change of Control.
(c)
No shares of Restricted Stock may be sold, assigned, transferred, pledged,
hypothecated or otherwise encumbered or disposed of until the restrictions on the shares
established by the Committee have lapsed or been removed.
(d)
Upon the acceptance by a Participant of an award of Restricted Stock, the
Participant shall, subject to the restrictions set forth in subsection (c) above, have all the rights
of a shareholder with respect to the shares of Restricted Stock, including, but not limited to, the
right to vote the shares of Restricted Stock and the right to receive all dividends and other
distributions paid thereon; provided, however, dividends and other distributions paid with
respect to shares of Restricted Stock may be paid to the Participant only to the extent the
restrictions on the shares of Restricted Stock have lapsed or been removed, and any dividends
and other distributions paid with respect to shares of Restricted Stock that do not become
vested shall be forfeited. Certificates representing Restricted Stock may be held by the
Company until
the Participant shall provide the
the restrictions lapse and, upon request,
Company with appropriate stock powers endorsed in blank.
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(e)
Each Participant who is an Employee may be required to agree at the time of
receiving an Award of Restricted Stock, and as a condition thereof, to pay to the Employer, or
make arrangements satisfactory to the Employer regarding the payment to the Employer of,
Applicable Withholding Taxes. Until the amount has been paid or arrangements satisfactory to
the Employer have been made, the Employer may delay issuing a stock certificate to the
Participant. Payment to the Employer in satisfaction of Applicable Withholding Taxes may be in
cash. In addition, (i) payment to the Employer in satisfaction of Applicable Withholding Taxes
may be made in shares of Company Stock (valued at their Fair Market Value as of the date of
payment) to which the Participant has good title, free and clear of all liens and encumbrances;
(ii) the Participant may elect to have his or her Employer retain that number of shares of
Company Stock (valued at their Fair Market Value as of the date of such retention) that would
satisfy all or a specified portion of the Applicable Withholding Taxes; or (iii) unless prohibited
by law, the Participant may deliver irrevocable instructions to a broker to deliver promptly to the
Employer, from the sale or loan proceeds with respect to the sale of Company Stock or a loan
secured by Company Stock, the amount necessary to pay the Applicable Withholding Taxes.
8.
Performance Share Units and Restricted Stock Units.
(a)
The Committee may grant Performance Share Units and Restricted Stock Units
to eligible Service Providers. Whenever
the Committee deems it appropriate to grant
Performance Share Units or Restricted Stock Units, a Grant Agreement shall be given to the
Service Provider stating the number of Performance Share Units or Restricted Stock Units
granted and the terms and conditions to which the Performance Share Units or Restricted
Stock Units are subject, and, at that time, the Service Provider shall become a Participant.
(b)
The Committee shall establish as to each award of Performance Share Units the
terms and conditions upon which the Performance Share Units shall be earned, vest and be
paid. The issuance and vesting of Performance Share Units may be conditioned on the
achievement of performance conditions measured on an individual, corporate, or other basis,
or any combination thereof and on the continued performance of services. The Committee
shall establish as to each award of Restricted Stock Units the terms and conditions upon which
the Restricted Stock Units shall vest and be paid. Vesting may be conditioned on the continued
performance of services or the achievement of performance conditions measured on an
individual, corporate, or other basis, or any combination thereof. A Restricted Stock Unit, the
vesting of which is not conditioned on the achievement of Performance Goals or other
performance conditions, shall not have a vesting period of less than three (3) years from the
Date of Grant of the Restricted Stock Unit. A Performance Share Unit or Restricted Stock Unit,
the vesting of which is conditioned on the achievement of Performance Goals or other
performance conditions, shall not vest
less than one (1) year from the Date of Grant.
Notwithstanding the foregoing, the Committee may, in its discretion and without limitation,
provide in the Grant Agreement that restrictions will expire as a result of one or more of the
Disability, death or Retirement of the Participant or the occurrence of a Change of Control.
(c)
Performance Share Units and Restricted Stock Units may be paid in cash,
Company Stock, or a fixed combination of Company Stock or cash as provided in the Grant
Agreement, or the Committee may reserve the right to determine the manner of payment at the
time the Performance Share Units or Restricted Stock Units become payable. The delivery of
Company Stock in payment of Performance Share Units or Restricted Stock Units may be
subject to additional conditions established in the Grant Agreement.
(d)
A Participant who receives Performance Share Units or Restricted Stock Units
payable in Company Stock shall have no rights as a shareholder until the Company Stock is
B-10
issued pursuant to the terms of the Grant Agreement and all requirements with respect to the
issuance of such shares have been satisfied. The Committee may, in its discretion, provide
that a Participant shall be entitled to receive dividend equivalents on outstanding Performance
Share Units or Restricted Stock Units. Dividend equivalents may be (i) paid in cash,
(ii) credited to the Participant as additional Performance Share Units or Restricted Stock Units,
or (iii) a fixed combination of cash and additional Performance Share Units or Restricted Stock
Units as provided in the Grant Agreement; provided, however, dividend equivalents with
respect to Performance Share Units may be paid to the Participant only to the extent the
Performance Goals or other performance conditions applicable to the Performance Share
Units are achieved and dividend equivalents with respect to Restricted Stock Units may be
paid to the Participant only if the Restricted Stock Units become vested, and any dividends and
other distributions paid with respect to Performance Share Units or Restricted Stock Units that
are not earned or become vested shall be forfeited.
(e)
A Participant’s interest in Performance Share Units or Restricted Stock Units
may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered.
(f)
Whenever payments under Performance Share Units or Restricted Stock Units
are to be made in cash to a Participant who is an Employee, his or her Employer shall be
entitled to withhold therefrom an amount sufficient to satisfy any Applicable Withholding Taxes.
Each Participant who is an Employee may be required to agree as a condition of receiving
Performance Share Units or Restricted Stock Units payable in the form of Company Stock to
pay to his or her Employer, or make arrangements satisfactory to the Employer regarding the
payment to the Employer of, Applicable Withholding Taxes. Until the amount has been paid or
arrangements satisfactory to the Employer have been made, the Employer may delay issuing
a stock certificate to the Participant. Payment to the Employer in satisfaction of Applicable
Withholding Taxes may be in cash. In addition, (i) payment to the Employer in satisfaction of
Applicable Withholding Taxes may be made in shares of Company Stock (valued at their Fair
Market Value as of the date of payment) to which the Participant has good title, free and clear
of all liens and encumbrances; (ii) the Participant may elect to have his or her Employer retain
that number of shares of Company Stock (valued at their Fair Market Value as of the date of
such retention) that would satisfy all or a specified portion of the Applicable Withholding Taxes;
or (iii) unless prohibited by law, the Participant may deliver irrevocable instructions to a broker
to deliver promptly to the Employer, from the sale or loan proceeds with respect to the sale of
Company Stock or a loan secured by Company Stock, the amount necessary to pay the
Applicable Withholding Taxes.
9.
Stock Options.
(a)
The Committee may grant Options to eligible Service Providers. Whenever the
Committee grants Options, a Grant Agreement shall be given to the Service Provider stating
the number of shares for which Options are granted, the Option exercise price per share,
whether the Options are Incentive Stock Options or Nonstatutory Stock Options, the extent, if
any, to which associated Stock Appreciation Rights are granted, and the conditions to which
the grant and exercise of the Options are subject, and, at that time, the Service Provider shall
become a Participant.
(b)
The exercise price of shares of Company Stock covered by an Option shall not
be, and shall never become, less than 100% of the Fair Market Value of the shares on the
Date of Grant, except as may be provided in Section 16 (regarding certain changes affecting
Company Stock). If the Participant is a Ten Percent Shareholder and the Option is intended to
qualify as an Incentive Stock Option, the exercise price shall be not less than 110% of the Fair
Market Value of such shares on the Date of Grant.
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(c) Options may be exercised in whole or in part at the times as may be specified by
the Committee in the Participant’s Grant Agreement; provided that no Option may be exercised
after the expiration of ten (10) years from the Date of Grant. If the Participant is a Ten Percent
Shareholder and the Option is intended to qualify as an Incentive Stock Option, the Option
may not be exercised after the expiration of five (5) years from the Date of Grant.
(d)
Options shall not be transferable except to the extent specifically provided in the
Grant Agreement in accordance with applicable securities laws. Incentive Stock Options, by
their terms, shall not be transferable except by will or the laws of descent and distribution and
shall be exercisable, during the Participant’s lifetime, only by the Participant.
(e)
Options that are intended to qualify as Incentive Stock Options shall be granted
only to Employees who meet the eligibility requirements of Section 5.
(f)
Options that are intended to qualify as Incentive Stock Options shall, by their
terms, not be exercisable after the first to occur of (i) ten (10) years from the Date of Grant
(five (5) years if the Participant to whom the Option has been granted is a Ten Percent
Shareholder), (ii) three (3) months following the date of
the Participant’s termination of
employment with the Company and all Related Companies for reasons other than Disability or
death, or (iii) one (1) year following the date of the Participant’s termination of employment on
account of Disability or death.
(g)
Options that are intended to qualify as Incentive Stock Options shall, by their
terms, be exercisable in any calendar year only to the extent that the aggregate Fair Market
Value (determined as of the Date of Grant) of the Company Stock with respect to which
Incentive Stock Options are exercisable for the first time during the Plan Year does not exceed
$100,000 (the “Limitation Amount”). Incentive Stock Options granted under the Plan and all
other plans of the Company and all Related Companies shall be aggregated for purposes of
determining whether the Limitation Amount has been exceeded. The Committee may impose
any conditions as it deems appropriate on an Incentive Stock Option to ensure that the
foregoing requirement is met. If Incentive Stock Options that first become exercisable in a Plan
Year exceed the Limitation Amount, the excess Options shall be treated as Nonstatutory Stock
Options to the extent permitted by law.
(h)
A Participant who purchases shares of Company Stock under an Option shall
have no rights as a shareholder until the Company Stock is issued pursuant to the terms of the
Grant Agreement and all requirements with respect to the issuance of such shares have been
satisfied.
(i)
Options may be exercised by the Participant giving written notice of the exercise
to the Company, stating the number of shares the Participant has elected to purchase under
the Option. The notice shall be effective only if accompanied by the exercise price in full in
cash; provided, however, the Participant (i), unless prohibited by law, may deliver a properly
executed exercise notice together with irrevocable instructions to a broker to deliver promptly
to the Company, from the sale or loan proceeds with respect to the sale of Company Stock or
a loan secured by Company Stock, the amount necessary to pay the exercise price and, if
required by the terms of the Option or the Committee in its discretion, Applicable Withholding
Taxes, (ii) may deliver shares of Company Stock for which the holder thereof has good title,
free and clear of all liens and encumbrances (valued at their Fair Market Value on the date of
exercise) in satisfaction of all or any part of the exercise price, (iii) may cause to be withheld
from the Option shares, shares of Company Stock (valued at their Fair Market Value on the
date of exercise) in satisfaction of all or any part of the exercise price, or (iv) may use any
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other methods of payment as the Committee, at its discretion, deems appropriate. Until the
Participant has paid the exercise price and any Applicable Withholding Taxes, no stock
certificate shall be issued.
(j)
Each Participant who is an Employee may be required to agree as a condition of
the exercise of an Option to pay to his or her Employer, or make arrangements satisfactory to
his or her Employer regarding the payment to the Employer of, Applicable Withholding Taxes.
Until the amount has been paid or arrangements satisfactory to the Employer have been
made, no stock certificate shall be issued upon the exercise of an Option. Payment to the
Employer in satisfaction of Applicable Withholding Taxes may be in cash.
In addition,
(i) payment to the Employer in satisfaction of Applicable Withholding Taxes may be made in
shares of Company Stock (valued at their Fair Market Value as of the date of payment) to
liens and encumbrances; (ii) the
which the Participant has good title, free and clear of all
Participant may elect to have his or her Employer retain that number of shares of Company
Stock (valued at their Fair Market Value as of the date of such retention) that would satisfy all
or a specified portion of the Applicable Withholding Taxes; or (iii) unless prohibited by law, the
Participant may deliver irrevocable instructions to a broker to deliver promptly to the Employer,
from the sale or loan proceeds with respect to the sale of Company Stock or a loan secured by
Company Stock, the amount necessary to pay the Applicable Withholding Taxes.
(k)
Unless specifically provided in the discretion of the Committee in a writing that
references and supersedes this Section 9(k), (i) no Modification shall be made in respect to
any Option if such Modification would result
in the Option constituting a deferral of
compensation, and (ii) no Extension shall be made in respect to any Option if such Extension
would result in the Option having an additional deferral feature from the Date of Grant, in each
case within the meaning of applicable Treasury Regulations under Code section 409A. Subject
to the remaining part of this paragraph (k), (A) a “Modification” means any change in the terms
of the Option (or change in the terms of the Plan or applicable Grant Agreement) that may
provide the holder of the Option with a direct or indirect reduction in the exercise price of the
Option, regardless of whether the holder in fact benefits from the change in terms; and (B) an
“Extension” means any of (1) the provision to the holder of an additional period of time within
which to exercise the Option beyond the time originally prescribed, (2) the conversion or
exchange of the Option for a legally binding right to compensation in a future taxable year,
(3) the addition of any feature for the deferral of compensation to the terms of the Option, or
(4) any renewal of
through (3) above.
Notwithstanding the preceding sentence,
it shall not be a Modification or an Extension,
respectively, to change the terms of an Option in accordance with Section 16 of the Plan, or in
the other ways or for any of the other purposes provided in applicable Treasury
any of
Regulations or other generally applicable guidance under Code section 409A as not resulting
in a Modification or Extension for purposes of that section. In particular, it shall not be an
Extension to extend the exercise period of an Option to a date no later than the earlier of
(x) the latest date upon which the Option could have expired by its original terms under any
circumstances or (y) the tenth (10th) anniversary of the original Date of Grant.
the Option that has the effect of any of
(1)
10.
Stock Appreciation Rights.
(a)
The Committee may grant Stock Appreciation Rights to eligible Service
Providers. Whenever the Committee grants Stock Appreciation Rights, a Grant Agreement
shall be given to the Service Provider stating the number of shares with respect to which Stock
Appreciation Rights are granted, the extent, if any, to which the Stock Appreciation Rights are
granted in connection with all or any part of a Nonstatutory Stock Option (“Tandem Rights”),
and the conditions to which the grant and exercise of the Stock Appreciation Rights are
subject, and, at that time, the Service Provider shall become a Participant.
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(b)
Stock Appreciation Rights (other
than Tandem Rights) shall entitle the
Participant, upon exercise of all or any part of the Stock Appreciation Rights, to receive in
exchange from the Company an amount equal to the excess of (i) the Fair Market Value on the
date of exercise of the Company Stock covered by the surrendered Stock Appreciation Right
over (ii) the Fair Market Value of the Company Stock on the Date of Grant of the Stock
Appreciation Right.
Tandem Rights shall entitle the Participant, upon exercise of all or any part of the
(c)
Tandem Rights,
the underlying
to surrender to the Company unexercised that portion of
Nonstatutory Stock Option relating to the same number of shares of Company Stock as is
covered by the Tandem Right (or the portion of the Tandem Right so exercised) and to receive
in exchange from the Company an amount equal to the excess of (i) the Fair Market Value on
the
the date of exercise of
underlying Nonstatutory Stock Option over (ii) the exercise price of
the Company Stock
covered by the surrendered portion of the underlying Nonstatutory Stock Option.
the Company Stock covered by the surrendered portion of
(d)
Upon the exercise of a Tandem Right and surrender of the related portion of the
to the extent
the Nonstatutory Stock Option,
underlying Nonstatutory Stock Option,
surrendered, shall not thereafter be exercisable.
(e)
Subject to any further conditions upon exercise imposed by the Committee, a
Tandem Right shall be granted on the same Date of Grant as the related Nonstatutory Stock
Option, be transferable only to the extent
the related Nonstatutory Stock Option is
that
transferable, be exercisable only to the extent that the related Nonstatutory Stock Option is
exercisable and shall expire no later than the date on which the related Nonstatutory Stock
Option expires.
(f)
The Committee may limit
receive upon exercise of Stock Appreciation Rights.
the amount
that
the Participant will be entitled to
(g)
Stock Appreciation Rights shall not be transferable except
to the extent
specifically provided in the Grant Agreement in accordance with applicable securities laws.
(h)
Stock Appreciation Rights may be exercised in whole or in part at the times as
may be specified by the Committee in the Participant’s Grant Agreement; provided that no
Stock Appreciation Right may be exercised after the expiration of ten (10) years from the Date
of Grant.
(i)
A Stock Appreciation Right may only be exercised at a time when the Fair Market
Value of the Company Stock covered by the Stock Appreciation Right exceeds the Fair Market
Value of the Company Stock on the Date of Grant of the Stock Appreciation Right (or, in the
case of a Tandem Right, only to the extent it exceeds the exercise price of the Company Stock
covered by the underlying Nonstatutory Stock Option).
(j)
The manner in which the Company’s obligation arising upon the exercise of a
Stock Appreciation Right shall be paid shall be determined by the Committee and shall be set
forth in the Grant Agreement. The Grant Agreement may provide for payment in Company
Stock or cash, or a fixed combination of Company Stock or cash, or the Committee may
reserve the right to determine the manner of payment at the time the Stock Appreciation Right
is exercised. Shares of Company Stock issued upon the exercise of a Stock Appreciation Right
shall be valued at their Fair Market Value on the date of exercise.
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(k)
A Participant who acquires shares of Company Stock upon exercise of a Stock
Appreciation Right shall have no rights as a shareholder until the Company Stock is issued
pursuant
to the
issuance of such shares have been satisfied.
the Grant Agreement and all requirements with respect
to the terms of
(l)
Stock Appreciation Rights may be exercised by the Participant giving written
notice of the exercise to the Company, stating the number of Stock Appreciation Rights the
Participant has elected to exercise.
(m)
Whenever payments upon exercise of Stock Appreciation Rights are to be
made in cash to a Participant who is an Employee, the Employer will withhold therefrom an
amount sufficient to satisfy any Applicable Withholding Taxes. Each Participant who is an
Employee shall agree as a condition of receiving Stock Appreciation Rights payable in the form
of Company Stock to pay to his or her Employer, or make arrangements satisfactory to his or
her Employer regarding the payment to the Employer of, Applicable Withholding Taxes. Until
the amount has been paid or arrangements satisfactory to the Employer have been made, no
stock certificate shall be issued to the Participant. Payment to the Employer in satisfaction of
Applicable Withholding Taxes may be in cash. In addition, (i) payment to the Employer in
satisfaction of Applicable Withholding Taxes may be made in shares of Company Stock
(valued at their Fair Market Value as of the date of payment) to which the Participant has good
title, free and clear of all liens and encumbrances; (ii) the Participant may elect to have his or
her Employer retain that number of shares of Company Stock (valued at their Fair Market
Value as of the date of such retention) that would satisfy all or a specified portion of the
Applicable Withholding Taxes; or (iii) unless prohibited by law, the Participant may deliver
irrevocable instructions to a broker to deliver promptly to the Employer, from the sale or loan
proceeds with respect to the sale of Company Stock or a loan secured by Company Stock, the
amount necessary to pay the Applicable Withholding Taxes.
(n)
Unless specifically provided in the discretion of the Committee in a writing that
references and supersedes this Section 10(n), (i) no Modification shall be made in respect to
any Stock Appreciation Right if such Modification would result in the Stock Appreciation Right
constituting a deferral of compensation, and (ii) no Extension shall be made in respect to any
Stock Appreciation Right if such Extension would result in the Stock Appreciation Right having
an additional deferral feature from the Date of Grant, in each case within the meaning of
applicable Treasury Regulations under Code section 409A. Subject to the remaining part of
this subsection (n), (A) a “Modification” means any change in the terms of
the Stock
Appreciation Right (or change in the terms of the Plan or applicable Grant Agreement) that
may provide the holder of the Stock Appreciation Right with a direct or indirect reduction in the
exercise price of the Stock Appreciation Right, regardless of whether the holder in fact benefits
from the change in terms; and (B) an “Extension” means any of (1) the provision to the holder
of an additional period of time within which to exercise the Stock Appreciation Right beyond
the time originally prescribed, (2) the conversion or exchange of the Stock Appreciation Right
for a legally binding right to compensation in a future taxable year, (3) the addition of any
feature for the deferral of compensation to the terms of the Stock Appreciation Right, or (4) any
renewal of the Stock Appreciation Right that has the effect of any of (1) through (3) above.
it shall not be a Modification or an Extension,
Notwithstanding the preceding sentence,
respectively, to change the terms of a Stock Appreciation Right in accordance with Section 16
of the Plan, or in any of the other ways or for any of the other purposes provided in applicable
Treasury Regulations or other generally applicable guidance under Code section 409A as not
resulting in a Modification or Extension for purposes of that section. In particular, it shall not be
an Extension to extend the exercise period of a Stock Appreciation Right to a date no later
than the earlier of (x) the latest date upon which the Stock Appreciation Right could have
B-15
expired by its original terms under any circumstances or (y) the tenth (10th) anniversary of the
original Date of Grant.
11.
Director Awards.
(a)
General. The Board may grant Director Awards to Independent Directors in the
form of shares of Restricted Stock, Restricted Stock Units, Performance Share Units,
Nonstatutory Options or Stock Appreciation Rights as provided in Sections 7 through 10
above, or in the form of Vested Shares or Vested Shares Units as provided in paragraph
(b) below. The Board may also grant to Consultants awards in the same forms as Director
Awards. Whenever the Board grants shares of Restricted Stock, Restricted Stock Units,
Performance Share Units, Nonstatutory Options or Stock Appreciation Rights to an
Independent Director, notice shall be given to the Independent Director stating the type of
award being made, the number of shares with respect to which the award is granted and the
terms and conditions to which the award and (where applicable) the exercise of the award is
subject. This notice shall become the Grant Agreement between the Company and the
Independent Director and, at that time, the Independent Director shall become a Participant.
Restricted Stock, Restricted Stock Units, Performance Share Units, Nonstatutory Options or
Stock Appreciation Rights granted to Independent Directors shall otherwise be subject to the
terms of the Plan applicable to each type of award as set forth in Sections 7 through 10 above;
provided, however, that, notwithstanding anything in Section 7(b) or 8(b) to the contrary, any
service or performance period with respect to Restricted Stock, Restricted Stock Units or
Performance Share Units granted to Independent Directors or Consultants shall not be less
than six (6) consecutive months in length; and provided further, that where context reasonably
requires, references throughout Sections 7 through 10 above to the “Committee” shall be read
instead as references to the Board wherever the award is to be granted to an Independent
Director. The Board shall have all
to the
administration of Director Awards as the Committee has with respect to Incentive Awards as
provided in Section 16 below (provided that the Board may not delegate its authority with
respect to the granting of Director Awards pursuant to Section 16(a)(viii)), and the Board shall
be subject to the same limitations with respect to the modification and Repricing of outstanding
Director Awards as provided therein.
the same rights and powers with respect
(b)
Vested Shares and Vested Share Units. The Board may grant Vested Shares
and Vested Shared Units to Independent Directors or Consultants. Vested Shares shall be
immediately transferable (subject to compliance with any applicable securities laws), and the
Participant receiving an award of Vested Shares shall have all the rights of a shareholder with
respect to such shares as of the Date of Grant. Vested Share Units shall represent the vested
right to receive shares of Company Stock at the time specified in the Grant Agreement for the
Vested Share Units, and the Participant holding Vested Share Units shall be entitled to receive
dividend equivalents on the outstanding Vested Share Units.
12.
Recoupment of Awards. The Committee may require in any Grant Agreement that any
current or former Participant reimburse the Company for all or any portion of any Award, terminate any
outstanding, unexercised, unexpired or unpaid Award, rescind any exercise, payment or delivery
pursuant to an Award or recapture any Company Stock (whether restricted or unrestricted) or proceeds
from the Participant’s sale of Company Stock issued pursuant to an Award to the extent required by
any recoupment or clawback policy adopted by the Committee in its discretion or to comply with the
requirements of any applicable laws.
13.
Continuing Securities Law Compliance. If at any time on or after the Effective Date, the
requirements of any applicable federal or state securities laws should fail to be met, no shares of
B-16
Company Stock issuable under Non-Option Awards shall be issued and no Options or Stock
Appreciation Rights shall be exercisable until the Committee (or, with respect to a Director Award, the
Board) has determined that these requirements have again been met. The Committee (or, with respect
to a Director Award, the Board) may suspend the right to exercise an Option or Stock Appreciation
Right at any time when it determines that allowing the exercise and issuance of Company Stock would
violate any federal or state securities or other laws, and may provide that any time periods to exercise
the Option or Stock Appreciation Right are extended during a period of suspension.
14.
terminate at
the close of business on the date that
Termination, Modification, Change. If not sooner terminated by the Board, this Plan
shall
immediately follows the tenth (10th)
anniversary of the Effective Date. No new Awards shall be granted under the Plan after its termination.
The Board may terminate the Plan at any time and may amend the Plan at any time in any respect as it
shall deem advisable; provided that no change shall be made that increases the total number of shares
of Company Stock reserved for issuance under the Plan (except pursuant to Section 15), materially
modifies the requirements as to eligibility for participation in the Plan, or would otherwise be considered
a material revision or amendment under Code section 422 or the listing standards of the principal
exchange on which the Company Stock is traded, unless the change is approved by the shareholders
of the Company. Notwithstanding the foregoing, the Board may unilaterally amend the Plan and
outstanding Awards with respect to Participants as it deems appropriate to ensure compliance with
Rule 16b-3 and other applicable federal or state securities laws and to meet the requirements of the
Code and applicable regulations or other generally applicable guidance thereunder. Except as provided
in the preceding sentence, a termination or amendment of the Plan shall not, without the consent of the
Participant, adversely affect a Participant’s rights under an Award previously granted to him or her.
15.
Change in Capital Structure.
(a)
to a Director Award,
The Committee (or, with respect
the Board) shall
proportionately adjust the number and kind of shares of stock or securities of the Company to
be subject to the Plan and to Awards then outstanding or to be granted thereunder, the
maximum number of shares or securities that may be delivered under the Plan (including the
maximum limit on Non-Option Awards or Incentive Stock Options under Section 4),
the
maximum number of shares or securities that can be granted to an individual Participant under
Section 4, the exercise price of Options, the initial Fair Market Value of Company Stock under
Stock Appreciation Rights, and other relevant terms of the Plan and any Awards whenever, in
the event of a stock dividend, stock split or combination of shares, recapitalization or merger in
which the Company is the surviving corporation, or other change in the Company’s corporate
structure or capital stock (including, but not limited to, the creation or issuance to shareholders
generally of rights, options or warrants for the purchase of common stock or preferred stock of
the Company), it deems any such adjustment necessary or desirable to preserve the intended
benefits of the Plan and any outstanding Awards for the Company and the Participants. The
Committee’s (or, with respect to a Director Award, the Board’s) determination in this regard
shall be binding on all persons. If the adjustment would produce fractional shares with respect
to any unexercised Option or Stock Appreciation Right or fractional cents with respect to the
exercise price thereof, the Committee (or, with respect to a Director Award, the Board) shall
round down the number of shares covered by the Option or Stock Appreciation Right to the
nearest whole share and round up the exercise price to the nearest whole cent.
(b)
In the event of a Change of Control as described in Sections 2(g)(i), (ii) or (iv), or
if the Company is otherwise a party to a consolidation or a merger in which the Company is not
the surviving corporation, a transaction that results in the acquisition of substantially all of the
Company’s outstanding stock by a single person or entity, or a sale or transfer of substantially
then the
all of
the Company’s assets occurs (in any such case, a “Corporate Event”),
B-17
Committee (or, with respect to a Director Award, the Board) may take any actions with respect
to outstanding Awards as it deems appropriate, consistent with applicable provisions of the
Code and any applicable federal or state securities laws.
(c)
Notwithstanding anything in the Plan to the contrary, the Committee (or, with
respect to a Director Award, the Board) may take the foregoing actions without the consent of
any Participant, and its determination shall be conclusive and binding on all persons and for all
purposes.
16.
Administration of the Plan.
(a)
The Plan shall be administered by the Committee. Subject
to the express
provisions and limitations set forth in this Plan or the Committee’s charter or as otherwise
established by the Board, the Committee shall be authorized and empowered to do all things
necessary or desirable, in its sole discretion, in connection with the administration of this Plan,
including, without limitation, the following:
(i)
to prescribe, amend and rescind policies relating to this Plan, and to
interpret the Plan, including defining terms not otherwise defined;
(ii)
to determine which persons are eligible Service Providers, to which of the
Service Providers, if any, Incentive Awards shall be granted hereunder and the timing
of any Incentive Awards;
(iii)
to grant Incentive Awards to Service Providers and determine the terms
and conditions thereof, including the number of shares of Company Stock subject to
Incentive Awards and the exercise or purchase price of the shares of Company Stock
and the circumstances under which Incentive Awards become exercisable or vested or
are forfeited or expire, which terms may but need not be conditioned upon the passage
of time, continued employment, the satisfaction of performance conditions (including
Performance Goals), the occurrence of certain events, or other factors;
(iv)
to establish or verify the extent of satisfaction of any Performance Goals
or other conditions applicable to the grant, issuance, exercisability, vesting and/or ability
to retain any Incentive Award;
(v)
to prescribe and amend the terms of the Grant Agreements or other
documents evidencing Incentive Awards made under this Plan (which need not be
identical);
(vi)
to determine whether, and the extent to which, adjustments are required
pursuant to Section 15;
(vii)
to interpret and construe this Plan, any policies under this Plan and the
terms and conditions of any Incentive Award granted hereunder, and to make
exceptions to any provisions for the benefit of the Company;
(viii)
to delegate,
to the extent permitted by the New York Business
Corporation Law and the Company’s Certificate of
Incorporation and Bylaws, any
portion of its authority under the Plan to make Incentive Awards to an executive officer
of the Company, subject to any conditions that the Committee may establish (including
but not limited to conditions on such officer’s ability to make awards to “executive
officers” within the meaning of Section 16 of the Act); and
B-18
(ix)
to make all other determinations deemed necessary or advisable for the
administration of this Plan.
The Committee may amend the terms of previously granted Incentive Awards so long
as the terms as amended are consistent with the terms of the Plan and provided that the
consent of
that would be
detrimental to him or her, except that such consent will not be required if the amendment is for
the purpose of complying with applicable provisions of the Code or any federal or state
securities laws.
is obtained with respect
to any amendment
the Participant
The Committee is prohibited from Repricing any Option or Stock Appreciation Right
without the prior approval of the shareholders of the Company with respect to the proposed
Repricing.
(b)
The interpretation and construction of any provision of
the Plan by the
Committee shall be final and conclusive as to any Participant. The Committee may consult with
counsel, who may be counsel to the Company, and shall not incur any liability for any action
taken in good faith in reliance upon the advice of counsel.
(c)
A majority of the members of the Committee shall constitute a quorum, and all
actions of the Committee shall be taken by a majority of the members present. Any action may
be taken by the Committee in writing or by electronic transmission or transmissions as
permitted by the Bylaws of the Company, and any action so taken shall be fully effective as if it
had been taken at a meeting.
(d)
The Committee may delegate the administration of the Plan to an officer or
officers of the Company, and such officer(s) may have the authority to execute and distribute
agreements or other documents evidencing or relating to Incentive Awards granted by the
to maintain records relating to the grant, vesting, exercise,
Committee under this Plan,
forfeiture or expiration of Incentive Awards, to process or oversee the issuance of shares of
Company Stock upon the exercise, vesting and/or settlement of an Incentive Award,
to
interpret the terms of Incentive Awards and to take any other actions as the Committee may
specify, provided that in no case shall any such officer(s) be authorized to grant Incentive
Awards under the Plan, except in accordance with Section 16(a)(viii) above. Any action by an
administrator within the scope of its delegation consistent with this paragraph (d) shall be
deemed for all purposes to have been taken by the Committee, and references in this Plan to
the Committee shall include any such officer(s), provided that the actions and interpretations of
any such officer(s) shall be subject to review and approval, disapproval or modification by the
Committee.
17.
Notice. All notices and other communications required or permitted to be given under
the Plan shall be in writing and shall be deemed to have been duly given if delivered personally or
mailed first class, postage prepaid, as follows (a) if to the Company—at the principal business address
of
the Company; and (b) if to any
Participant—at the last address of the Participant on file with (or in the business records of) the
Company or as otherwise known to the sender at the time the notice or other communication is sent.
the Company to the attention of
the Corporate Secretary of
18.
No Effect on Other Plans. Nothing contained in the Plan will be deemed in any way to
limit or restrict the Company or any Related Company from making any award or payment to any
person under any other plan, arrangement or understanding, whether now existing or hereafter in
effect.
B-19
19.
Interpretation. The Plan is intended to operate in compliance with the provisions of
Rule 16b-3. The terms of the Plan are subject to all present and future regulations and rulings of the
Secretary of the Treasury of the United States or his or her delegate relating to the qualification of
Incentive Stock Options under the Code. The Plan and the individual Awards under the Plan are
intended to comply with any applicable requirements of Code section 409A and shall be interpreted in
accordance with such requirements. If any provision of the Plan conflicts with any such regulation or
ruling, then that provision of the Plan shall be void and of no effect. The terms of the Plan shall be
governed by the laws of the State of North Carolina.
20.
Effective Date of the Plan; Limited Effect of Restatement. The Plan shall become
effective as of October 24, 2018 subject to approval by the shareholders of the Company. Until (a) the
Plan has been approved by the Company’s shareholders, and (b) the requirements of any applicable
federal or state securities laws have been met, no shares of Company Stock issuable under
Non-Option Awards shall be issued and no Options or Stock Appreciation Rights shall be exercisable
that, in either case, are not contingent on the occurrence of both such events. This instrument amends
and restates the Plan effective as of the Effective Date. Nothing in this instrument shall in any way
change, alter or affect the terms of any award made under the Plan prior to the Effective Date of this
amendment and restatement or the amount of any Plan benefit or payment due with respect to awards
made under the Plan prior to such date.
B-20
IN WITNESS WHEREOF, the Company hereby adopts the Plan as of the Effective Date.
UNIFI, INC.
By:
/s/ JOHN D. VEGAS
Name: John D. Vegas
Title: Executive Vice President & Global
Chief Human Resources Officer
B-21
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:95)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 24, 2018
OR
(cid:133)
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:133) No (cid:95)
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:133) No (cid:95)
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:1409) No (cid:1407)
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:95) No (cid:133)
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:133)
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:133)
Accelerated filer
(cid:95)
Non-accelerated filer
(cid:133) (Do not check if a smaller reporting company)
Smaller reporting company
(cid:133)
Emerging growth company
(cid:133)
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:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:133) No (cid:95)
As of December 22, 2017, the aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant was
approximately $551,124,384. The registrant has no non-voting stock.
As of August 16, 2018, the number of shares of the registrant’s common stock outstanding was 18,373,375.
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the registrant’s 2018
Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K to the extent described herein.
DOCUMENTS INCORPORATED BY REFERENCE
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, strategies, initiatives or earnings,
are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995. Forward-
looking statements are based on management’s beliefs, assumptions and expectations about our future performance,
considering the information currently available to management. The words “believe,” “may,” “could,” “will,” “should,”
“would,” “anticipate,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek,” “strive” and words of similar import, or the
negative of such words, identify or signal the presence of forward-looking statements. These statements are not
statements of historical fact; they involve risks and uncertainties that may cause our actual results, performance or
financial condition to differ materially from the expectations of future results, performance or financial condition that
we express or imply in any forward-looking statement. Factors that could contribute to such differences include, but
are not limited to:
(cid:120) the competitive nature of the textile industry and the impact of global competition;
(cid:120) changes in the trade regulatory environment and governmental policies and legislation;
(cid:120) the availability, sourcing and pricing of raw materials;
(cid:120) 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;
(cid:120) changes in consumer spending, customer preferences, fashion trends and end uses for products;
(cid:120) the financial condition of the Company’s customers;
(cid:120) the loss of a significant customer or brand partner;
(cid:120) natural disasters, industrial accidents, power or water shortages, extreme weather conditions and other
disruptions at one of our facilities;
(cid:120) the success of the Company’s strategic business initiatives;
(cid:120) the volatility of financial and credit markets;
(cid:120) the ability to service indebtedness and fund capital expenditures and strategic initiatives;
(cid:120) the availability of and access to credit on reasonable terms;
(cid:120) changes in foreign currency exchange, interest and inflation rates;
(cid:120) fluctuations in production costs;
(cid:120) the ability to protect intellectual property;
(cid:120) the strength and reputation of our brands;
(cid:120) employee relations;
(cid:120) the ability to attract, retain and motivate key employees;
(cid:120) the impact of environmental, health and safety regulations;
(cid:120) the operating performance of joint ventures and other equity investments;
(cid:120) the accurate financial reporting of information from equity method investees; and
(cid:120) 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 24, 2018
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business ..........................................................................................................................................
Risk Factors .....................................................................................................................................
Unresolved Staff Comments ............................................................................................................
Properties ........................................................................................................................................
Legal Proceedings ...........................................................................................................................
Mine Safety Disclosures ..................................................................................................................
Executive Officers of the Registrant .................................................................................................
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
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
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
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
Item 15.
Item 16.
Exhibits and Financial Statement Schedules ...................................................................................
Form 10-K Summary........................................................................................................................
Signatures ........................................................................................................................................
Consolidated Financial Statements .................................................................................................
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F-i
Fiscal Year
The fiscal year for Unifi, Inc. and its subsidiary in El Salvador ends on the last Sunday in June. Unifi, Inc.’s fiscal 2018, 2017 and
2016 ended on June 24, 2018, June 25, 2017 and June 26, 2016, 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 Unifi,
Inc.’s fiscal year end and such wholly owned subsidiaries’ subsequent fiscal year ends. Unifi, Inc.’s fiscal 2018, 2017 and 2016 each
consisted of 52 fiscal weeks.
Presentation
All dollar amounts, except per share amounts, are presented in thousands (000s), unless otherwise noted.
1
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 (UNIFI’s direct customers) that produce yarn and/or fabric for the
apparel, hosiery, home furnishings, automotive, industrial and other end-use markets (UNIFI’s indirect customers). We refer to
these indirect customers as “brand partners.” Polyester 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 (“Flake”) and polyester polymer beads (“Chip”). Nylon
yarns include virgin or recycled textured, solution dyed and spandex covered yarns.
UNIFI maintains one of the textile industry’s most comprehensive product offerings that include a range of specialized, premium
value-added (“PVA”) and commodity solutions, with principal geographic markets in the Americas and Asia.
UNIFI has direct 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:
(cid:120) The Polyester Segment primarily sells polyester-based products 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.
(cid:120) The Nylon Segment primarily sells nylon-based products to knitters and weavers that produce fabric for the apparel and
hosiery markets. The Nylon Segment consists of sales and manufacturing operations in the United States and Colombia.
(cid:120) The International Segment primarily sells polyester-based products to knitters and weavers that produce fabric for the
apparel, home furnishings, automotive, industrial and other end-use markets principally 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 $31,702, or $1.70 per diluted share, for fiscal 2018. Such results reflect the benefits of (i) growth in
sales of PVA products, especially in the International Segment and (ii) an effective tax rate lower than recent prior years, partially
offset by (a) an increasing raw materials cost environment coupled with a challenging domestic landscape in which achieving
corresponding selling price adjustments was increasingly difficult against cost-competitive imports and (b) increased selling, general
and administrative (“SG&A”) expenses for talent acquisition, marketing and commercial expansion. The International Segment
continued strong performance, and growth was due to the global success of UNIFI’s PVA portfolio. UNIFI’s effective tax rate was
relatively low compared to historical levels, due primarily to the reversal of both a significant uncertain tax position and a valuation
allowance on certain historical net operating losses (“NOLs”). The Polyester Segment was adversely impacted by increases in the
costs of raw materials along with pricing and demand challenges in North and Central America, and global trends for nylon products
continued to pressure the results of the Nylon Segment.
We believe UNIFI’s successful performance during recent fiscal years reflects the strength of our global initiative to deliver PVA
solutions to customers and brand partners throughout the world. Our supply chain has been developed and enhanced in multiple
regions of the globe, 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 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 strategically and synergistically in:
1. Technology, innovation and sustainability;
2. High-quality brand and supplier partnerships; and
3. Supply chain expansion and optimization.
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
2
optimal performance characteristics for today’s marketplace, including moisture management, temperature moderation, and fire
retardation. To achieve further growth, UNIFI plans to invest in leading-edge technology and innovation, bringing to market the next
wave of fibers and polymers for tomorrow’s applications. As we invest and grow, sustainability remains at our core. We believe that
increasing the awareness for recycled solutions in applications across fibers and polymers, particularly with PVA solutions, and
furthering sustainability-based initiatives with like-minded brand partners will be key to our future success. Growth will also require
high-quality 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 and enter into partnerships and commercial
relationships that expand our global footprint in strategic regions. As the Americas 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.
Executing on these initiatives is expected to drive expansion in gross margin 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 increase its global PVA sales by more than
10% per year and generate overall mix enrichment and margin gains. UNIFI’s PVA products represented approximately 45% of
consolidated net sales in fiscal 2018, delivering anticipated growth over fiscal 2017’s achievement of 40%. 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.
REPREVE® is our flagship brand in UNIFI’s PVA portfolio and is our fastest growing brand. As part of our efforts to expand
consumer brand recognition of REPREVE®, UNIFI has developed recycling-focused sponsorships with various brand partners and
other 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. This has driven 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.
These investments were primarily for the Polyester Segment.
Most notably, UNIFI has made significant investments in the production and supply chain for REPREVE®, including backward
integration with a bottle processing plant and additional production lines in the REPREVE® Recycling Center. Further, UNIFI (i)
installed bi-component spinning machinery to produce specialized high-value yarns and (ii) made machinery modifications to meet
the ever-changing demands of the market, in support of the PVA product portfolio, all while (iii) investing in routine capital
maintenance to ensure high-quality manufacturing.
Specific to fiscal 2018, we invested approximately $25,000 in capital projects, which included (i) completing the fourth production
line in the REPREVE® Recycling Center, (ii) making further improvements in production capabilities and technology enhancements
in the Americas and (iii) annual maintenance capital expenditures.
In fiscal 2019, UNIFI expects to invest an additional $25,000 in capital projects, which will include (i) making further improvements in
production capabilities and technology enhancements in the Americas and (ii) annual maintenance capital expenditures.
UNIFI intends to ensure maintenance capital expenditures are sufficient to allow for continued high-efficiency production. The recent
investments and routine maintenance continue to support REPREVE® by ensuring a stream of high-quality raw materials and
finished goods. This, combined with further investments in technology, innovation and sustainability, will enhance our ability to
continue to grow REPREVE® and other PVA solutions in existing and additional markets.
3
Stock Repurchases
In addition to capital investments and debt retirement, UNIFI may utilize excess cash for strategic stock repurchases. On April 23,
2014, UNIFI announced that its Board of Directors (the “Board”) had approved a stock repurchase program (the “SRP”) under which
UNIFI is authorized to acquire up to $50,000 of its common stock. The SRP has no stated expiration or termination date, and there
is no time limit or specific time frame otherwise for repurchases. As of June 24, 2018, UNIFI had repurchased a total of 806 shares,
at an average price of $27.79 (for a total of $22,409, inclusive of commission costs) pursuant to the SRP, and $27,603 remained
available for repurchases. 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 18%, while retail consumption grew. 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 relative share of synthetic apparel versus cotton apparel as a proportion of the overall apparel market increased and
provided growth for the consumption of synthetic yarns within the CAFTA-DR region.
In fiscal 2017 and 2018, UNIFI’s operations in the NAFTA and CAFTA-DR regions experienced fluctuations in demand 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. During calendar 2016 and 2017, these factors combined to cause bankruptcies, store closures and other
transformations for traditional retail enterprises. Fiscal 2018 was further adversely impacted by retailers and brand partners seeking
more cost competitive textile supplies in response to rising and higher raw material costs. 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 operations play a key role in our global strategy. This 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
(“BRL”). Competition and economic and political volatility remain challenging conditions in South America, but UNIFI continues to (i)
aggressively pursue mix enrichment by working with customers to develop programs using our differentiated products and 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 our global strategy, enhancing our ability to service customers with global
supply chains. Competition in the Asian region remains high; however, 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 Brazil and Asia have been critical to global growth and expansion of PVA products. Looking ahead, we expect
expansion into additional markets in Europe, Africa and the Middle East utilizing the supply chain and service model that has been
successful for us in Asia.
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, which together
include the countries of Canada, Mexico, Costa Rica, Guatemala, Honduras, El Salvador, Nicaragua, the Dominican Republic and
the United States.
4
According to data compiled by PCI WoodMackenzie, 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 2017,
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 2017, global nylon consumption accounted for an
estimated 5% of global fiber consumption. However, the continued decline in the U.S. nylon market during fiscal 2018 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 2017.
According to the National Council of Textile Organizations, the U.S. textile industry’s total shipments were approximately $65.4
billion for calendar year 2017 as the U.S. textile and apparel industry exported nearly $28.6 billion of textile and apparel products,
and the exports have grown by approximately 42% since 2009, an increase of over $9.7 billion. The U.S. textile industry remains a
large manufacturing employer.
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 Regional FTAs.
The renegotiation of NAFTA has been a high priority for the Trump administration over the past 18 months. 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. Efforts to conclude the
renegotiations this year appear to have been stalled by the political complications surrounding the Mexican presidential election and
the U.S. mid-term elections this fall.
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 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.
5
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 (“USD”), 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 America,
Inc. (“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.
For its operations in the United States, 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, and UNIFI produces a portion of its Chip requirements in its REPREVE® Recycling
Center and purchases the remainder of such requirements from external suppliers for use in its domestic 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.
The bottle processing facility in Reidsville, North Carolina provides a high-quality source of Flake for the REPREVE® Recycling
Center as well as for sale to external parties. Combined with recent technology advancements in recycling, we believe the Flake
produced at the bottle processing facility will enhance our ability to grow REPREVE® into other markets, such as nonwovens, carpet
fiber and packaging. However, in fiscal 2018, UNIFI experienced an unexpected increase in operating expenses and plastic bottle
costs for its bottle processing operations. Additionally, the market dynamics surrounding plastic bottles and Flake became less
predictable as new, external plastic bottle recycling capacity was increasing at the same time that UNIFI was increasing its
production of Flake.
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. In addition, during fiscal 2017 and 2018, 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 and 2018 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 and sells polyester yarns 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 Asia, UNIFI manages a network of vendors and suppliers to
contract manufacture PVA solutions, including our added fiber technologies and REPREVE®, to direct and indirect customers
around the globe.
Our products sold across all geographies range from specialty, PVA and commodity. UNIFI’s most strategic portfolio, PVA products,
comprised approximately 45%, 40% and 35% of consolidated net sales for fiscal 2018, 2017 and 2016, respectively. We provide
products to a variety of end-use markets, principally apparel, industrial, furnishings and automotive.
6
The domestic apparel market, which includes hosiery, represents approximately 60% 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 17% 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 8% 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 8% 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 brand
partners, mills and consumers, and is based on two core platforms, REPREVE® and PROFIBER™:
REPREVE® is a family of sustainable products made from recycled materials, including plastic bottles. Since its introduction
in 2006, REPREVE® has become the global leader in branded recycled fibers. REPREVE® recycled fibers may also be
customized to provide leading performance and/or aesthetic properties, enabling a differentiated consumer experience.
Examples of our branded technologies include:
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TruClean™ and TruDry™ (formerly known as “Sorbtek®”), a permanent moisture management yarn primarily
used in performance base-layer applications, performance apparel, athletic wear, socks and other non-apparel
related items.
TruTemp™ (formerly known as “Sorbtek® 365”), a permanent thermal regulation and moisture management
yarn primarily used in performance bottom-weight applications, helping to provide year-round comfort.
TruFlexx™ (formerly known as “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.
TruBounce™ (formerly known as “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.
TruTouch™ (formerly known as “Cotton-like®”), a soft, lofty yarn that looks and feels like cotton, but offers the
superior performance of synthetic fibers and no fading.
TruFresh™ (formerly known as “A.M.Y.®”), a yarn with permanent antimicrobial properties for odor control.
PROFIBER™ is a family of virgin material-based performance yarn products that are similarly customizable with a broad
selection of industry leading technologies designed to deliver an array of consumer benefits.
UNIFI’s branded yarns can be found in a variety of products of well-known brands, retailers and department stores, including Ford,
Haggar, Polartec, Under Armour, The North Face, Patagonia, Quiksilver, Roxy, General Motors, Volcom, Pottery Barn, Lane Bryant,
adidas, Nike, New Era Hat, MJ Soffe, Abercrombie & Fitch, Levi’s, H&M, TARGET, Express, PACSUN, PVH, 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, soil release, 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 130 customers and its
International Segment has approximately 800 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 with prevailing industry practices for the geographies in which we participate.
UNIFI’s consolidated net sales are not materially dependent on a single direct customer and no single direct customer accounts for
10% or more of UNIFI’s consolidated net sales. UNIFI’s top 10 direct customers accounted for approximately 29% of consolidated
net sales for fiscal 2018 and approximately 33% of receivables as of June 24, 2018. However, UNIFI’s consolidated net sales are
dependent on demand from a relatively small number of brand partners. UNIFI’s net sales within its Nylon Segment are materially
dependent upon a domestic customer that accounted for approximately 32% of the Nylon Segment’s net sales for fiscal 2018.
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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 and Colombia. 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 having
frequent communications with customers, partnering 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
provide important development and commercialization advantages, in addition to the recent ability to vertically integrate with post-
industrial and post-consumer materials.
UNIFI produces Flake, polyester Chip and 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 Flake that can be sold
externally, or further processed internally at 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 POY 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 100 persons who work closely with UNIFI’s customers, brand partners 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 2018, 2017 and 2016, UNIFI incurred $7,792, $7,177 and $6,907, respectively, in costs for research and development
(including salaries and benefits of the personnel involved in those efforts). UNIFI expects research and development costs to
increase from fiscal 2018 to fiscal 2019 in connection with further strategic investments in technology, innovation and sustainability.
Intellectual Property
UNIFI has numerous trademarks registered in the United States and in other countries and jurisdictions around the world. Due to its
current brand recognition and potential growth opportunities, UNIFI believes that its portfolio of registered REPREVE® trademarks is
its most significant trademark asset. Ownership rights in registered trademarks typically do not expire if the trademarks are
continued in use and properly protected under applicable law.
8
UNIFI licenses certain trademarks, including Dacron® and Softec™, from INVISTA.
UNIFI also employs its innovative manufacturing know-how, methods and processes to produce and deliver proprietary PVA
solutions to customers and brand partners. UNIFI relies on the copyright and trade secret laws of the United States and other
countries, as well as nondisclosure and confidentiality agreements, to protect these rights.
Employees
As of June 24, 2018, UNIFI had approximately 2,900 employees, along with approximately 200 individuals working under temporary
labor contracts. The number of employees in the Polyester Segment, Nylon Segment, International Segment and corporate office
were approximately 1,700, 500, 600 and 100, respectively, at June 24, 2018. 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 U.S. generally accepted accounting principles (“GAAP”) 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 its highest sales volumes in the fourth
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 quarter.
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 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.
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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 calendar 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 24, 2018, UNIFI had $112,639 recorded for these investments in
unconsolidated affiliates. For fiscal 2018, $5,787 of UNIFI’s $30,211 of income before income taxes was generated from its
investments in these unconsolidated affiliates, of which $4,533 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 that was 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.
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, Ethical Business Conduct Policy Statement and Code of Ethics for
Senior Financial and Executive Officers. Copies of such materials, as well as any of our SEC reports and all amendments thereto,
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 foreign-sourced
fabric, apparel and other textile products. Because UNIFI and the supply chains in which UNIFI conducts its business do
not typically operate on the basis of long-term contracts with textile customers or brand partners, these competitive
factors could cause UNIFI’s customers or brand partners to shift rapidly to other producers.
UNIFI competes not only against domestic and foreign yarn producers, but also against importers of foreign-sourced fabric, apparel
and other textile products 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,
performance attributes and differentiation, brand reputation, flexibility and location of production and finishing, delivery time and
customer service. The needs of certain customers and brand partners and the characteristics of particular products determine the
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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 material costs, production facilities in locations outside UNIFI’s existing supply chain,
government subsidies and favorable foreign currency exchange rates against the USD. 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 USD 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 foreign-made textile and apparel products, which would materially adversely affect its business, financial condition, results of
operations or cash flows. Similarly, to maximize their own supply chain efficiency, customers and brand partners sometimes
request that UNIFI’s products be produced and sourced from specific geographic locations that are in close proximity to the
customer’s fabric mills or that have other desirable attributes from the customer’s perspective. These locations are sometimes
situated outside the footprint of UNIFI’s existing global supply chain. If UNIFI is unable to move production based on customer
requests or other shifts in regional demand, we may lose sales and experience an adverse effect on our business, financial
condition, results of operations or cash flows.
A significant portion of our sales is dependent upon demand from a few large brand partners.
UNIFI’s strategy involves the sale of products and solutions to other yarn manufacturers and knitters and weavers (UNIFI’s direct
customers) that produce yarn and/or fabric for brands and retailers in the apparel, hosiery, home furnishings, automotive, industrial
and other end-use markets (UNIFI’s indirect customers). We refer to these indirect customers as “brand partners.” Although we
generally do not derive revenue directly from our brand partners, sales volumes to our direct customers are linked with demand from
our brand partners because our direct sales generally form a part of our brand partner’s supply chain. A significant portion of our
overall sales is tied to ongoing programs for a small number of brand partners. Our future operating results depend on both the
success of our largest brand partners and on our success in diversifying our products and our indirect customer base. Because we
typically do not operate on the basis of long-term contracts, our customers and brand partners can cease incorporating our products
into their own with little notice to us and with little or no penalty. The loss of a large brand partner, and the failure to add new
customers to replace the corresponding lost sales, would have a material adverse effect on our business, financial condition, results
of operations and cash flows.
Significant price volatility of UNIFI’s raw materials and rising energy costs may result in increased production costs. UNIFI
attempts to pass such increases in production costs on to its customers through responsive price increases. However,
any such price increases are effective only after a time lag that may span one or more periods, during which UNIFI and its
margins are negatively affected.
Petroleum-based chemicals and recycled plastic bottles comprise a significant portion of UNIFI’s raw materials. The prices for these
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. UNIFI attempts to pass
on to its customers increases in raw material costs but at times it cannot and, when it can, there is typically a time lag that adversely
affects UNIFI and its margins during one or more periods. Certain customers are subject to an index-based pricing model in which
UNIFI’s prices are adjusted based on the change in the cost of certain raw materials in the prior quarter. Pricing adjustments for
other customers must be negotiated independently. In ordinary market conditions in which raw material price increases have
stabilized and sales volumes are consistent with traditional levels, UNIFI has historically been successful in implementing price
adjustments within one to two fiscal quarters of the raw material price increase for its index priced customers and within two fiscal
quarters of the raw material price increase for its non-index priced customers. 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 petroleum-based inputs, recycled bottles and other 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 on 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.
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A disruption at one of our facilities could harm our business and result in significant losses, lead to a decline in sales and
increase our costs and expenses.
Our operations and business could be disrupted by natural disasters, industrial accidents, power or water shortages, extreme
weather conditions and other man-made disasters or catastrophic events. We carry commercial property damage and business
interruption insurance against various risks, with limits we deem adequate for reimbursement for damage to our fixed assets and
resulting disruption of our operations. However, the occurrence of any of these business disruptions could harm our business and
result in significant losses, lead to a decline in sales and increase our costs and expenses. Any disruptions from these events could
require substantial expenditures and recovery time in order to fully resume operations and could also have a material adverse effect
on our operations and financial results to the extent losses are uninsured or exceed insurance recoveries and to the extent that such
disruptions adversely impact our relationships with our customers.
UNIFI has significant foreign operations, and its consolidated results of operations and business 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. In
addition, to help service its customers, UNIFI from time to time engages with third-party independent contractors to provide sales
and distribution, manufacturing and other operational and administrative support services in locations around the world. 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 consolidated 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 USDs. These limitations could adversely affect UNIFI’s ability to
access cash from its foreign 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 and regulations 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.
UNIFI’s future success will depend in part on its ability to protect and preserve 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 future success depends in part on 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. 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 cause it to lose
sales, reduce any competitive advantage UNIFI has developed or otherwise harm its business.
The success of UNIFI’s business is tied to the strength and reputation of its brands. If the reputation of one or more of our
brands erodes significantly, it could have a material impact on our financial results.
UNIFI has invested heavily in branding and marketing initiatives, and certain of our brands—particularly our REPREVE® brand—
have widespread recognition. Our financial success is directly dependent on the success of our brands. The success of a brand
can suffer if our marketing plans or product initiatives do not have the desired impact on a brand’s image or its ability to attract
consumers. Our financial results could also be negatively impacted if one of our brands suffers substantial harm to its reputation
due to a product recall, product-related litigation, the sale of counterfeit products or other circumstances that tarnish the qualities
and values represented by our brands. Part of our strategy also includes the license of our trademarks to brand partners,
customers, independent contractors and other third parties. For example, we license our REPREVE® trademarks to brand partners
who feature this trademark on their marketing materials as part of a co-branded environmental sustainability product narrative.
Although we make concerted efforts to protect our brands through quality control mechanisms and contractual obligations imposed
on our licensees, there is a risk that some licensees might not be in full compliance with those mechanisms and obligations. If the
reputation of one or more of our brands is significantly eroded, it could adversely affect our sales, results of operations, cash flows
and financial condition.
12
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 to 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.
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 or
the cumulative decline over a number of years is significant, 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. Political- and policy-driven influences are subjecting international trade regulations to significant change, the details of
which have not yet been fully established and the consequences of which are not yet fully understood. Future 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. Such changes in U.S. import duties might also result in increased indirect costs on items
13
imported to support UNIFI’s domestic operations and/or countervailing or responsive changes applicable to exports of our products
outside the United States.
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. These negotiations appear to have been put on hold due to recent changes in the Mexican government and
the upcoming U.S. mid-term elections. 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.
In order to compete, we must attract, retain and motivate key employees, and our failure to do so could harm our business
and our results of operations.
In order to compete effectively, we must attract and retain qualified employees. Our future operating results and success depend on
keeping key personnel and management and also expanding our technical, sales and marketing, innovation and administrative
support. The competition for qualified personnel is intense, particularly as it relates to hourly personnel in the domestic communities
in which our manufacturing facilities are located. We cannot be sure that we will be able to attract and retain qualified personnel in
the future, which could harm our business and results of operations.
Our business and operations could suffer in the event of cybersecurity breaches.
Attempts to gain unauthorized access to our information technology systems have become increasingly more sophisticated over
time. These attempts, which might be related to industrial or other espionage, include covertly introducing malware to our computers
and networks and impersonating authorized users, among others. We seek to detect and investigate all security incidents and to
prevent their recurrence, but in some cases we might be unaware of an incident or its magnitude and effects. The theft,
unauthorized use or publication of our intellectual property and/or confidential business information could harm our competitive
position, reduce the value of our investment in research and development and other strategic initiatives or otherwise adversely affect
our business. To the extent that any cybersecurity breach results in inappropriate disclosure of our customers’ or brand partners’
confidential information, we may incur liability as a result. In addition, the devotion of additional resources to the security of our
information technology systems in the future could significantly increase the cost of doing business or otherwise adversely impact
our financial results.
Item 1B.
Unresolved Staff Comments
None.
14
Item 2.
Properties
The following table contains information about the principal properties owned or leased by UNIFI as of June 24, 2018:
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)
(2)
(3)
Owned in fee simple.
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 24, 2018, 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 2018, 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a description of the names and ages of the executive officers of the Company, indicating all positions and offices
with the Company held by each such person and each person’s principal occupations or employment during the past five years.
Each executive officer of UNIFI is elected by the Board and holds office from the date of election until thereafter removed by the
Board.
Kevin D. Hall – Age: 59 – Mr. Hall has served as Chief Executive Officer of the Company since May 2017 and as Chairman of the
Board of Directors since October 2017. Prior to joining UNIFI, Mr. Hall served as Chief Executive Officer of NatPets LLC, a high-
growth natural/organic premium pet company, from September 2016 to May 2017. From 2014 to 2015, Mr. Hall was President and
Chief Executive Officer of Geneva Watch Group, a global fashion watch and accessories business. Between 2012 and 2014, Mr.
Hall ran the KDH Advisory Group, a strategic marketing, branding and consulting firm, where he served as a consultant/advisor to a
number of companies, including Pact at Revelry Brands, Vogue International and Inmar, Inc. From 2006 to 2011, Mr. Hall served as
Chief Marketing Officer at Hanesbrands Inc. and then was promoted to President of the Outerwear strategic business unit of
Hanesbrands, Inc., a business unit that included Champion Activewear, Just My Size and Hanes Casualwear. From 2001 to 2006,
15
Mr. Hall was Senior Vice President of Marketing at Fidelity Investments Retirement Services Company. Prior to that, Mr. Hall held
various brand marketing and general manager positions at The Procter & Gamble Company from 1985 to 2001.
Jeffrey C. Ackerman – Age: 55 – Mr. Ackerman has served as Executive Vice President & Chief Financial Officer of UNIFI since
September 2017. Prior to joining UNIFI, Mr. Ackerman served as Executive Vice President & Chief Financial Officer of The Fresh
Market, Inc., a specialty grocery retailer focused on creating an extraordinary food shopping experience for its customers, from June
2013 to September 2016. Prior to that, Mr. Ackerman served as Executive Vice President & Chief Financial Officer of Sealy
Corporation, one of the largest bedding manufacturers in the world, from 2006 to 2013. From 1997 to 2006, Mr. Ackerman held
various finance positions, including Vice President, Finance, with Dade Behring Inc., a medical diagnostics company. From 1989 to
1997, he held a variety of finance roles at the Frito-Lay branded snack foods division of PepsiCo, Inc.
Thomas H. Caudle, Jr. – Age: 66 – Mr. Caudle has served as President & Chief Operating Officer of UNIFI since August 2017.
Previously, he was President of the Company from April 2016 to August 2017, Vice President of Manufacturing of the Company
from October 2006 to April 2016 and Vice President of Global Operations of the Company from April 2003 to October 2006. Mr.
Caudle joined UNIFI in 1982 and, since that time, has served in a variety of other leadership roles, including Senior Vice President
in charge of manufacturing for the Company and Vice President of Manufacturing Services.
Richard E. Gerstein – Age: 53 – Mr. Gerstein has served as Executive Vice President, Global Branded Premium Value-Added
Products and Chief Marketing Officer of the Company since August 2017. Before joining UNIFI, Mr. Gerstein served from January
2015 to August 2017 as founder and a partner of two consulting firms, TNG Consulting and The Brand CHarGe, in San Francisco,
California. With TNG Consulting, Mr. Gerstein worked with early-stage technology and consumer products companies on strategy,
marketing and investment. With The Brand CHarGe, Mr. Gerstein assisted private equity firms with new business and proprietary
customer assessments used in due diligence and growth plans. From May 2014 to May 2015, Mr. Gerstein served as Chief
Customer Officer for Motista, LLC, a strategy and marketing firm focused on emotional data and analytics, where he developed new
client relationships and new products. Previously, Mr. Gerstein co-founded and served (from 2011 to 2014) as Chief Executive
Officer of ZigMail.com, an e-mail concierge service focused on organizing and simplifying personal e-mail inboxes, and served in
various executive roles with HP Inc. (formerly known as Hewlett-Packard Company) (from 2010 to 2011), Sears Holdings
Corporation (from 2007 to 2010), Alberto-Culver Company (from 2005 to 2007) and The Procter & Gamble Company (from 1987 to
2005).
John D. Vegas – Age: 47 – Mr. Vegas has been Executive Vice President, Global Chief Human Resources Officer of the Company
since August 2017. Before joining UNIFI, Mr. Vegas served, from August 2015 to August 2017, as Vice President, Human
Resources and Chief Human Resources Officer of G&K Services, Inc., a service-focused provider of branded uniform and facility
services programs, which was acquired by Cintas Corporation in March 2017. From 2003 to 2015, Mr. Vegas was with Ecolab Inc.,
the global leader in water, hygiene and energy technologies and services that protect people and vital resources, where he held
several management positions, including Vice President and General Manager, Institutional Latin America; Regional Vice President
of Sales; Vice President of Human Resources—Institutional Sector; and Director of HR—Industrial Sector. Prior to that, Mr. Vegas
worked for Food Lion, LLC, from 2001 to 2003, as Director of Organizational Development and for Hannaford Bros. Co., from 1993
to 2001, in a variety of management roles.
16
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 (the “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 2018:
Fourth quarter ended June 24, 2018
Third quarter ended March 25, 2018
Second quarter ended December 24, 2017
First quarter ended September 24, 2017
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
Close
High
Low
$
$
$
$
31.52
36.10
35.21
33.33
28.92
26.99
32.85
29.20
38.65 $
37.49
39.21
33.92
30.74 $
33.78
34.70
29.69
28.97
33.00
33.15
27.98
26.38
26.03
26.55
24.82
As of August 16, 2018, there were 130 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 under certain circumstances. 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 April 23, 2014, UNIFI announced that the Board had approved the SRP under which UNIFI is authorized to acquire up to
$50,000 of its common stock. The SRP has no stated expiration or termination date, and there is no time limit or specific time frame
otherwise for repurchases. Under the 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.
UNIFI did not purchase any of its common stock during fiscal 2017 and 2018. As of June 24, 2018, UNIFI had repurchased a total
of 806 shares, at an average price of $27.79 (for a total of $22,409, inclusive of commission costs) pursuant to the SRP, and
$27,603 remained available for repurchases.
17
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 28, 2013. 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 28, 2013 June 27, 2014 June 26, 2015 June 24, 2016 June 23, 2017 June 22, 2018
152.49
$
191.78
156.06
139.91 $
156.94
141.39
100.00 $
100.00
100.00
127.19 $
127.44
119.62
164.20 $
135.07
126.38
132.56 $
124.07
122.40
18
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)(cid:3)
Income from continuing operations before income
taxes
(Benefit) provision for income taxes (2)(cid:3)
Income from continuing operations, net of tax
Net income attributable to Unifi, Inc. (3)(cid: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 24, 2018 June 25, 2017 June 26, 2016 June 28, 2015 June 29, 2014
52
52
52
52
52
$
$
$
$
$
678,912 $
86,428
56,077
28,799
4,935
(5,787)
30,211
(1,491)
31,702
31,702
1.73 $
1.70 $
37,335 $
22,585
25,029
12,236
—
— $
647,270 $
94,164
50,829
43,768
3,578
(4,230)
43,275
10,898
32,377
32,875
643,637 $
93,632
47,502
42,198
3,528
(8,963)
48,243
15,073
33,170
34,415
687,121 $
90,705
49,672
38,486
4,025
(19,475 )
53,812
13,346
40,466
42,151
1.81 $
1.78 $
1.93 $
1.87 $
2.32 $
2.24 $
46,062 $
20,368
33,190
2,322
—
— $
55,975 $
17,528
52,337
4,732
6,211
— $
38,903 $
18,043
25,966
3,718
10,360
— $
687,902
83,262
46,203
31,483
4,329
(19,063)
47,881
20,161
27,720
28,823
1.52
1.47
56,357
17,896
19,091
13,214
36,551
—
June 24, 2018 June 25, 2017 June 26, 2016 June 28, 2015 June 29, 2014
$
44,890 $
205,516
601,807
130,549
389,781
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
(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, before taxes.
Provision for income taxes for fiscal 2018 includes, among other items, benefits from the reversal of (i) an uncertain tax
position for $3,380 relating to certain intercompany foreign income applicable to fiscal 2015 and (ii) a valuation allowance on
certain historical NOLs for $3,807, in addition to certain tax impacts resulting from federal tax reform legislation signed into
law in December 2017.
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.
During fiscal 2014, UNIFI increased the valuation allowance for certain deferred tax assets, generating additional tax
expense of $1,925.
(3)
Net income attributable to Unifi, Inc. (“Net Income”):
(cid:120)
(cid:120)
(cid:120)
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 the extinguishment of debt of $676, after tax.
(4)
Total debt reflects principal outstanding less unamortized debt issuance costs.
19
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 manufactures and sells polyester-based and nylon-based products primarily to other yarn manufacturers and knitters and
weavers (UNIFI’s direct customers) that produce yarn and/or fabric for the apparel, hosiery, home furnishings, automotive, industrial
and other end-use markets (UNIFI’s indirect customers). We refer to these indirect customers as “brand partners.” Polyester 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 Flake and Chip. Nylon
yarns include virgin or recycled 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 direct 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 $31,702, or $1.70 per diluted share, for fiscal 2018. These results primarily reflect the benefits of (i)
growth in sales of PVA products, especially in the International Segment and (ii) an effective tax rate lower than recent prior years
due primarily to the reversal of both a significant uncertain tax position and a valuation allowance on certain historical NOLs. The
benefits to net income were partially offset by (a) an increasing raw materials cost environment coupled with a challenging domestic
landscape in which achieving corresponding selling price adjustments was difficult against cost-competitive imports and (b)
increased SG&A expenses for talent acquisition, marketing and commercial expansion.
In both fiscal 2017 and 2018, UNIFI faced periods of fluctuating and/or increasing virgin and recycled polyester raw material costs,
depressing the Polyester Segment’s gross margins. Additionally, the Polyester and Nylon Segments both experienced a difficult
domestic environment, challenged by weak retail selling seasons, highly competitive imports and, through the first half of fiscal
2018, cautious ordering patterns from brands and retailers. However, the International Segment exhibited strong performance and
growth due to the global success of UNIFI’s PVA portfolio.
Significant Developments and Trends
UNIFI’s operations in fiscal 2018 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 while also building out our
commercial and management team through talent recruitment. 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 45% of consolidated net sales for fiscal
2018. This increase continues a growth trend in PVA sales, which have risen more than 10% annually for the past several fiscal
years. UNIFI’s strategy of enriching its product mix through a focus on PVA products helps to insulate it from the pressures of low-
priced commodity yarn imports and 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.
UNIFI’s flagship REPREVE® brand continued as our fastest growing PVA solution during fiscal 2018. 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 continued growth of the brand with current customers. Both brands and consumers are
demanding more sustainable solutions that provide better performance characteristics, and we believe REPREVE® is positioned to
benefit from this trend.
However, despite the relative growth in PVA sales and overall sales, UNIFI experienced profitability challenges in fiscal 2018. The
primary challenges related to (i) persistently rising raw material costs and an inherent lag in implementing responsive price
increases, (ii) suppressed yarn demand in the Polyester and Nylon Segments and (iii) a less-profitable sales mix.
Fiscal 2017 marked the final 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
20
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 initial construction of a bottle processing facility,
commencing another REPREVE® Recycling Center expansion and enhancing automation systems and existing machinery to
accommodate an 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 bi-component fibers, along with additional
enhancements to existing assets for customized and small-lot solutions.
In fiscal 2018, we invested approximately $25,000 in capital projects, which included (i) completing the fourth production line in the
REPREVE® Recycling Center, (ii) making further improvements in production capabilities and technology enhancements in the
Americas and (iii) annual maintenance capital expenditures.
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 technology, innovation and sustainability; high-quality strategic
partnerships; and supply chain expansion and optimization. These initiatives complement UNIFI’s core competencies and are
expected to strengthen our relationships with like-minded customers who value a premier supply chain and state-of-the-art
equipment that offers technology-driven solutions backed by innovation and sustainability. As a result, these initiatives are expected
to increase net sales, gross margins and operating income while also increasing SG&A expenses.
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 2018 and 2017, UNIFI operated in a predominantly increasing raw material cost environment. UNIFI believes those
costs were primarily a result of volatility in the crude oil markets. During fiscal 2016, UNIFI operated in a predominantly declining
virgin polyester raw material cost environment. UNIFI believes that costs during much of fiscal 2016 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 recent fluctuations in crude oil prices will stabilize or continue,
UNIFI monitors these dynamic factors closely. In addition, UNIFI attempts to pass on to its customers rises in raw material costs but
at times it cannot and, when it can, there typically is a time lag that adversely affects UNIFI during one or more periods. Certain
customers are subject to an index-based pricing model in which UNIFI’s prices are adjusted based on the change in the cost of raw
materials in the prior quarter. Pricing adjustments for other customers must be negotiated independently. In ordinary market
conditions in which raw material price increases have stabilized and sales volumes are consistent with traditional levels, UNIFI has
historically been successful in implementing price adjustments within one or two fiscal quarters of the raw material price increase for
its index priced customers and within two fiscal quarters of the raw material price increase for its non-index priced customers.
UNIFI is also impacted by significant fluctuations in the value of the BRL and the Chinese Renminbi (“RMB”), the local currencies for
our operations in Brazil and China, respectively. Appreciation of the BRL and RMB improves our net sales and gross profit metrics
when the results of our subsidiaries are translated into USDs at comparatively favorable rates. However, such strengthening may
cause adverse impacts to the value of USDs held in these foreign jurisdictions. UNIFI expects continued volatility in the value of the
BRL and the RMB to impact our key performance metrics, although the magnitude of the impact is dependent upon the significance
of the volatility, and it is not possible to predict the timing or amount of the impact.
In fiscal 2018, the BRL weakened versus the USD, while in fiscal 2017, the BRL strengthened versus the USD. In fiscal 2016, UNIFI
was negatively impacted by relative weakening of the BRL.
In fiscal 2018, 2017 and 2016, fluctuations in the value of the RMB occurred and were most impactful to certain fiscal quarters in
which exchange rates moved dramatically, but were not material to each fiscal year as a whole.
21
Results of Operations
Fiscal 2018, 2017 and 2016 each 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 expense (income), net
Operating income
Interest expense, net
Loss on sale of business
Equity in earnings of unconsolidated affiliates
Income before income taxes
(Benefit) provision for income taxes
Net income including non-controlling interest
Less: net loss attributable to non-controlling interest
Net income attributable to Unifi, Inc.
Fiscal 2018
$
Fiscal 2017
Fiscal 2016
678,912 $
592,484
86,428
56,077
(38)
1,590
28,799
4,375
—
(5,787)
30,211
(1,491)
31,702
—
31,702 $
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
$
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:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
sales volume and revenue for UNIFI and for each reportable segment;
gross profit and gross margin for UNIFI and for each reportable segment;
Net Income and diluted earnings per share (“EPS”);
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 represents Net Income calculated under GAAP, adjusted to exclude certain amounts
which management believes do not reflect the ongoing operations and performance of UNIFI and/or which are
necessary to understand and compare the underlying results of UNIFI, such as key employee transition costs, loss on
sale of business, and the approximate after-tax impact of certain income or expense items (as well as specific impacts
to the provision for income taxes);
Adjusted EPS, which represents Adjusted Net Income divided by UNIFI’s diluted weighted average common shares
outstanding; and
Adjusted Working Capital (receivables plus inventory, less accounts payable and accrued expenses).
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.
22
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 results do not reflect our operating
performance.
Management uses Adjusted Net Income and Adjusted EPS (i) as measurements of net operating performance because they assist
us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to occur
as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not expect
to occur as a part of our underlying taxable operations; (ii) for planning purposes, including the preparation of our annual operating
budget; and (iii) as measures in determining the value of other acquisitions and dispositions.
Management uses Adjusted Working Capital as an indicator of UNIFI’s production efficiency and ability to manage inventory and
receivables.
Historically, the non-GAAP financial measures 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.
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
(Benefit) 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
Adjusted EBITDA
Fiscal 2018
$
Fiscal 2017
Fiscal 2016
31,702 $
4,375
(1,491)
22,218
56,804
32,875 $
3,030
10,898
19,851
66,654
(4,533)
52,271
(2,723 )
63,931
—
—
52,271 $
1,662
—
65,593 $
$
34,415
2,884
15,073
16,893
69,265
(6,074 )
63,191
—
2,166
65,357
Amounts presented in the reconciliation above may not be consistent with amounts included in UNIFI’s consolidated financial
statements, and such discrepancies are insignificant and integral to the reconciliation.
Adjusted Net Income and Adjusted EPS
The tables below set forth reconciliations of (i) Income before income taxes (“Pre-tax Income”), (Benefit) provision for income taxes
(“Tax Impact”) and Net Income to Adjusted Net Income and (ii) Diluted EPS to Adjusted EPS.
Fiscal 2018
GAAP results
Reversal of specific tax valuation allowance (1)(cid:3)
Reversal of specific uncertain tax position (2)(cid:3)
Adjusted results
$
$
30,211 $
—
—
30,211 $
Pre-tax
Income
Tax Impact
Net Income Diluted EPS
1.70
(0.20)
(0.18)
1.32
31,702 $
(3,807 )
(3,380 )
24,515 $
1,491 $
(3,807 )
(3,380 )
(5,696 ) $
Diluted weighted average common shares outstanding
18,637
23
GAAP results
Loss on sale of business (3)(cid:3)
Adjusted results
$
$
43,275 $
1,662
44,937 $
Fiscal 2017
Pre-tax
Income
Tax Impact
(10,898 ) $
—
(10,898 ) $
Net Income Diluted EPS
1.78
0.09
1.87
32,875 $
1,662
34,537 $
Diluted weighted average common shares outstanding
18,443
Fiscal 2016
GAAP results
Key employee transition costs (4)(cid:3)
Adjusted results
$
$
48,243 $
2,330
50,573 $
Pre-tax
Income
Tax Impact
(15,073 ) $
(673 )
(15,746 ) $
Net Income Diluted EPS
1.87
0.08
1.95
34,415 $
1,493
35,908 $
Diluted weighted average common shares outstanding
18,415
(1)
(2)
(3)
(4)
For fiscal 2018, UNIFI reversed a $3,807 valuation allowance on certain historical NOLs in connection with a tax status
change unrelated to the federal tax reform legislation signed into law in December 2017.
For fiscal 2018, UNIFI reversed a $3,380 uncertain tax position relating to certain foreign exchange income applicable to
fiscal 2015.
For fiscal 2017, the Company incurred a loss on the sale of its investment in Renewables of $1,662. There was no tax
impact for this transaction as the loss is non-deductible.
For fiscal 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.
Review of Results of Operations for Fiscal 2018, 2017 and 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, followed by a discussion and analysis of the significant components of
Net Income. Fiscal 2018, 2017 and 2016 were each comprised of 52 weeks.
Fiscal 2018
$
%
Change
Fiscal 2017
Change Fiscal 2016
%
678,912
592,484
86,428
56,077
(38 )
4.9 $
7.1
(8.2 )
10.3
(69.1 )
1,590 (612.9 )
(34.2 )
42.9
— (100.0 )
36.8
(5,787 )
30,211
(30.2 )
(1,491 ) (113.7 )
(2.1 )
31,702
28,799
4,375
647,270
553,106
94,164
50,829
0.6 $
0.6
0.6
7.0
(123 ) (107.3 )
(310 ) (113.8 )
3.7
43,768
3,061
4.9
1,662 100.0
(52.8 )
(4,230 )
(10.3 )
43,275
(27.7 )
10,898
(2.4 )
32,377
$
— (100.0 )
(3.6 ) $
31,702
(498 )
32,875
(60.0 )
(4.5 ) $
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
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
(Benefit) provision for bad debts
Other operating expense (income), net
Operating income
Interest expense, net
Loss on sale of business
Earnings from unconsolidated affiliates
Income before income taxes
(Benefit) 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 Sales
Fiscal 2018 vs Fiscal 2017
Consolidated net sales for fiscal 2018 increased by $31,642, or 4.9%, as compared to fiscal 2017.
24
Consolidated sales volumes increased 10.7%, attributable to continued growth in sales of Flake and recycled polyester Chip in the
Polyester Segment and staple fiber and other PVA products in the International Segment. Sales continue to expand in the
International Segment as our PVA portfolio resonates with numerous customers. The increase in sales volumes was partially offset
by soft yarn sales in the Polyester and Nylon Segments. We believe the softness in the domestic environment and competition from
imports continues to be a challenge for the textile supply chain. Our Nylon Segment results also reflect the current global trend of
declines in demand for nylon socks, ladies’ hosiery and intimate apparel.
Consolidated average sales prices decreased 5.6%, attributable to disproportionate growth of lower-priced Flake, recycled polyester
Chip and staple fiber among the Polyester and International Segments, as well as a decline in higher-priced nylon products. PVA
products at the end of fiscal 2018 comprised 45% of consolidated net sales, up from 40% at the end of fiscal 2017. Even with the
relative growth in the proportion of PVA sales as a percentage of overall sales, our customers can choose between various
solutions, some of which carry higher margins than others. Accordingly, growth in PVA sales does not necessarily translate into
higher margins or increased profitability on a consolidated basis.
Fiscal 2017 vs. Fiscal 2016
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 recycled polyester Chip and 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.
Consolidated average sales prices decreased 10.6% from fiscal 2016 to fiscal 2017, attributable to (i) a mix impact within the
Polyester Segment due to a higher proportion of lower-priced 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, when comparing
fiscal 2017 to fiscal 2016, of approximately $9,800, primarily associated with the comparative increase in value of the BRL. PVA
products at the end of fiscal 2017 comprised 40% of consolidated net sales, up from 35% at the end of fiscal 2016.
Gross Profit
Fiscal 2018 vs. Fiscal 2017
Gross profit for fiscal 2018 decreased by $7,736, or 8.2%, as compared to fiscal 2017. For the International Segment, gross profit
increased due to sales growth; however, margins were lower due to a less favorable sales mix and pressure from higher raw material
costs. For the Polyester Segment, gross profit decreased primarily due to higher raw material costs coupled with a lag time in
implementing corresponding selling price increases, lower yarn sales, incremental depreciation and pressure from ramping-up recycling
operations as we incurred higher-than-expected costs in our bottle processing facility. For the Nylon Segment, gross profit decreased
due in part to a less favorable sales mix and lower sales volumes.
Fiscal 2017 vs. Fiscal 2016
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 bottle processing facility and (c) a lag in implementing selling price adjustments for customers in
connection with periodic increases in virgin polyester raw material costs.
25
Selling, General and Administrative Expenses
The changes in SG&A expenses are 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
SG&A expenses for fiscal 2017
Increase in domestic salaries and fringe benefits
Increase in domestic recruiting and incentive compensation
Incremental international commercial investments
Increase in domestic marketing expenses
Other net increases
Net decrease for external service providers
SG&A expenses for fiscal 2018
Fiscal 2018 vs. Fiscal 2017
$
$
$
$
47,502
2,386
640
465
410
(533)
(41)
50,829
50,829
2,701
2,578
1,368
859
1,219
(3,477)
56,077
Total SG&A expenses grew throughout fiscal 2018 to support investments in talent, international growth, and development of
greater commercial capabilities. The increase compared to fiscal 2017 was primarily a result of (i) an increase in domestic salaries
and fringe benefits, as well as an increase in domestic recruiting and incentive compensation due to recent talent acquisition, (ii)
growth in the International Segment’s commercial efforts, (iii) investments in marketing capabilities and activities to promote UNIFI’s
brands, and (iv) other net increases for sales commissions and general corporate expenses, partially offset by a net decrease in
fees paid to external service providers, primarily for consulting.
In the fourth quarter of fiscal 2018, total SG&A expenses reached a run-rate expected to continue through fiscal 2019. Therefore,
UNIFI expects fiscal 2019 SG&A expenses to exceed those of fiscal 2018 as UNIFI incurs the full-year effect of the investments
made in fiscal 2018.
Fiscal 2017 vs. Fiscal 2016
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 benchmark, (iii) an increase in foreign currency translation primarily due to
the strengthening of the BRL versus the USD 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.
(Benefit) Provision for Bad Debts
Fiscal 2018 vs. Fiscal 2017
There was no material bad debt activity in fiscal 2018 or fiscal 2017.
Fiscal 2017 vs. Fiscal 2016
(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.
Other Operating Expense (Income), Net
Fiscal 2018 vs. Fiscal 2017
Other operating expense (income), net changed unfavorably from $310 of income for fiscal 2017 to $1,590 of expense for fiscal
2018. Other operating expense (income), net for fiscal 2018 primarily includes unfavorable foreign currency exchange impacts,
while the total for fiscal 2017 primarily includes favorable foreign currency exchange impacts.
Fiscal 2017 vs. Fiscal 2016
Other operating expense (income), net changed favorably from $2,248 of expense for fiscal 2016 to $310 of income for fiscal 2017.
Other operating expense (income), net for fiscal 2017 primarily includes favorable foreign currency exchange impacts, while the total
for fiscal 2016 primarily includes key employee transition costs.
26
Interest Expense, Net
Interest expense, net 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
Fiscal 2018 vs. Fiscal 2017
Fiscal 2018
$
Fiscal 2017
Fiscal 2016
3,926 $
832
4,758
367
—
—
(190)
177
4,935
(560)
4,375 $
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 2017 to fiscal 2018 primarily due to (i) a higher weighted average interest rate
resulting from fixing the variable portion of the interest rate on $75,000 of debt principal, beginning in May 2017 and (ii) a general
increase in market interest rates on the remaining portion of our variable rate debt.
The change in other components of interest expense from fiscal 2017 to fiscal 2018 was primarily attributable to a fiscal 2017
favorable mark-to-market adjustment for the historical interest rate swap that terminated in May 2017 and less interest capitalized to
project costs.
Fiscal 2017 vs. Fiscal 2016
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 fiscal 2016 to fiscal 2017 was primarily attributable to a more 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.
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
Fiscal 2018
$
(4,533 ) $
(1,254 )
(5,787 ) $
$
Fiscal 2017
(2,723 ) $
(1,507 )
(4,230 ) $
Fiscal 2016
(6,074 )
(2,889 )
(8,963 )
As a percentage of consolidated income before income taxes
19.2%
9.8 %
18.6%
Fiscal 2018 vs. Fiscal 2017
UNIFI’s 34% share of PAL’s earnings increased from $2,723 in fiscal 2017 to $4,533 in fiscal 2018. The increase was primarily
attributable to improved sales and operating margins and lower depreciation expense. The earnings from the nylon joint ventures
experienced a decrease from the prior period primarily due to softness in the nylon market, consistent with the results of the Nylon
Segment, as well as higher raw material costs.
Fiscal 2017 vs. Fiscal 2016
UNIFI’s 34% share of PAL’s earnings decreased from $6,074 in fiscal 2016 to $2,723 in fiscal 2017. The decrease was 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 from the prior period primarily due to higher raw material costs and softness in the
nylon markets.
27
(Benefit) Provision for Income Taxes
The change in consolidated income taxes is as follows:
Income before income taxes
(Benefit) provision for income taxes
Effective tax rate
Fiscal 2018
30,211
$
(1,491)
Fiscal 2017
$
43,275 $
10,898
25.2 %
Fiscal 2016
48,243
15,073
31.2%
(4.9)%
On December 22, 2017, the U.S. government enacted comprehensive tax legislation H.R. 1, formerly known as the Tax Cuts and
Jobs Act. H.R. 1 includes significant changes to existing tax law, including a permanent reduction to the U.S. federal corporate
income tax rate from 35% to 21%, a one-time mandatory deemed repatriation of foreign earnings and profits, deductions, credits
and business-related exclusions.
UNIFI has recorded all known and estimable impacts of H.R. 1 that are effective for fiscal 2018. Future adjustments to provisional
numbers will be recorded as discrete adjustments to income tax expense in the period in which those adjustments become
estimable and/or are finalized. UNIFI continues to review the anticipated impacts of the global intangible low-taxed income (“GILTI”),
foreign derived intangible income (“FDII”) deduction, and base erosion anti-abuse tax (“BEAT”), which are not effective until fiscal
2019. UNIFI has not recorded any impacts associated with either GILTI, FDII or BEAT, but these provisions are expected to
adversely impact the fiscal 2019 effective tax rate.
Fiscal 2018 vs. Fiscal 2017
The effective tax rate for fiscal 2018 benefited from, among other things, (i) the release of uncertain tax positions due to settlement
with tax authorities, (ii) the deferred tax benefit resulting from the revaluation of UNIFI’s domestic deferred tax balances for the lower
U.S. statutory rate (including valuation allowances on domestic deferred tax assets), (iii) the release of a valuation allowance on
certain NOLs outside the U.S. consolidated group, and (iv) a reduction in the valuation allowance related to foreign NOLs utilized in
fiscal 2018. These benefits were partially offset by (a) the one-time deemed mandatory repatriation of foreign earnings, net of
foreign tax credits, (b) withholding taxes on repatriation of foreign earnings and (c) nondeductible compensation.
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) an increase in uncertain tax positions and (c) withholding
taxes on repatriation of foreign earnings.
The favorable change in the effective tax rate from fiscal 2017 to fiscal 2018 was primarily attributable to (i) the release of uncertain
tax positions due to settlement with tax authorities and (ii) the release of a valuation allowance on certain NOLs outside the U.S.
consolidated group.
Fiscal 2017 vs. Fiscal 2016
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) an increase 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. 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) an increase in uncertain tax positions.
The favorable change in the effective tax rate from fiscal 2016 to fiscal 2017 was primarily attributable to both a greater mix of
foreign earnings and increased research and development credits in fiscal 2017.
Net Income
Fiscal 2018 vs. Fiscal 2017
Net Income for fiscal 2018 was $31,702, or $1.70 per diluted share, compared to $32,875, or $1.78 per diluted share, for fiscal
2017. The decrease was primarily attributable to (i) higher operating expenses reducing gross profit, (ii) an increase in SG&A
28
expenses, (iii) higher interest expense and (iv) unfavorable foreign currency exchange impacts, partially offset by (a) a lower
effective tax rate, (b) higher earnings from PAL and (c) a loss on sale of business in fiscal 2017.
Fiscal 2017 vs. Fiscal 2016
Net Income for fiscal 2017 was $32,875, or $1.78 per diluted share, compared to $34,415, or $1.87 per diluted 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 impacts.
Segment Overview
Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for fiscal 2018,
2017 and 2016.
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:
Fiscal 2018
$
364,169
333,078
31,091
15,893
46,984
% Change
Fiscal 2017
% Change Fiscal 2016
2.4 $
5.5
(22.4 )
14.2
(13.0 ) $
355,740
315,655
40,085
13,921
54,006
(7.2 ) $
(5.4 )
(19.1 )
24.4
(11.1 ) $
383,167
333,638
49,529
11,188
60,717
$
Net sales
Cost of sales
Gross profit
Depreciation expense
Segment Profit
Gross margin
Segment margin
Segment net sales as a percentage
of consolidated amount
Segment Profit as a percentage
of consolidated amount
8.5%
12.9%
53.6%
44.1%
11.3%
15.2%
55.0%
48.2%
The changes in net sales for the Polyester Segment are 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
Net sales for fiscal 2017
Increase in sales volumes
Decrease in average selling price and change in sales mix
Net sales for fiscal 2018
12.9%
15.8%
59.5%
56.0%
383,167
(33,651)
6,224
355,740
355,740
15,828
(7,399)
364,169
$
$
$
$
The increase in net sales for the Polyester Segment from fiscal 2017 to fiscal 2018 was primarily attributable to higher sales of
Flake, POY and recycled polyester Chip. However, these changes also drove a decline in the Polyester Segment average selling
price, while lower sales volumes of higher-priced textured, dyed and beamed yarns also negatively impacted the sales mix.
The decrease in net sales for the Polyester Segment from fiscal 2016 to fiscal 2017 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 Flake, recycled polyester Chip and POY.
29
The changes in Segment Profit for the Polyester Segment are as follows:
Segment Profit for fiscal 2016
Net decrease in underlying margins
Increase in sales volumes
Segment Profit for fiscal 2017
Segment Profit for fiscal 2017
Net decrease in underlying margins
Increase in sales volumes
Segment Profit for fiscal 2018
$
$
$
$
60,717
(7,697)
986
54,006
54,006
(9,425)
2,403
46,984
The decrease in Segment Profit for the Polyester Segment from fiscal 2017 to fiscal 2018 was primarily attributable to raw material
cost pressures that were not effectively offset by timely corresponding selling price increases, along with the unfavorable sales mix
shift towards lower-margin products discussed above in the net sales analysis. In addition, we incurred higher-than-expected costs
in our bottle processing operation during fiscal 2018. UNIFI does attempt to pass on to its customers rises in raw material costs but
at times it cannot and, when it can, there typically is a time lag that adversely affects UNIFI and its margins during one or more
periods. Certain customers are subject to an index-based pricing model in which UNIFI’s prices are adjusted based on the change in
the cost of raw materials in the prior quarter. Pricing adjustments for other customers must be negotiated independently. In
ordinary market conditions in which raw material price increases have stabilized and sales volumes are consistent with traditional
levels, UNIFI has historically been successful in implementing price adjustments within one to two fiscal quarters of the raw material
price increase for its index priced customers and within two fiscal quarters of the raw material price increase for its non-index priced
customers.
The decrease in Segment Profit for the Polyester Segment from fiscal 2016 to fiscal 2017 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.
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:
Fiscal 2018
$
102,639
92,155
10,484
2,197
12,681
% Change
Fiscal 2017
% Change Fiscal 2016
(8.9 ) $
(8.4 )
(13.1 )
3.4
(10.7 ) $
112,704
100,633
12,071
2,125
14,196
(14.4 ) $
(11.7 )
(32.2 )
11.9
(28.0 ) $
131,715
113,906
17,809
1,899
19,708
$
Net sales
Cost of sales
Gross profit
Depreciation expense
Segment Profit
Gross margin
Segment margin
Segment net sales as a percentage
of consolidated amount
Segment Profit as a percentage
of consolidated amount
The changes in net sales for the Nylon Segment are 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
Net sales for fiscal 2017
Decrease in sales volumes
Decrease in average selling price and change in sales mix
Net sales for fiscal 2018
10.2%
12.4%
15.1%
11.9%
10.7%
12.6%
17.4%
12.7%
13.5%
15.0%
20.5%
18.2%
131,715
(15,973)
(3,038)
112,704
112,704
(9,823)
(242)
102,639
$
$
$
$
The decrease in net sales for the Nylon Segment from fiscal 2017 to fiscal 2018 was primarily attributable to (i) lower sales volumes
as a result of continued soft domestic market conditions in which nylon socks, ladies’ hosiery and intimates have experienced
demand declines and (ii) a lower-priced sales mix.
30
The decrease in net sales for the Nylon Segment from fiscal 2016 to fiscal 2017 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 changes in Segment Profit for the Nylon Segment are as follows:
Segment Profit for fiscal 2016
Decrease in underlying margins
Decrease in sales volumes
Segment Profit for fiscal 2017
Segment Profit for fiscal 2017
Decrease in sales volumes
Decrease in underlying margins
Segment Profit for fiscal 2018
$
$
$
$
19,708
(3,122)
(2,390)
14,196
14,196
(1,237)
(278)
12,681
The decrease in Segment Profit for the Nylon Segment from fiscal 2017 to fiscal 2018 was attributable to lower sales volumes and a
less profitable sales mix.
The decrease in Segment Profit for the Nylon Segment from fiscal 2016 to fiscal 2017 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.
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:
Fiscal 2018
$
207,884
163,300
44,584
1,648
46,232
% Change
Fiscal 2017
% Change Fiscal 2016
19.7 $
24.6
4.7
47.3
5.8 $
173,686
131,087
42,599
1,119
43,718
41.7 $
37.0
58.4
26.4
57.4 $
122,554
95,666
26,888
885
27,773
$
Net sales
Cost of sales
Gross profit
Depreciation expense
Segment Profit
Gross margin
Segment margin
Segment net sales as a percentage
of consolidated amount
Segment Profit as a percentage
of consolidated amount
21.4%
22.2%
30.6%
43.4%
24.5%
25.2%
26.8%
39.0%
The changes in net sales for the International Segment are as follows:
Net sales for fiscal 2016
Increase in sales volumes
Net favorable foreign currency translation effects (BRL and RMB)
Decrease in average selling price and change in sales mix
Net sales for fiscal 2017
Net sales for fiscal 2017
Increase in sales volumes
Decrease in average selling price and change in sales mix
Net unfavorable foreign currency translation effects (BRL and RMB)
Net sales for fiscal 2018
21.9%
22.7%
19.0%
25.6%
122,554
50,235
9,636
(8,739)
173,686
173,686
41,102
(6,779)
(125)
207,884
$
$
$
$
The increase in net sales for the International Segment from fiscal 2017 to fiscal 2018 was attributable to higher sales volumes at
our Asian subsidiaries due to growth in our REPREVE® portfolios, particularly staple fiber and recycled polyester Chip, partially
offset by (i) a decrease in the average selling price in Asia due to a greater mix of lower-priced product sales and (ii) net unfavorable
foreign currency translation as the BRL weakened while the RBM strengthened against the USD during fiscal 2018.
31
The increase in net sales for the International Segment from fiscal 2016 to fiscal 2017 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
BRL. 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
RMB.
The RMB weighted average exchange rate was 6.45 RMB/USD, 6.81 RMB/USD and 6.50 RMB/USD for fiscal 2016, 2017 and
2018, respectively. The BRL weighted average exchange rate was 3.67 BRL/USD, 3.22 BRL/USD and 3.31 BRL/USD for fiscal
2016, 2017 and 2018, respectively.
The changes in Segment Profit for the International Segment are as follows:
Segment Profit for fiscal 2016
Increase in sales volumes
Improvements in underlying margins
Net favorable foreign currency translation effects (BRL and RMB)
Segment Profit for fiscal 2017
Segment Profit for fiscal 2017
Increase in sales volumes
Decrease in underlying margins
Segment Profit for fiscal 2018
$
$
$
$
27,773
11,349
2,664
1,932
43,718
43,718
10,343
(7,829)
46,232
The increase in Segment Profit for the International Segment from fiscal 2017 to fiscal 2018 was attributable to improved sales
volumes, partially offset by a greater mix of lower-margin product sales in Asia, particularly Chip and staple fiber. There was no
significant impact from foreign currency translation as the RMB strengthened versus the USD while the BRL weakened versus the
USD.
The increase in Segment Profit for the International Segment from fiscal 2016 to fiscal 2017 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 BRL versus the USD.
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 (as defined below)
of its credit facility. For fiscal 2018, cash generated from operations was $37,335, and at June 24, 2018, excess availability under
the ABL Revolver was $53,245.
As of June 24, 2018, all of UNIFI’s $131,207 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, borrowings available under
financing arrangements, liquidity, working capital and total debt obligations as of June 24, 2018 for domestic operations compared to
foreign operations:
Cash and cash equivalents
Borrowings available under financing arrangements
Liquidity
Working capital
Total debt obligations
Domestic
$
11 $
53,245
53,256 $
Foreign
Total
44,879 $
—
44,879 $
44,890
53,245
98,135
82,028 $
131,207 $
107,263 $
— $
189,291
131,207
$
$
$
As of June 24, 2018, U.S. income taxes and foreign withholding taxes were not provided for on a cumulative total of approximately
$113,855 of undistributed earnings of UNIFI’s foreign subsidiaries. UNIFI intends to reinvest these earnings indefinitely in its foreign
subsidiaries. If at a later date, these earnings were to be repatriated to the United States, UNIFI would be required to accrue and
pay state income and/or foreign local withholding taxes on these amounts. Determination of the amount of any unrecognized
deferred tax liability on these undistributed earnings is not practicable. UNIFI will continue to assess the existing circumstances,
including any changes in tax laws, and reevaluate the necessity for any deferred tax liability.
32
Debt Obligations
Following is a summary of UNIFI’s debt obligations:
Scheduled
Maturity Date
March 2020
March 2020
(2)
ABL Revolver
ABL Term Loan (1)
Capital lease obligations
Total debt
Current portion of capital lease obligations
Current portion of other long-term debt
Unamortized debt issuance costs
Total long-term debt
Weighted Average
Interest Rate as of
June 24, 2018
4.1%
3.7%
3.8%
Principal Amounts as of
June 24, 2018 June 25, 2017
9,300
$
95,000
25,168
129,468
(7,060)
(10,000)
(1,026)
111,382
28,100 $
85,000
18,107
131,207
(6,996 )
(10,000 )
(658 )
113,553 $
$
(1)
(2)
Includes the effects of interest rate swaps.
Scheduled maturity dates for capital lease obligations range from July 2018 to November 2027.
ABL Facility
On March 26, 2015, Unifi, Inc. and its subsidiary, Unifi Manufacturing, Inc. (“UMI”), 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 increase occurred in November 2016 as discussed in further detail below. The ABL Facility has a maturity
date of March 26, 2020.
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., UMI and certain subsidiary guarantors (collectively, 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, Inc.) 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
24, 2018 was $23,125. In addition, the ABL Facility contains restrictions on particular payments and investments, including certain
restrictions on the payment of dividends and share 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 1.5% to 2.0%, or
the Base Rate (as defined below) plus an applicable margin of 0.5% to 1.0%, 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 Bank, National Association, (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 24, 2018, UNIFI was in compliance with all financial covenants in the Amended Credit Agreement and the excess
availability under the ABL Revolver was $53,245. At June 24, 2018, the fixed charge coverage ratio was 0.93 to 1.00 and UNIFI
had $400 of standby letters of credit, none of which have been drawn upon. Management maintains the capability to quickly and
easily improve the fixed charge coverage ratio utilizing existing cash and cash equivalents.
On November 18, 2016, pursuant to the principal reset conditions of the Amended Credit Agreement, UNIFI chose to reset the ABL
Term Loan principal balance to $100,000. Following this principal reset, the ABL Term Loan is subject to quarterly amortizing
payments of $2,500.
Capital Lease Obligations
There were no capital leases established in fiscal 2018. During fiscal 2017, UNIFI recorded capital leases with an aggregate present
value of $14,070. The weighted average interest rate for these capital leases is 3.9%.
33
Scheduled Debt Maturities
The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the following five fiscal years and
thereafter:
Fiscal
2019
Fiscal
2020
Fiscal
2021
Fiscal
2022
Fiscal
2023
ABL Revolver
ABL Term Loan
Capital lease obligations
Total
$
$
— $
10,000
6,996
16,996 $
28,100 $
75,000
5,519
108,619 $
— $
—
2,624
2,624 $
— $
—
2,417
2,417 $
Thereafter
—
—
460
460
— $
—
91
91 $
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
Fiscal 2018
Fiscal 2017
44,890 $
86,273
126,311
16,820
(48,970 )
(17,720 )
(18,313 )
189,291 $
(44,890 )
(16,820 )
18,313
145,894 $
35,425
81,121
111,405
15,686
(41,499)
(16,144)
(18,411)
167,583
(35,425)
(15,686)
18,411
134,883
$
$
$
Working capital increased from $167,583 as of June 25, 2017 to $189,291 as of June 24, 2018, while Adjusted Working Capital
increased from $134,883 to $145,894. 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 increases in receivables, net and inventories were both attributable
to sales growth from our international operations and the impact of higher raw material costs. The increase in other current assets
related to an increase in anticipated income tax refunds. The increase in accounts payable was primarily attributable to higher raw
material costs and the timing of purchase activity. The increase in accrued expenses was primarily attributable to additional post-
employment accruals. The decrease in other current liabilities was insignificant.
Capital Projects
In fiscal 2018, we invested approximately $25,000 in capital projects, which included (i) completing the fourth production line in the
REPREVE® Recycling Center, (ii) making further improvements in production capabilities and technology enhancements in the
Americas and (iii) annual maintenance capital expenditures.
In 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 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 towards (i) completing the fourth production line in the REPREVE® Recycling Center, (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) began construction of the bottle processing plant at
our existing facility in Reidsville, North Carolina, (ii) commenced an expansion of our REPREVE® Recycling Center, (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.
34
In fiscal 2019, UNIFI expects to invest an additional $25,000 in capital projects, which include (i) making further improvements in
production capabilities and technology enhancements in the Americas and (ii) 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 2019 could be more or less than the currently estimated amount depending on the
timing and scale of contemplated initiatives, and is expected to be funded 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.
Stock Repurchase Program
On April 23, 2014, UNIFI announced that the Board had approved the SRP under which UNIFI is authorized to acquire up to
$50,000 of its common stock. The SRP has no stated expiration or termination date, and there is no time limit or specific time frame
otherwise for repurchases. Under the 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 under the ABL Revolver,
and are subject to applicable limitations and restrictions as set forth in the ABL Facility. UNIFI may discontinue repurchases at any
time that management determines additional purchases are not beneficial or advisable.
UNIFI did not purchase any of its common stock during fiscal 2017 and 2018. As of June 24, 2018, UNIFI had repurchased a total
of 806 shares, at an average price of $27.79 (for a total of $22,409, inclusive of commission costs) pursuant to the SRP, and
$27,603 remained available for repurchases.
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.
Net income including non-controlling interest
Depreciation and amortization expense
Equity in earnings of unconsolidated affiliates
Loss on sale of business
Non-cash compensation expense
Deferred income taxes
Subtotal
Distributions received from unconsolidated affiliates
Other changes
Net cash provided by operating activities
Fiscal 2018 Compared to Fiscal 2017
Fiscal 2018
Fiscal 2017
Fiscal 2016
$
31,702 $
22,585
(5,787)
—
5,823
(5,797)
48,526
32,377 $
20,368
(4,230 )
1,662
2,983
6,886
60,046
12,236
(23,427)
37,335 $
2,322
(16,306 )
46,062 $
$
33,170
17,528
(8,963 )
—
2,501
5,983
50,219
4,732
1,024
55,975
The decrease in net cash provided by operating activities from fiscal 2017 to fiscal 2018 was primarily due to the adverse impact on
gross profit and working capital of higher raw material costs and an increase in SG&A expenses. However, UNIFI received $9,236 in
distributions from PAL in fiscal 2018, a significant increase from fiscal 2017.
Fiscal 2017 Compared to Fiscal 2016
The decrease in net cash provided by operating activities from fiscal 2016 to fiscal 2017 was primarily due to an increase in working
capital in fiscal 2017, as indicated in Other changes in the table above. Such increase in working capital was 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 was comparatively weaker, routine tax distributions received by UNIFI declined accordingly by approximately
$2,400.
35
These impacts were partially offset by higher cash earnings of $60,046 in fiscal 2017 versus $50,219 in fiscal 2016 (as indicated in
the Subtotal in the table above which reconciles for changes in the listed non-cash activity), which were primarily attributable to
higher cash gross profit and lower income taxes.
Cash Used in Investing Activities and Provided by Financing Activities
Fiscal 2018
UNIFI utilized $26,875 for net investing activities and was provided $1,303 from net financing activities during fiscal 2018. Significant
investing activities included $25,029 for capital expenditures, which primarily relate to the completion of the fourth production line in
the REPREVE® Recycling Center, along with other capital expenditures to improve UNIFI’s manufacturing flexibility and capability to
produce PVA products in the Americas. Significant financing activities included $8,800 for net borrowings against the ABL Facility
and $7,060 for payments on capital lease obligations.
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 included $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 included
$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 included $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 included (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.
Contractual Obligations
As of June 24, 2018, UNIFI’s contractual obligations consisted of the following:
Description of Commitment
ABL Revolver
ABL Term Loan
Capital lease obligations
Contingent consideration (1)(cid:3)
Other long-term obligations (2)(cid:3)
Subtotal
Interest on long-term debt and other obligations (3)
Operating leases
Capital purchase obligations (4)(cid:3)
Purchase obligations (5)(cid:3)
Total cash payments by period
Cash Payments Due By Period
Total
Less Than
1 Year
1-3 Years 3-5 Years
$
28,100 $
85,000
18,107
529
4,536
$ 136,272 $
8,112
5,835
5,600
31,611
$ 187,430 $
— $
10,000
6,996
529
1,034
28,100 $
75,000
8,143
—
110
18,559 $ 111,353 $
2,912
5,054
3,172
2,281
—
5,600
13,449
13,380
44,943 $ 130,817 $
More Than
5 Years
—
—
460
—
3,331
3,791
50
23
—
368
4,232
— $
—
2,508
—
61
2,569 $
96
359
—
4,414
7,438 $
(1)
(2)
(3)
(4)
(5)
Contingent consideration payments are reflected at present value based on the expected future payments used in the
underlying fair value determination.
Other long-term obligations does not include an estimate of the timing of potential tax payments related to uncertain tax
positions; therefore, $131 has been excluded from the table above. Other long-term obligations includes a post-employment
plan liability for which the $3,045 non-current portion of cash payments is reflected beyond 5 years.
Interest payments on variable rate debt instruments are calculated for future periods using interest rates and terms in effect
at June 24, 2018.
Capital purchase obligations relate to contracts with vendors for the construction or purchase of assets.
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.
36
As of June 24, 2018, UNIFI’s open purchase orders totaled approximately $56,800 and were expected to be settled in fiscal 2019.
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 24, 2018, 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 Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers (Topic 606). Subsequent ASUs were issued to provide clarity and defer the effective date
of the new guidance. The new revenue recognition guidance eliminates the transaction- and industry-specific revenue recognition
guidance under current GAAP and replaces it with a principles-based approach. UNIFI has completed a comprehensive
identification of contracts that necessitate a change in revenue recognition in connection with the ASUs, and does not expect the
impact of the change to be material for revenue streams and contracts existing as of June 24, 2018. UNIFI expects to adopt the
related ASUs in fiscal 2019, utilizing the modified retrospective method, recording the impact of open contracts as of June 24, 2018
as an adjustment to the opening balance of fiscal 2019 retained earnings.
Relating to the new revenue recognition guidance, UNIFI estimates the pending impact to the opening balance of fiscal 2019
retained earnings under the modified retrospective method is less than $1,000.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). 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 24, 2018, UNIFI had approximately $5,800 of future minimum lease payments under non-cancelable
operating leases (with initial lease terms in excess of one year). The new lease guidance is effective for UNIFI’s fiscal 2020, and
early adoption is permitted.
Under the guidance in the SEC Staff Announcement on July 20, 2017 relating to the transition to ASU No. 2014-09 and ASU No.
2016-02, due to its status as a significant subsidiary of Unifi, Inc., PAL expects to adopt (i) the new revenue recognition guidance in
its fiscal 2019 and (ii) the new lease guidance in its fiscal 2020. PAL is currently evaluating the impact of the new revenue and lease
guidance.
Recently Adopted
In July 2015, the FASB issued ASU No. 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 was effective for UNIFI’s fiscal 2018, with prospective application. UNIFI’s
existing principles for inventory measurement included consideration of net realizable value and, therefore, adoption had no
significant impact on UNIFI’s consolidated financial statements.
In March 2016, the FASB issued ASU No. 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, including the accounting and classification of the respective income tax impacts, forfeitures and statutory
withholding requirements. UNIFI adopted the ASU in fiscal 2018, on a prospective basis. The adoption resulted in a $230 decrease
to the provision for income taxes for excess tax benefits and an immaterial increase in potential dilutive weighted average shares for
fiscal 2018. In connection with the adoption of the ASU, UNIFI has elected to recognize forfeitures as they occur, and there is no
corresponding retrospective adjustment to retained earnings. Additionally, UNIFI is presenting the change in classification of excess
tax benefits in the condensed consolidated statements of cash flows on a prospective basis.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting
for Hedging Activities. The ASU is intended to improve and simplify the rules around hedge accounting, reduce complexity for
certain hedging concepts and better align financial reporting with an entity’s risk management activities. UNIFI early adopted ASU
No. 2017-12 in fiscal 2018. Adoption will allow UNIFI to (i) eliminate consideration for hedge ineffectiveness, (ii) utilize a qualitative
effectiveness assessment prospectively and (iii) contemplate hedge accounting for additional risk management activities allowed by
the simplified guidance. Due to a lack of complexity in UNIFI’s recent risk management activities, there are no applicable cumulative
adjustments to UNIFI’s financial statements in connection with adoption of the ASU.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.
The ASU is intended to clarify the definition of a business and reduce the complexity of evaluating transactions that are more akin to
asset acquisitions. UNIFI early adopted ASU No. 2017-01 in fiscal 2018. There are no current period or historical adjustments to
UNIFI’s financial statements required in connection with adoption of the ASU. Any transaction that is required to be evaluated under
the ASU is accounted for prospectively. In April 2018, an asset purchase agreement was evaluated under the ASU and the
associated transaction was recorded as an asset acquisition.
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.
37
Off-Balance Sheet Arrangements
UNIFI is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material
effect on UNIFI’s financial condition, results of operations, liquidity or capital expenditures.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. The SEC has defined a company’s most critical
accounting policies as those involving accounting estimates that require management to make assumptions about matters that are
highly uncertain at the time and where different reasonable estimates or changes in the accounting estimate from quarter to quarter
could materially impact the presentation of the financial statements. 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.
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.
38
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 2018, 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 24, 2018
was $15,143.
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 24, 2018, UNIFI had borrowings under its ABL
Revolver and ABL Term Loan that totaled $113,100 and contain variable rates of interest; however, UNIFI hedges a significant portion
of such interest rate variability using interest rate swaps. As of June 24, 2018, after considering the variable rate debt obligations that
have been hedged and UNIFI’s outstanding debt obligations with fixed rates of interest, UNIFI’s sensitivity analysis indicates that a 50-
basis point increase in LIBOR as of June 24, 2018 would result in an increase in annual interest expense of less than $200.
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 24, 2018, UNIFI had no outstanding foreign currency forward
contracts.
A significant portion of raw materials purchased by UNIFI’s Brazilian subsidiary are denominated in USD, requiring UNIFI to
regularly exchange BRL. A significant portion of sales and asset balances for our Asian subsidiaries are denominated in USD.
During recent fiscal years, UNIFI was negatively impacted by a devaluation of the BRL. Also, the RMB experienced fluctuations in
value throughout fiscal 2018, which generated foreign currency translation losses in certain fiscal quarters. Discussion and analysis
surrounding the impact of fluctuations of the BRL and the RMB on UNIFI’s results of operations are included above in “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
As of June 24, 2018, UNIFI’s subsidiaries outside the United States, whose functional currency is other than the USD, held
approximately 16.4% of UNIFI’s consolidated total assets. UNIFI does not enter into foreign currency derivatives to hedge its net
investment in its foreign operations.
As of June 24, 2018, $37,996, or 84.6%, of UNIFI’s cash and cash equivalents were held outside the United States, of which
$30,561 was held in USD, $3,639 was held in RMB and $3,612 was held in BRL.
More information regarding UNIFI’s derivative financial instruments as of June 24, 2018 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,
39
including certain geo-political risks. A sudden rise in the price of petroleum and petroleum-based products could have a material
impact on UNIFI’s profitability. UNIFI does not use financial instruments to hedge its exposure to changes in these costs. The costs
of the primary raw materials that UNIFI uses throughout all of its operations are generally based on USD pricing, and such materials
are purchased at market or at fixed prices that are established with individual vendors as part of the purchasing process for
quantities expected to be consumed in the ordinary course of business. UNIFI manages fluctuations in the cost of raw materials
primarily by making corresponding adjustments to the prices charged to its customers. Certain customers are subject to an index-
based pricing model in which UNIFI’s prices are adjusted based on the change in the cost of raw materials in the prior quarter.
Pricing adjustments for other customers must be negotiated independently. At times, UNIFI is unable to pass on to its customers
rises in raw material costs and, when it can, there typically is a time lag that adversely affects UNIFI and its margins during one or
more periods. In ordinary market conditions in which raw material price increases have stabilized and sales volumes are consistent
with traditional levels, UNIFI has historically been successful in implementing price adjustments within one to two fiscal quarters of
the raw material price increase for index priced customers and within two fiscal quarters of the raw material price increase for non-
index priced customers.
During fiscal 2018, UNIFI experienced elevated polyester raw material costs in connection with heightened petroleum prices. In
combination with a difficult operating environment characterized by suppressed demand and lower volumes in the domestic
markets, where corresponding price increases were not achieved, these costs drove a significant decline in gross profit for the third
quarter, and, if such costs continue to rise, further gross profit pressure can be expected.
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.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of June 24, 2018, 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 GAAP. 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 GAAP, 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 24, 2018, 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 24, 2018, UNIFI’s internal control over financial
reporting was effective based on the criteria established in Internal Control-Integrated Framework (2013).
40
Attestation Report of the Independent Registered Public Accounting Firm
The effectiveness of UNIFI’s internal control over financial reporting as of June 24, 2018 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 24, 2018.
Changes in Internal Control Over Financial Reporting
During UNIFI’s fourth quarter of fiscal 2018, there has been no change in UNIFI’s internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, UNIFI’s internal control over financial reporting.
Item 9B.
Other Information
None.
41
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
UNIFI will file with the SEC a definitive proxy statement for its 2018 Annual Meeting of Shareholders (the “Proxy Statement”) no later
than 120 days after the close of its fiscal year ended June 24, 2018. The information required by this item with respect to our
executive officers appears in Part I of this Annual Report under the heading “Executive Officers of the Registrant.” The other
information required by this item is furnished by incorporation by reference to the information under the headings “Election of
Directors,” “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.
We have adopted a written Code of Ethics for Senior Financial and Executive Officers (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 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 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); Albert P. Carey (Chief Executive Officer, PepsiCo North America, a consumer products 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, an
executive search and management consulting firm); Suzanne M. Present (Principal, Gladwyne Partners, LLC, a private partnership
fund manager); and Eva T. Zlotnicka (Vice President, ValueAct Capital, an investment adviser).
Item 11.
Executive Compensation
The information required by this item is furnished by incorporation by reference to the information 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 is furnished by incorporation by reference to the information under the headings “Security
Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Proxy Statement.
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,” “Corporate Governance—Policy for Review of Related Person Transactions” 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.
42
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 which met the significant
subsidiary test for UNIFI’s fiscal years ended June 24, 2018, June 25, 2017 and June 26, 2016. 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 29, 2018, which is more than 90
days after UNIFI’s corresponding fiscal year end, June 24, 2018. PAL’s financial statements as of December 29, 2018 and
December 30, 2017 and for the fiscal years ended December 29, 2018, December 30, 2017 and December 31, 2016 will be
filed on or before March 29, 2019.
PAL’s prior fiscal year end was December 30, 2017, which was more than 90 days after UNIFI’s corresponding fiscal year
end. 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 30, 2018 via an amendment to UNIFI’s Annual Report on Form 10-K for the
fiscal year ended June 25, 2017.
43
3. Exhibits
Exhibit
Number
Description
3.1
Restated Certificate of Incorporation of Unifi, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on
Form 8-K filed October 31, 2016 (File No. 001-10542)).
3.2
Amended and Restated By-laws of Unifi, Inc., as of October 26, 2016 (incorporated by reference to Exhibit 3.2 to the
Current Report on Form 8-K filed October 31, 2016 (File No. 001-10542)).
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
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)).
10.1*
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)).
10.2*
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)).
10.3*
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)).
10.4*
10.5*
10.6*
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)).
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)).
10.7*
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)).
44
Exhibit
Number
Description
10.8*
Form of Restricted Stock Unit Agreement for Non-Employee Directors for use in connection with the Unifi, Inc. 2013
Incentive Compensation Plan (used for agreements entered into prior to October 25, 2017) (incorporated by reference
to Exhibit 10.2 to the Current Report on Form 8-K filed October 23, 2013 (File No. 001-10542)).
10.9+*
Form of Restricted Stock Unit Agreement for Non-Employee Directors for use in connection with the Unifi, Inc. 2013
Incentive Compensation Plan (used for agreements entered into on or after October 25, 2017).
10.10*
Form of Restricted Stock Unit Agreement for Employees for use in connection with the Unifi, Inc. 2013 Incentive
Compensation Plan (used for agreements entered into prior to February 21, 2017) (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)).
10.11+* Form of Restricted Stock Unit Agreement for Employees for use in connection with the Unifi, Inc. 2013 Incentive
Compensation Plan (used for agreements entered into on or after February 21, 2017).
10.12*
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)).
10.13*
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)).
10.14*
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)).
10.15*
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)).
10.16*
Amendment to the Unifi, Inc. Supplemental Key Employee Retirement Plan (incorporated by reference to Exhibit 10.1
to the Quarterly Report on Form 10-Q for the quarter ended March 25, 2018 (File No. 001-10542)).
10.17*
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)).
10.18*
Unifi, Inc. Director Compensation Policy (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K
filed October 30, 2017 (File No. 001-10542)).
10.19*
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)).
10.20*
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)).
10.21*
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)).
10.22*
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)).
10.23*
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)).
10.24*
Employment Agreement by and between Unifi, Inc. and John D. Vegas, effective as of July 17, 2017 (incorporated by
reference to Exhibit 10.23 to the Annual Report on Form 10-K for the fiscal year ended June 25, 2017 (File No. 001-
10542)).
10.25*
Employment Agreement by and between Unifi, Inc. and Richard Gerstein, effective as of July 28, 2017 (incorporated
by reference to Exhibit 10.24 to the Annual Report on Form 10-K for the fiscal year ended June 25, 2017 (File No. 001-
10542)).
10.26*
Employment Agreement by and between Unifi, Inc. and Jeffrey C. Ackerman, effective as of September 2, 2017
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed September 6, 2017 (File No. 001-
10542)).
45
Exhibit
Number
10.27
10.28
10.29
10.30
10.31
Description
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)).
10.32** 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)).
10.33+** Addendum and Extension to Yarn Purchase Agreement, effective as of June 30, 2018, by and between Unifi
Manufacturing, Inc. and Hanesbrands Inc.
10.34
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)).
21.1+
List of Subsidiaries of Unifi, Inc.
23.1+
Consent of KPMG LLP.
31.1+
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2+
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1++
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2++
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
101+
The following financial information from Unifi, Inc.’s Annual Report on Form 10-K for the fiscal year ended June 24,
2018, filed August 22, 2018, 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 SEC.
Item 16.
Form 10-K Summary
None.
46
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: August 22, 2018
UNIFI, INC.
By:
/s/ KEVIN D. HALL
Kevin D. Hall
Chairman of the Board and
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 Jeffrey C. Ackerman, 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/ JEFFREY C. ACKERMAN
Jeffrey C. Ackerman
/s/ ARCHIBALD COX, JR.
Archibald Cox, Jr.
/s/ ROBERT J. BISHOP
Robert J. Bishop
/s/ ALBERT P. CAREY
Albert P. Carey
/s/ THOMAS H. CAUDLE, JR.
Thomas H. Caudle, Jr.
/s/ PAUL R. CHARRON
Paul R. Charron
/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
/s/ EVA T. ZLOTNICKA
Eva T. Zlotnicka
Title
Chairman of the Board and Chief Executive Officer
and Director
(Principal Executive Officer)
Executive Vice President & Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Lead Independent Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Date: August 22, 2018
47
UNIFI, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm ......................................................................................................
Consolidated Balance Sheets as of June 24, 2018 and June 25, 2017 .....................................................................................
Consolidated Statements of Income for the fiscal years ended June 24, 2018, June 25, 2017 and June 26, 2016 ..................
Consolidated Statements of Comprehensive Income for the fiscal years ended June 24, 2018, June 25, 2017 and June 26,
2016 .................................................................................................................................................................................................
Consolidated Statements of Shareholders’ Equity for the fiscal years ended June 24, 2018, June 25, 2017 and June 26,
2016 .......................................................................................................................................................................................
Consolidated Statements of Cash Flows for the fiscal years ended June 24, 2018, June 25, 2017 and June 26, 2016 ...........
Notes to Consolidated Financial Statements ..............................................................................................................................
F-1
F-3
F-4
F-5
F-6
F-7
F-8
F-i
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Unifi, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Unifi, Inc. and subsidiaries (the Company) as of June 24, 2018
and June 25, 2017, 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 24, 2018, and the related notes (collectively, the consolidated financial
statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of June 24, 2018 and June 25, 2017, and the results of its operations and its cash flows for each of the years in the
three-year period ended June 24, 2018, 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)
(PCAOB), the Company’s internal control over financial reporting as of June 24, 2018, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and
our report dated August 22, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2011.
Greensboro, North Carolina
August 22, 2018
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Unifi, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Unifi, Inc. and subsidiaries (the Company) internal control over financial reporting as of June 24, 2018, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of June 24, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of June 24, 2018 and June 25, 2017, 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 24, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated August 22,
2018 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’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 are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ KPMG LLP
Greensboro, North Carolina
August 22, 2018
F-2
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
June 24, 2018 June 25, 2017
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
Income taxes payable
Deferred income taxes
Total liabilities
Commitments and contingencies
Common stock, $0.10 par value (500,000,000 shares authorized; 18,352,824 and
18,229,777 shares issued and outstanding as of June 24, 2018 and June 25, 2017,
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
$
$
$
$
44,890 $
86,273
126,311
10,291
6,529
274,294
205,516
3,288
2,990
112,639
3,080
601,807 $
48,970 $
17,720
1,317
16,996
85,003
113,553
5,337
470
7,663
212,026
1,835
56,726
371,753
(40,533 )
389,781
—
389,781
601,807 $
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
See accompanying notes to consolidated financial statements.
F-3
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For the Fiscal Year Ended
June 24, 2018
$
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
(Benefit) provision for bad debts
Other operating expense (income), net
Operating income
Interest income
Interest expense
Loss on sale of business
Equity in earnings of unconsolidated affiliates
Income before income taxes
(Benefit) 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
678,912 $
592,484
86,428
56,077
(38)
1,590
28,799
(560)
4,935
—
(5,787)
30,211
(1,491)
31,702
—
31,702 $
June 25, 2017 June 26, 2016
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
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 $
1.73 $
1.70 $
1.81 $
1.78 $
1.93
1.87
$
$
$
See accompanying notes to consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income including non-controlling interest
Other comprehensive loss:
Foreign currency translation adjustments
Foreign currency translation adjustments for an unconsolidated
affiliate
Changes in interest rate swaps, net of tax of $824, $299 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.
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
33,170
$
32,377 $
31,702 $
(9,250)
(2,936 )
(2,135)
(646)
245
(794)
2,243
(7,653)
24,049
—
24,049 $
(438 )
(3,129 )
29,248
(498 )
29,746 $
77
(2,852)
30,318
(1,245)
31,563
$
See accompanying notes to consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
Common
Stock
Capital in
Excess of
Par Value
Retained
Earnings
Shares
18,007 $ 1,801 $ 44,261 $278,331 $
Accumulated
Other
Comprehensive
Loss
Total
Unifi, Inc.
Shareholders’
Equity
Non-
controlling
Interest
Total
Shareholders’
Equity
(26,899) $
297,494 $
1,599 $
299,093
Balance at June 28, 2015
19
(206 )
27
—
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
—
70
313
—
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
—
3
—
2
178
2,340
—
—
(2)
—
—
—
—
181
2,340
—
—
—
—
181
2,340
—
(21 )
(509)
(5,681)
—
(6,211 )
—
(6,211)
—
120
—
—
(456)
—
—
—
120
(456 )
—
—
120
(456)
—
—
—
(2,852)
(2,852 )
—
(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
31
—
2,756
2,182
—
—
7
(7)
—
—
1,060
—
—
—
—
—
2,787
2,182
—
1,060
—
—
—
—
2,787
2,182
—
1,060
—
—
—
(3,129)
(3,129 )
—
(3,129)
—
—
—
—
— 32,875
18,230 $ 1,823 $ 51,923 $339,940 $
—
—
—
—
(32,880) $
—
32,875
360,806 $
(1,416 )
(498 )
— $
(1,416)
32,377
360,806
Options exercised
Stock-based compensation
Conversion of restricted
stock units
Common stock withheld in
satisfaction of tax
withholding obligations
under net share settle
transactions
Other comprehensive loss,
net of tax
Adoption of ASU No.
2018-02
Net income
Balance at June 24, 2018
86
4
9
—
210
5,075
—
—
47
4
(4)
—
—
—
—
219
5,075
—
—
—
—
219
5,075
—
(14 )
(1 )
(478)
—
—
(479 )
—
(479)
—
—
—
—
(7,653)
(7,653 )
—
(7,653)
—
—
111
—
— 31,702
18,353 $ 1,835 $ 56,726 $371,753 $
—
—
—
—
(40,533) $
111
31,702
389,781 $
—
—
— $
111
31,702
389,781
See accompanying notes to consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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
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 taxes
Accounts payable and accrued expenses
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 on capital lease obligations
Common stock repurchased and retired under publicly announced
programs
Common stock withheld in satisfaction of tax withholding obligations under
net share settle transactions
Proceeds from stock option exercises
Excess tax benefit on stock-based compensation plans
Contributions from non-controlling interest
Other
Net cash provided by financing activities
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
10,013
$
16,646 $
35,425 $
31,702
32,377
33,170
(5,787)
12,236
22,585
—
5,823
—
(5,797)
(277)
(7,529)
(18,198)
(382)
(573)
8,674
(229)
(4,913)
37,335
(25,029)
94
(1,940)
(26,875)
(4,230 )
2,322
20,368
1,662
2,983
(1,060 )
6,886
(1,112 )
1,586
(8,519 )
(1,824 )
(4,724 )
(1,207 )
(233 )
787
46,062
(8,963)
4,732
17,528
—
2,501
(120)
5,983
(302)
(88)
6,843
(304)
(1,115)
(5,710)
(108)
1,928
55,975
(33,190 )
61
(253 )
(33,382 )
(52,337)
2,099
(2,654)
(52,892)
120,500
(101,700)
—
(10,000)
—
—
—
(7,060)
121,800
(118,700 )
14,500
(9,750 )
—
—
—
(4,700 )
153,200
(152,000)
17,375
(9,250)
4,000
790
(1,250)
(4,090)
—
—
(6,211)
(206)
219
—
—
(450)
1,303
—
2,787
1,060
—
(493 )
6,504
—
181
120
1,560
(783)
3,642
(92)
6,633
16,646
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at end of year
(2,298)
9,465
44,890 $
(405 )
18,779
35,425 $
$
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 (UNIFI’s direct customers) that produce yarn and/or fabric for the
apparel, hosiery, home furnishings, automotive, industrial and other end-use markets (UNIFI’s indirect customers). We refer to
these indirect customers as “brand partners.” Polyester 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 (“Flake”) and polyester polymer beads (“Chip”). Nylon
yarns include virgin or recycled textured, solution dyed and spandex covered yarns.
UNIFI maintains one of the textile industry’s most comprehensive product offerings that include a range of specialized, premium
value-added (“PVA”) and commodity solutions, with principal geographic markets in the Americas and Asia.
UNIFI has direct 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.
All dollar amounts, except per share amounts, are presented in thousands (000s), unless otherwise noted.
Fiscal Year
The fiscal year for Unifi, Inc. and its subsidiary in El Salvador ends on the last Sunday in June. Unifi, Inc.’s fiscal 2018, 2017 and
2016 ended on June 24, 2018, June 25, 2017 and June 26, 2016, 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 the subsequent fiscal year ends of its wholly owned subsidiaries. Unifi, Inc.’s fiscal 2018, 2017 and
2016 each consisted of 52 fiscal weeks.
Reclassifications
Certain reclassifications of prior fiscal years’ data have been made to conform to the current presentation.
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 accompanying consolidated financial statements that follow, are an integral part of the
consolidated financial statements.
Principles of Consolidation
The accompanying 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 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.
F-8
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
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 net realizable value, 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 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.
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 expense
(income), 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.
F-9
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
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 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:
(cid:120)
(cid:120)
(cid:120)
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.
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:
(cid:120)
(cid:120)
(cid:120)
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.
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.
F-10
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
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. Penalties and interest related to income tax expense, 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 and restricted stock unit conversions. 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 (“USD”) 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 expense (income), 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 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.
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:
Research and development costs
Selling, General and Administrative Expenses
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
6,907
$
7,177 $
7,792 $
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.
F-11
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
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:
Advertising costs
Self-Insurance
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
4,844
$
3,070 $
3,439 $
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
Issued and Pending Adoption
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers (Topic 606). Subsequent ASUs were issued to provide clarity and defer the effective date
of the new guidance. The new revenue recognition guidance eliminates the transaction- and industry-specific revenue recognition
guidance under current GAAP and replaces it with a principles-based approach. UNIFI has completed a comprehensive
identification of contracts that necessitate a change in revenue recognition in connection with the ASUs, and does not expect the
impact of the change to be material for revenue streams and contracts existing as of June 24, 2018. UNIFI expects to adopt the
related ASUs in fiscal 2019, utilizing the modified retrospective method, recording the impact of open contracts as of June 24, 2018
as an adjustment to the opening balance of fiscal 2019 retained earnings.
Relating to the new revenue recognition guidance, UNIFI estimates the pending impact to the opening balance of fiscal 2019
retained earnings under the modified retrospective method is less than $1,000.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). 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 24, 2018, UNIFI had approximately $5,800 of future minimum lease payments under non-cancelable
operating leases (with initial or remaining lease terms in excess of one year). The new lease guidance is effective for UNIFI’s fiscal
2020, and early adoption is permitted.
Under the guidance in the Securities and Exchange Commission (the “SEC”) Staff Announcement on July 20, 2017 relating to the
transition to ASU No. 2014-09 and ASU No. 2016-02, due to its status as a significant subsidiary of Unifi, Inc., PAL expects to adopt
(i) the new revenue recognition guidance in its fiscal 2019 and (ii) the new lease guidance in its fiscal 2020. PAL is currently
evaluating the impact of the new revenue and lease guidance.
Recently Adopted
In July 2015, the FASB issued ASU No. 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 was effective for UNIFI’s fiscal 2018, with prospective application. UNIFI’s prior
principles for inventory measurement included consideration of net realizable value and, therefore, the adoption of the new standard
had no significant impact on UNIFI’s consolidated financial statements.
In March 2016, the FASB issued ASU No. 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, including the accounting and classification of the respective income tax impacts, forfeitures and statutory
withholding requirements. UNIFI adopted the ASU in fiscal 2018, on a prospective basis. The adoption resulted in a $230 decrease
to the provision for income taxes for excess tax benefits and an immaterial increase in potential dilutive weighted average shares for
fiscal 2018. In connection with the adoption of the ASU, UNIFI has elected to recognize forfeitures as they occur, and there is no
corresponding retrospective adjustment to retained earnings. Additionally, UNIFI is presenting the change in classification of excess
tax benefits in the condensed consolidated statements of cash flows on a prospective basis.
F-12
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting
for Hedging Activities. The ASU is intended to improve and simplify the rules around hedge accounting, reduce complexity for
certain hedging concepts and better align financial reporting with an entity’s risk management activities. UNIFI early adopted ASU
No. 2017-12 in fiscal 2018. Adoption will allow UNIFI to (i) eliminate consideration for hedge ineffectiveness, (ii) utilize a qualitative
effectiveness assessment prospectively and (iii) contemplate hedge accounting for additional risk management activities allowed by
the simplified guidance. Due to a lack of complexity in UNIFI’s recent risk management activities, there are no applicable cumulative
adjustments to UNIFI’s financial statements in connection with adoption of the ASU.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.
The ASU is intended to clarify the definition of a business and reduce the complexity of evaluating transactions that are more akin to
asset acquisitions. UNIFI early adopted ASU No. 2017-01 in fiscal 2018. There are no current period or historical adjustments to
UNIFI’s financial statements required in connection with the adoption of the ASU. Any transaction that is required to be evaluated
under the ASU is accounted for prospectively. In April 2018, an asset purchase agreement was evaluated under the ASU and the
associated transaction was recorded as an asset acquisition.
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 $1,662 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 did not have a
major effect on UNIFI’s consolidated operations and financial results, (ii) the disposal did not represent a strategic shift and (iii) the
enterprise was 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.
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 24, 2018
June 25, 2017
$
$
87,633 $
(2,059 )
(564 )
85,010
—
1,263
86,273 $
83,291
(2,222)
(1,278)
79,791
6
1,324
81,121
Other receivables consists primarily of refunds due for non-income related taxes and refunds due from vendors.
F-13
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
The changes in UNIFI’s allowance for uncollectible accounts and reserves for yarn quality claims were as follows:
Allowance for
Uncollectible
Accounts
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
Credited (charged) to costs and expenses
Translation activity
Deductions
Balance at June 24, 2018
$
$
$
$
Reserves for
Yarn
Quality Claims
(581)
(1,886)
(4)
1,676
(795)
(2,719)
3
2,233
(1,278)
(821)
(9)
1,544
(564)
(1,596 ) $
(1,684 )
(56 )
497
(2,839 ) $
123
34
460
(2,222 ) $
38
125
—
(2,059 ) $
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 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 24, 2018
June 25, 2017
$
$
45,448 $
7,314
8,834
66,314
127,910
(1,599 )
126,311 $
36,748
6,104
7,399
63,121
113,372
(1,967)
111,405
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 $39,870 and $33,231 as of June 24, 2018 and June 25, 2017, 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 24, 2018
June 25, 2017
$
$
3,703 $
1,802
1,024
—
6,529 $
2,992
2,272
1,197
7
6,468
Vendor deposits primarily relates to down payments made toward the purchase of raw materials. Prepaid expenses consists of
advance payments for insurance, professional fees, membership dues, subscriptions, marketing and information technology
services. Value-added taxes receivable relates to recoverable taxes associated with the sales and purchase activities of UNIFI’s
foreign operations.
F-14
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
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 PP&E
Less: accumulated depreciation
Less: accumulated amortization – capital leases
Total property, plant and equipment, net
Assets under capital leases consists of the following:
Machinery and equipment
Transportation equipment
Building improvements
Gross assets under capital leases
Depreciation expense and repair and maintenance expenses were as follows:
June 24, 2018
June 25, 2017
2,860 $
15,118
157,354
34,568
589,237
19,723
5,029
8,651
832,540
(619,654 )
(7,370 )
205,516 $
2,931
15,066
157,115
34,568
579,211
19,360
4,798
7,371
820,420
(612,355)
(4,677)
203,388
June 24, 2018
June 25, 2017
24,467 $
6,273
3,828
34,568 $
24,467
6,273
3,828
34,568
$
$
$
$
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
15,269
$
16,819
18,483 $
18,319
21,109 $
19,761
Depreciation expense
Repair and maintenance expenses
9. Intangible Assets, Net
Intangible assets, net consists of the following:
Customer lists
Non-compete agreements
Trademarks, licenses and other
Total intangible assets, gross
June 24, 2018
$
June 25, 2017
23,615 $
1,925
185
25,725
23,615
4,050
505
28,170
(21,685)
(3,903)
(424)
(26,012)
2,158
Accumulated amortization – customer lists
Accumulated amortization – non-compete agreements
Accumulated amortization – trademarks, licenses and other
Total accumulated amortization
Total intangible assets, net
(22,527 )
(108 )
(100 )
(22,735 )
2,990 $
$
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 was fully amortized in
fiscal 2018 and removed from the accompanying consolidated balance sheets accordingly.
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 in the above 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 through December 2018
using the straight line method over the five-year term of the agreement.
In fiscal 2018, UNIFI purchased certain dyeing assets that are included in the Polyester Segment. The associated non-compete
agreement was valued at $1,875 and is amortized using the straight-line method over its five-year term.
F-15
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
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:
Customer lists
Non-compete agreements
Trademarks, licenses and other
Total amortization expense
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
1,233
$
323
145
1,701
1,020 $
287
74
1,381 $
843 $
205
62
1,110 $
$
The following table presents the expected intangible asset amortization for the next five fiscal years:
Expected amortization
2019
2020
2021
2022
2023
$
1,075 $
724 $
442 $
422 $
327
10. Other Non-Current Assets
Other non-current assets consists of the following:
Interest rate swaps
Other
Total other non-current assets
June 24, 2018
June 25, 2017
$
$
2,259 $
821
3,080 $
—
613
613
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 London Interbank Offer Rate (“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 accompanying consolidated
balance sheets at fair value with a corresponding balance in accumulated other comprehensive loss, and impacts earnings
commensurate with the forecasted transaction.
11. Accrued Expenses
Accrued expenses consists of the following:
Payroll and fringe benefits
Utilities
Property taxes
Current portion of supplemental post-employment plan
Other
Total accrued expenses
June 24, 2018
June 25, 2017
$
$
10,833 $
2,594
835
508
2,950
17,720 $
10,469
2,562
771
42
2,300
16,144
Other consists primarily of employee-related claims and payments, interest, marketing expenses, freight expenses, rent, other non-
income related taxes and deferred revenue.
F-16
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:
Scheduled
Maturity Date
March 2020
March 2020
(2)
ABL Revolver
ABL Term Loan (1)
Capital lease obligations
Total debt
Current portion of capital lease obligations
Current portion of other long-term debt
Unamortized debt issuance costs
Total long-term debt
Weighted Average
Interest Rate as of
June 24, 2018
4.1%
3.7%
3.8%
Principal Amounts as of
June 24, 2018 June 25, 2017
9,300
$
95,000
25,168
129,468
(7,060)
(10,000)
(1,026)
111,382
28,100 $
85,000
18,107
131,207
(6,996 )
(10,000 )
(658 )
113,553 $
$
(1)
(2)
Includes the effects of interest rate swaps.
Scheduled maturity dates for capital lease obligations range from July 2018 to November 2027.
ABL Facility
On March 26, 2015, Unifi, Inc. and its subsidiary, Unifi Manufacturing, Inc. (“UMI”), 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 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., UMI 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, Inc.) 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
24, 2018 was $23,125. In addition, the ABL Facility contains restrictions on particular payments and investments, including certain
restrictions on the payment of dividends and share 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 LIBOR plus an applicable margin of 1.5% to 2.0%, or the Base Rate (as defined below)
plus an applicable margin of 0.5% to 1.0%, 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 24, 2018, UNIFI was in compliance with all financial covenants in the Amended Credit Agreement and the excess
availability under the ABL Revolver was $53,245. At June 24, 2018, the fixed charge coverage ratio was 0.93 to 1.00 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 and cash equivalents.
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.
Capital Lease Obligations
There were no capital leases established in fiscal 2018. During fiscal 2017, UNIFI recorded capital leases with an aggregate present
value of $14,070. The weighted average interest rate for these capital leases is 3.9%.
F-17
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Scheduled Debt Maturities
The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the following five fiscal years and
thereafter:
Fiscal
2019
Fiscal
2020
Fiscal
2021
Fiscal
2022
Fiscal
2023
ABL Revolver
ABL Term Loan
Capital lease obligations
Total
$
$
— $
10,000
6,996
16,996 $
28,100 $
75,000
5,519
108,619 $
— $
—
2,624
2,624 $
— $
—
2,417
2,417 $
Thereafter
—
—
460
460
— $
—
91
91 $
13. Other Long-Term Liabilities
Other long-term liabilities consists of the following:
Supplemental post-employment plan
Uncertain tax positions
Other
Total other long-term liabilities
June 24, 2018
June 25, 2017
$
$
3,045 $
131
2,161
5,337 $
2,822
5,077
3,905
11,804
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 the returns of a money market fund. 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:
United States
Foreign
Income before income taxes
Components of (Benefit) Provision for Income Taxes
(Benefit) provision for income taxes consists of the following:
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
21,679
$
26,564
48,243
2,689 $
40,586
43,275 $
(7,852) $
38,063
30,211 $
$
Current:
Federal
State
Foreign
Total current tax expense
Deferred:
Federal
State
Foreign
Total deferred tax expense
(Benefit) provision for income taxes
For the Fiscal Year Ended
June 24, 2018
June 25, 2017 June 26, 2016
$
$
(4,918) $
(416)
9,639
4,305
(5,315)
(872)
391
(5,796)
(1,491) $
(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
On December 22, 2017, the U.S. government enacted comprehensive tax legislation H.R. 1, formerly known as the Tax Cuts and
Jobs Act. H.R. 1 includes significant changes to existing tax law, including a permanent reduction to the U.S. federal corporate
income tax rate from 35% to 21%, a one-time mandatory deemed repatriation of foreign earning and profits (the “toll charge”),
deductions, credits and business-related exclusions.
F-18
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
The permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% was effective January 1, 2018. When a
U.S. federal tax rate change occurs during a fiscal year, taxpayers are required to compute a weighted daily average rate for the
fiscal year of enactment. As a result of H.R. 1, UNIFI has calculated a U.S. federal corporate income tax rate of 28.27% for its fiscal
2018 tax year.
Staff Accounting Bulletin (“SAB”) No. 118 was issued to address the application of GAAP in situations when a registrant does not
have the necessary information available, prepared, or analyzed in reasonable detail to finalize the calculations for certain income
tax effects of H.R. 1. In accordance with SAB No. 118, in the quarter ended December 24, 2017, we made reasonable estimates
and recorded provisional amounts as described below. Under the transitional provisions of SAB No. 118, we have a one-year
measurement period to complete the accounting for the initial tax effects of H.R. 1. We are still in the process of completing that
accounting.
UNIFI revalued its measurable deferred tax balances based upon the new tax rate at which the temporary differences and
carryforwards are expected to reverse. UNIFI recorded a tax benefit of approximately $4,297 as a result of the net change in
deferred tax balances. This benefit includes a $203 measurement period adjustment to the provisional deferred rate change benefit
previously disclosed, which created an effective rate increase of 0.7%. The accounting for this income tax effect of H.R. 1 is
provisional, and includes estimates that may change based on further analysis performed during the one-year measurement period.
With respect to the toll charge, UNIFI has recorded a provisional charge of $3,901, net of foreign tax credits, based on the following
estimates: (i) earnings and profits of foreign jurisdictions, and (ii) the finalization of taxes paid in foreign jurisdictions, and related
foreign tax credits. Additionally, the estimates have been made based on UNIFI’s interpretation of H.R. 1. The U.S. Treasury has
indicated in Notice 2018-07 and Notice 2018-26 that it expects to issue further guidance to clarify certain technical aspects of H.R.
1, which could impact UNIFI’s computations and provisional amounts recorded. This charge includes a $2,301 measurement period
adjustment to the provisional toll charge previously disclosed, which created an effective rate increase of 7.6%.
UNIFI has recorded all known and estimable impacts of H.R. 1 that are effective for fiscal 2018. Future adjustments to the
provisional numbers will be recorded as discrete adjustments to income tax expense in the period in which those adjustments
become estimable and/or are finalized. UNIFI continues to review the anticipated impacts of the global intangible low-taxed income
(“GILTI”), foreign derived intangible income (“FDII”) deduction, and base erosion anti-abuse tax (“BEAT”), which are not effective
until fiscal 2019. UNIFI has not recorded any impact associated with either GILTI, FDII or BEAT.
Utilization of Net Operating Loss Carryforwards
Domestic deferred tax expense for fiscal 2018 includes the utilization of federal net operating loss (“NOL”) carryforwards of $843.
Foreign deferred tax expense includes the utilization of NOL carryforwards of $773, $756 and $0 for fiscal 2018, 2017 and 2016,
respectively. State deferred tax expense includes the utilization of NOL carryforwards of $116, $26 and $42 for fiscal 2018, 2017
and 2016, respectively.
Effective Tax Rate
Reconciliation from the federal statutory tax rate to the effective tax rate is as follows:
Federal statutory tax rate
Foreign income taxed at different rates
Repatriation of foreign earnings and withholding taxes
Repatriation of foreign earnings due to tax reform
Revaluation of U.S. deferred balances due to tax reform
Change in valuation allowance
Foreign tax credits
Domestic production activities deduction
Research and other credits
State income taxes, net of federal tax benefit
Change in uncertain tax positions
Nondeductible compensation
Nondeductible expenses and other
Effective tax rate
June 24, 2018
For the Fiscal Year Ended
June 25, 2017
June 26, 2016
28.3%
(2.4 )
1.8
23.9
(14.2 )
(12.9 )
(11.0 )
0.5
(1.8 )
(3.9 )
(15.1 )
1.6
0.3
(4.9 )%
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%
F-19
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
The effective tax rate for fiscal 2018 benefited from, among other things, (i) the release of uncertain tax positions due to settlement
with tax authorities, (ii) the deferred tax benefit resulting from the revaluation of UNIFI’s domestic deferred tax balances for the lower
U.S. statutory rate (including valuation allowances on domestic deferred tax assets), (iii) the release of a valuation allowance on
certain NOLs outside the U.S. consolidated group that are now able to be utilized and (iv) a reduction in the valuation allowance
related to foreign NOLs utilized in fiscal 2018. These benefits were partially offset by (a) the one-time deemed mandatory
repatriation of foreign earnings, net of foreign tax credits, (b) withholding taxes on repatriation of foreign earnings and (c)
nondeductible compensation.
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) an increase 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
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) an increase in uncertain tax positions.
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:
PP&E
Other
Total deferred tax liabilities
Net deferred tax liabilities
Deferred Income Taxes - Valuation Allowance
June 24, 2018
June 25, 2017
$
$
5,429 $
411
2,829
10,008
2,089
2,130
5,430
1,105
—
2,226
31,657
(15,143 )
16,514
(20,153 )
(736 )
(20,889 )
(4,375 ) $
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)
In assessing its ability to realize 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-20
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
The balances and activity for UNIFI’s deferred tax valuation allowance are as follows:
For the Fiscal Year Ended
Balance at beginning of year
Decrease (increase) in valuation allowance
Balance at end of year
Components of UNIFI’s deferred tax valuation allowance are as follows:
Investment in a former domestic unconsolidated affiliate
Equity-method investment in PAL
Certain losses carried forward (1)
State NOLs
Other foreign NOLs
Foreign tax credits
Total deferred tax valuation allowance
June 24, 2018
$
(17,957) $
2,814
(15,143) $
June 25, 2017 June 26, 2016
(15,606)
2,056
(13,550)
(13,550 ) $
(4,407 )
(17,957 ) $
$
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
(6,418)
$
(2,102)
(5,030)
—
—
—
(13,550)
(6,269 ) $
(1,520 )
(5,924 )
(108 )
(3,347 )
(789 )
(17,957 ) $
(3,942) $
(1,580)
(1,562)
(169)
(2,460)
(5,430)
(15,143) $
$
(1)
Certain U.S. NOLs and capital losses outside the U.S. consolidated tax filing group.
During fiscal 2018, UNIFI’s valuation allowance decreased by $2,814. The decrease consisted of (i) the release of a $3,808
valuation allowance on NOLs outside the U.S. consolidated tax filing group that are now able to be utilized, (ii) a decrease of $3,433
related to U.S. deferred tax assets to reflect the lower federal ending deferred tax rate and (iii) a decrease of $917 related to foreign
NOLs utilized in 2018. The decrease was partially offset by (a) an increase of $4,640 related to foreign tax credit carryforwards for
which no benefit can be realized and (b) an increase of $635 related to UNIFI’s investment in PAL due to the timing of PAL’s taxable
income versus book income.
During fiscal 2017, UNIFI’s valuation allowance increased by $4,407. The increase consisted primarily of (i) $4,241 of foreign
losses and (ii) $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. The decrease consisted primarily of (i) a decrease of $1,159
related to UNIFI’s investment in PAL due to the timing of PAL’s taxable income versus book income and (ii) 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.
Recognized Tax Benefits
A reconciliation of beginning and ending gross amounts of unrecognized tax benefits is as follows:
For the Fiscal Year Ended
Balance at beginning of year
Gross increases related to current period tax positions
Gross (decreases) 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
June 24, 2018
$
5,236 $
324
(119)
(5,234)
—
207 $
June 25, 2017 June 26, 2016
4,029
110
1,058
(274)
(391)
4,532
4,532 $
473
711
(480 )
—
5,236 $
$
In fiscal 2018, UNIFI recognized a benefit related to the realization of unrecognized tax benefits resulting from settlements with tax
authorities. UNIFI received a notice of audit dated June 29, 2017 from the Department of the Treasury, Internal Revenue Service
(the “IRS”); the tax periods under audit were fiscal years 2013, 2014 and 2015. On June 21, 2018, the IRS completed its
examination.
Unrecognized tax benefits would generate a favorable impact of $130 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 was $(1,030), $(42) and $(23) for fiscal 2018, 2017, and 2016, respectively. UNIFI had
$41, $773 and $279 accrued for interest and/or penalties related to uncertain tax positions as of June 24, 2018, June 25, 2017 and
June 26, 2016, respectively.
F-21
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Expiration of Net Operating Loss Carryforwards and Foreign Tax Credits
As of June 24, 2018, UNIFI had U.S. federal NOL carryforwards of $19,511. Of these carryforwards, $6,930 can be carried forward
indefinitely, and $12,581 will begin to expire in fiscal 2037 if unused. As of June 24, 2018, UNIFI had U.S. federal NOL
carryforwards held outside the U.S. consolidated tax filing group of $6,914. These carryforwards, if unused, will begin to expire in
fiscal 2035. As of June 24, 2018, 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 fiscal 2027.
As of June 24, 2018, UNIFI had $43,589 of U.S. state NOL carryforwards that may be used to offset future taxable income, $8,426
of which are offset by a valuation allowance. Of these carryforwards, $868 can be carried forward indefinitely, and $42,721 will begin
to expire in fiscal 2022 if unused. As of June 24, 2018, the Company also had U.S. state NOL carryforwards held outside the U.S.
consolidated tax filing group of $19,192, $12,279 of which are offset by a valuation allowance. These carryforwards, if unused, will
begin to expire in fiscal 2019.
As of June 24, 2018, UNIFI had foreign NOL carryforwards of $9,866, which are offset by a full valuation allowance. These
carryforwards, if unused, will begin to expire in fiscal 2019.
As of June 24, 2018, UNIFI had U.S. federal foreign tax credits of $3,791, which are offset by a full valuation allowance. These
carryforwards, if unused, will begin to expire in fiscal 2028.
As of June 24, 2018, UNIFI had foreign tax credits in foreign jurisdictions of $1,639 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 2018, the IRS examined UNIFI’s federal income tax returns for fiscal 2014 and 2015, and re-examined the federal income
tax return for fiscal 2013. The examination closed with no proposed adjustments.
In fiscal 2016, the IRS examined UNIFI’s federal income tax return for fiscal 2013. The examination closed with no material
assessment.
In fiscal 2016, the North Carolina Department of Revenue initiated an audit for tax periods ending June 24, 2012 to June 28, 2015.
The audit was not concluded at the end of fiscal 2018. 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, 2013 and material state jurisdictions from June 29, 2014.
Certain carryforward tax attributes generated in years prior remain subject to examination and could change in subsequent tax
years.
Indefinite Reinvestment Assertion
As of June 24, 2018, U.S. income taxes and foreign withholding taxes were not provided for on a cumulative total of approximately
$113,855 of undistributed earnings of UNIFI’s foreign subsidiaries. UNIFI intends to reinvest these earnings indefinitely in its foreign
subsidiaries. If at a later date, these earnings were to be repatriated to the United States, UNIFI would be required to accrue and
pay state income and/or foreign local withholding taxes on these amounts. Determination of the amount of any unrecognized
deferred tax liability on these undistributed earnings is not practicable. UNIFI will continue to assess the existing circumstances,
including any changes in tax laws, and reevaluate the necessity for any deferred tax liability.
F-22
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
15. Shareholders’ Equity
On April 23, 2014, UNIFI announced that its Board of Directors (the “Board”) had approved a stock repurchase program (the “SRP”)
under which UNIFI is authorized to acquire up to $50,000 of its common stock. The SRP has no stated expiration or termination
date, and there is no time limit or specific time frame otherwise for repurchases. Under the 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 under the ABL Revolver, and are subject to applicable limitations and restrictions as set forth in the
ABL Facility. UNIFI may discontinue repurchases at any time that management determines additional purchases are not beneficial
or advisable. The following table summarizes UNIFI’s repurchases and retirements of its common stock under the SRP for the fiscal
periods noted.
Fiscal 2014
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
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
251
349
206
—
—
806
$
$
$
$
$
$
23.19
29.72
30.13
—
—
27.79
$
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 24, 2018 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
369
(720)
(135)
514
Stock Options
During fiscal 2018, 2017 and 2016, UNIFI granted stock options to purchase 73, 153 and 82 shares of its common stock,
respectively, to certain key employees. The stock options vest ratably over the required three-year service period and have 10-year
contractual terms. For fiscal 2018, 2017 and 2016, the weighted average exercise price of the stock options granted was $32.61,
$28.82 and $32.36 per share, respectively. UNIFI used the Black-Scholes model to estimate the weighted average grant date fair
value of $11.14, $10.13 and $20.27 per share, respectively.
F-23
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
For stock options granted, the valuation models used the following assumptions:
Expected term (years)
Risk-free interest rate
Volatility
Dividend yield
June 24, 2018
5.2
2.0%
34.3%
—
For the Fiscal Year Ended
June 25, 2017
5.0
1.4 %
37.9 %
—
June 26, 2016
7.6
2.1%
60.5%
—
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 2018 is as follows:
Stock Options
Weighted
Average
Exercise Price
19.93
32.61
12.49
32.82
—
23.73
478 $
73 $
(123 ) $
(23 ) $
— $
405 $
Weighted
Average
Remaining
Contractual
Life
(Years)
Aggregate
Intrinsic
Value
6.4 $
6.4 $
4.9 $
3,244
3,244
2,976
Outstanding at June 25, 2017
Granted
Exercised
Cancelled or forfeited
Expired
Outstanding at June 24, 2018
Vested and expected to vest as of June 24, 2018
Exercisable at June 24, 2018
405 $
246 $
23.73
19.49
At June 24, 2018, all stock options subject to a market condition were vested.
At June 24, 2018, the remaining unrecognized compensation cost related to the unvested stock options was $707, which is
expected to be recognized over a weighted average period of 1.4 years.
For fiscal 2018, 2017 and 2016, the total intrinsic value of stock options exercised was $2,703, $5,802 and $598, respectively. The
amount of cash received from the exercise of stock options was $219, $2,787 and $181 for fiscal 2018, 2017 and 2016,
respectively. The tax benefit realized from stock options exercised was $398, $1,517 and $155 for fiscal 2018, 2017 and 2016,
respectively.
Restricted Stock Units
During fiscal 2018, 2017 and 2016, UNIFI granted 86, 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. UNIFI estimated the fair value of each employee RSU granted during fiscal 2018, 2017 and 2016 to
be $32.16, $27.66 and $27.46 respectively.
During fiscal 2018, 2017 and 2016, UNIFI granted 30, 31 and 28 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. With respect to the RSUs granted in fiscal 2017 and 2016,
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 2018, 2017 and 2016 to be $35.83, $29.09 and $28.08, respectively.
UNIFI estimates the fair value of RSUs based on the market price of UNIFI’s common stock at the award grant date.
F-24
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
A summary of the RSU activity for fiscal 2018 is as follows:
Weighted
Average
Grant Date
Fair Value Vested
Non-
vested
Total
Outstanding at June 25, 2017
Granted
Vested
Converted
Cancelled or forfeited
Outstanding at June 24, 2018
150 $
116 $
(64) $
— $
(4) $
198 $
27.66
33.12
31.39
—
36.31
29.50
131
—
64
(47 )
—
148
Weighted
Average
Grant Date
Fair Value
25.02
33.12
—
26.35
36.31
27.45
281 $
116 $
— $
(47 ) $
(4 ) $
346 $
At June 24, 2018, the number of RSUs vested and expected to vest was 346, with an aggregate intrinsic value of $10,918. The
aggregate intrinsic value of the 148 vested RSUs at June 24, 2018 was $4,650.
The remaining unrecognized compensation cost related to the unvested RSUs at June 24, 2018 was $3,340, which is expected to
be recognized over a weighted average period of 1.7 years.
For fiscal 2018, 2017 and 2016, the total intrinsic value of RSUs converted was $1,620, $2,120 and $553, respectively. The tax
benefit realized from the conversion of RSUs was $247, $806 and $221 for fiscal 2018, 2017 and 2016, respectively.
Summary
The total cost charged against income related to all stock-based compensation arrangements was as follows:
Stock options
RSUs
Total compensation cost
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
1,379
$
961
2,340
749 $
1,432
2,181 $
884 $
4,042
4,926 $
$
The total income tax benefit recognized for stock-based compensation was $442, $599 and $592 for fiscal 2018, 2017 and 2016,
respectively.
As of June 24, 2018, total unrecognized compensation costs related to all unvested stock-based compensation arrangements were
$4,047. The weighted average period over which these costs are expected to be recognized is 1.6 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:
Matching contribution expense
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
2,331
$
2,538 $
2,643 $
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
F-25
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
(gains) losses included in other operating expense (income), net resulting from the underlying exposures of the foreign currency
denominated assets and liabilities. As of June 24, 2018 and June 25, 2017, 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 Swap A, Swap B and Swap C. 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 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 24, 2018 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 24, 2018
Swap A
Swap B
Swap C
Notional Amount
USD
USD
USD
$ 20,000 Other non-current assets
$ 30,000 Other non-current assets
$ 25,000 Other non-current assets
Balance Sheet Location
Fair Value
Hierarchy
Level 2
Level 2
Level 2
Fair Value
$
$
$
584
877
798
Contingent consideration
— Accrued expenses
Level 3
$
529
As of June 25, 2017
Swap A
Swap B
Swap C
Contingent consideration
Notional Amount
USD
USD
USD
$ 20,000 Other long-term liabilities
$ 30,000 Other long-term liabilities
$ 25,000 Other long-term liabilities
Balance Sheet Location
Accrued expenses
and other long-term liabilities
—
Fair Value
Hierarchy
Level 2
Level 2
Level 2
Fair Value
$
$
$
243
364
201
Level 3
$
925
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 2018 and 2017 by $319 and $42, respectively. Swap D,
a de-designated hedge, impacted interest expense for fiscal 2017 and 2016 by $178 and $375, 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 values due to their short-term nature.
F-26
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
There were no transfers into or out of the levels of the fair value hierarchy for fiscal 2018, 2017 and 2016.
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.
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 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
Other comprehensive (loss) income, net of tax
Balance at June 24, 2018
Foreign
Currency
Translation
Adjustments
Changes in
Interest
Rate
Swaps
Accumulated
Other
Comprehensive
Loss
$
$
$
$
(26,752) $
(2,929)
(29,681) $
(2,691)
(32,372) $
(9,896)
(42,268) $
(147 ) $
77
(70 ) $
(438 )
(508 ) $
2,243
1,735 $
(26,899 )
(2,852 )
(29,751 )
(3,129 )
(32,880 )
(7,653 )
(40,533 )
A summary of other comprehensive (loss) income for fiscal 2018, 2017 and 2016 is provided as follows, noting there is no tax
impact for fiscal 2016:
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 2018
Fiscal 2017
Fiscal 2016
Pre-tax
Tax
After-
tax
Pre-tax
Tax
After-
tax
Pre-tax
After-
tax
$ (9,250) $
— $ (9,250) $ (2,936) $
— $ (2,936 ) $ (2,135) $ (2,135)
(646)
—
(646)
245
—
245
(794)
(794)
3,067
(737)
$ (6,829) $ (824) $ (7,653) $ (3,428) $
(824) 2,243
299
77
299 $ (3,129 ) $ (2,852) $ (2,852)
(438 )
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 24, 2018 June 25, 2017 June 26, 2016
$
$
$
$
31,702 $
18,294
1.73 $
31,702 $
18,294
343
18,637
1.70 $
32,875 $
18,136
1.81 $
32,875 $
18,136
307
18,443
1.78 $
34,415
17,857
1.93
34,415
17,857
558
18,415
1.87
118
390
193
—
—
—
F-27
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 Expense (Income), Net
Other operating expense (income), 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 2017 audited financial statements, PAL
had 13 manufacturing facilities located primarily in the southeast region of the United States and in Mexico, and PAL’s five largest
customers accounted for approximately 78% of total revenues and 73% 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 25, 2017 on March 30, 2018 to provide PAL’s audited financial statements for PAL’s fiscal year ended December 30, 2017.
UNIFI expects to file an amendment to this Annual Report on Form 10-K on or before March 29, 2019 to provide PAL’s audited
financial statements for PAL’s fiscal year ended December 29, 2018.
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 24, 2018, PAL had no futures contracts designated as cash flow hedges.
As of June 24, 2018, UNIFI’s investment in PAL was $110,264, 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 24, 2018
Initial excess capital contributions
Impairment charge recorded by UNIFI in 2007
Anti-trust lawsuit against PAL in which UNIFI did not participate
Investment as of June 24, 2018
U.N.F. Industries, Ltd.
$
$
128,355
53,363
(74,106)
2,652
110,264
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
F-28
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
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 24, 2018, UNIFI’s open purchase orders related to this agreement were $2,489.
UNIFI’s raw material purchases under this supply agreement consist of the following:
UNF
UNFA
Total
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
2,828
$
24,319
27,147
2,254 $
20,493
22,747 $
1,800 $
21,731
23,531 $
$
As of both June 24, 2018 and June 25, 2017, UNIFI had combined accounts payable due to UNF and UNFA of $2,301.
UNIFI has determined that UNF and UNFA are variable interest entities 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 24 2018, UNIFI’s combined investments in UNF and UNFA were $2,375 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 2018 and 2017, 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 as of June 25, 2017 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
$
$
PAL
As of June 24, 2018
Other
Total
289,683 $
162,242
71,026
3,389
377,510
7,598 $
875
3,722
—
4,751
297,281
163,117
74,748
3,389
382,261
41,429
887
42,316
PAL
As of June 25, 2017
Other
Total
247,820 $
183,418
54,389
3,263
373,586
10,340 $
1,039
3,588
—
7,791
258,160
184,457
57,977
3,263
381,377
F-29
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
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
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
Cash received by PAL under cotton rebate program
Earnings recognized by PAL for cotton rebate program
$
$
$
For the Fiscal Year Ended June 24, 2018
Total
Other
PAL
796,010 $
31,112
12,032
12,990
39,404
13,797
13,334
24,097 $
4,646
2,917
2,961
190
—
—
820,107
35,758
14,949
15,951
39,594
13,797
13,334
9,236
3,000
12,236
For the Fiscal Year Ended June 25, 2017
Total
Other
PAL
754,285 $
26,275
10,406
7,814
42,801
14,293
13,491
22,905 $
4,877
3,061
2,988
177
—
—
777,190
31,152
13,467
10,802
42,978
14,293
13,491
822
1,500
2,322
For the Fiscal Year Ended June 26, 2016
Total
Other
PAL
824,248 $
32,626
15,143
17,670
46,235
17,057
16,080
29,463 $
7,651
5,772
5,838
150
—
—
853,711
40,277
20,915
23,508
46,385
17,057
16,080
Distributions received
1,732
3,000
4,732
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 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.
F-30
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
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 calendar 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.
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
lease terms in excess of one year) as of June 24, 2018 by fiscal year are:
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal years thereafter
Total minimum lease payments
Capital leases Operating leases
2,281
$
1,866
1,306
327
32
23
5,835
7,629 $
5,921
2,874
2,569
193
861
20,047 $
$
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
(746 )
(1,194 )
18,107
(6,996 )
11,111
$
Rental expenses incurred under operating leases and included in operating income consist of the following:
Rental expenses
Unconditional Obligations
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
4,867
$
4,357 $
4,835 $
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.
On a fiscal year basis, the minimum payments expected to be made as part of such commitments are as follows:
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023 Thereafter
Unconditional purchase
obligations
$
Unconditional service obligations
$
Total unconditional obligations
7,330 $
2,052
9,382 $
6,841 $
1,416
8,257 $
4,711 $
1,103
5,814 $
2,245 $
986
3,231 $
1,196 $
388
1,584 $
17
351
368
For fiscal 2018, 2017 and 2016, total costs incurred under these commitments consisted of the following:
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
26,790
$
641
27,431
26,984 $
2,575
29,559 $
24,777 $
2,454
27,231 $
$
Costs for unconditional purchase obligations
Costs for unconditional service obligations
Total
F-31
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
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 24, 2018
June 25, 2017
— $
— $
6
6
June 24, 2018
June 25, 2017
306 $
875
1,181 $
298
947
1,245
$
$
$
$
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 24, 2018 June 25, 2017 June 26, 2016
$
3,979 $
147
3,914 $
128
3,751
253
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 2018, 2017 and 2016,
UNIFI earned income by providing for-hire freight services for Salem Global Logistics, Inc.
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.
(cid:120)
(cid:120)
(cid:120)
The operations within the Polyester Segment exhibit similar long-term economic characteristics and primarily 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 primarily 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 primarily 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 primarily 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.
F-32
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
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 December 23, 2016, the date of the sale by UNIFI of its 60% equity ownership
interest in Renewables) 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.
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:
Net sales
Cost of sales
Gross profit
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
For the Fiscal Year Ended June 24, 2018
International All Other
Nylon
Total
Polyester
$ 364,169 $ 102,639 $
92,155
10,484
2,197
12,681 $
333,078
31,091
15,893
46,984 $
$
207,884 $
163,300
44,584
1,648
46,232 $
4,220 $ 678,912
592,484
3,951
86,428
269
256
19,994
525 $ 106,422
For the Fiscal Year Ended June 25, 2017
International All Other
Nylon
Total
Polyester
$ 355,740 $ 112,704 $
100,633
12,071
2,125
14,196 $
315,655
40,085
13,921
54,006 $
$
173,686 $
131,087
42,599
1,119
43,718 $
5,140 $ 647,270
553,106
5,731
94,164
(591 )
17,803
638
47 $ 111,967
For the Fiscal Year Ended June 26, 2016
International All Other
Nylon
Total
Polyester
$ 383,167 $ 131,715 $
113,906
17,809
1,899
19,708 $
333,638
49,529
11,188
60,717 $
$
122,554 $
95,666
26,888
885
27,773 $
6,201 $ 643,637
550,005
6,795
93,632
(594 )
820
14,792
226 $ 108,424
The reconciliations of segment gross profit (loss) to consolidated income before income taxes are as follows:
For the Fiscal Year Ended
Polyester
Nylon
International
All Other
Segment gross profit
SG&A expenses
(Benefit) provision for bad debts
Other operating expense (income), net
Operating income
Interest income
Interest expense
Loss on sale of business
Equity in earnings of unconsolidated affiliates
Income before income taxes
June 24, 2018
$
31,091 $
10,484
44,584
269
86,428
56,077
(38)
1,590
28,799
(560)
4,935
—
(5,787)
30,211 $
June 25, 2017 June 26, 2016
49,529
17,809
26,888
(594)
93,632
47,502
1,684
2,248
42,198
(610)
3,528
—
(8,963)
48,243
40,085 $
12,071
42,599
(591 )
94,164
50,829
(123 )
(310 )
43,768
(517 )
3,578
1,662
(4,230 )
43,275 $
$
F-33
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:
Polyester
Nylon
International
All Other
Segment depreciation expense
Other depreciation and amortization expense
Depreciation and amortization expense
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
11,188
$
1,899
885
820
14,792
2,736
17,528
13,921 $
2,125
1,119
638
17,803
2,565
20,368 $
15,893 $
2,197
1,648
256
19,994
2,591
22,585 $
$
The reconciliations of segment capital expenditures to consolidated capital expenditures are as follows:
For the Fiscal Year Ended
Polyester
Nylon
International
Segment capital expenditures
Other capital expenditures
Capital expenditures
June 24, 2018
$
16,605 $
1,366
3,099
21,070
3,959
25,029 $
June 25, 2017 June 26, 2016
44,517
2,548
2,755
49,820
2,517
52,337
25,442 $
1,247
4,734
31,423
1,767
33,190 $
$
In addition to the capital expenditures noted above, Polyester assets were added in fiscal 2017 via a construction financing
arrangement.
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 24, 2018 June 25, 2017 June 26, 2016
243,093
$
63,141
66,998
373,232
13,337
16,597
4,864
117,412
525,442
270,819 $
57,789
80,824
409,432
27,375
14,904
279
119,513
571,503 $
284,261 $
57,378
95,006
436,645
30,945
17,373
4,205
112,639
601,807 $
$
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
505,721
$
131,715
637,436
529,426 $
112,704
642,130 $
572,053 $
102,639
674,692 $
$
Polyester
Nylon
International
Segment total assets
Other current assets
Other PP&E
Other non-current assets
Investments in unconsolidated affiliates
Total assets
Product sales (excluding the All Other category) are as follows:
Polyester
Nylon
Total
F-34
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Geographic Data
Geographic information is set forth below, beginning with net sales. Brazil and China are reported separately from other foreign
countries when corresponding net sales for a fiscal year exceed 10% of consolidated net sales.
United States
Brazil
China
Remaining Foreign Countries
Total
For the Fiscal Year Ended
June 24, 2018 June 25, 2017 June 26, 2016
472,287
$
83,087
nm
88,263
643,637
420,920 $
110,587
90,998
56,407
678,912 $
113,701
647,270 $
424,490 $
109,079
nm
$
Export sales from UNIFI’s U.S. operations to external customers
$
94,205 $
104,229 $
113,725
nm – Respective amount does not meet UNIFI’s 10% threshold for disclosure.
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
June 24, 2018 June 25, 2017 June 26, 2016
292,854
$
9,714
8,595
311,163
304,696 $
12,616
8,360
325,672 $
305,229 $
12,679
6,317
324,225 $
$
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
26. Quarterly Results (Unaudited)
Quarterly financial data and selected highlights are as follows:
June 24, 2018 June 25, 2017 June 26, 2016
427,679
$
53,993
43,770
525,442
445,947 $
58,598
66,958
571,503 $
455,963 $
59,657
86,187
601,807 $
$
September 24,
2017
For the Fiscal Quarter Ended
March 25,
December 24,
2018
2017
165,867 $
16,556
176
—
176 $
167,478 $
22,676
11,802
—
11,802 $
June 24,
2018
181,325
23,904
10,764
—
10,764
164,242 $
23,292
8,960
—
8,960 $
0.49 $
0.48 $
0.65 $
0.63 $
0.01 $
0.01 $
0.59
0.58
Net sales
Gross profit (1)
Net income including non-controlling interest
Less: net loss attributable to non-controlling interest
Net income attributable to Unifi, Inc. (2)
Net income attributable to Unifi, Inc. per common share:
Basic (3)
Diluted (3)
$
$
$
$
F-35
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. (4)
Net income attributable to Unifi, Inc. per common share:
Basic (3)
Diluted (3)
$
$
$
$
September 25,
2016
For the Fiscal Quarter Ended
March 26,
December 25,
2017
2016
160,896 $
21,130
9,177
—
9,177 $
155,155 $
22,130
4,354
(237 )
4,591 $
June 25,
2017
171,250
27,357
9,704
—
9,704
159,969 $
23,547
9,142
(261)
9,403 $
0.52 $
0.51 $
0.25 $
0.25 $
0.50 $
0.50 $
0.53
0.52
(1)
(2)
(3)
(4)
Gross profit for the fiscal quarter ended March 25, 2018 includes the adverse impact of sustained raw material cost increases
that could not be effectively offset with corresponding selling price increases.
Net income attributable to Unifi, Inc. for the fiscal quarter ended June 24, 2018 includes the reversal of a $3,380 uncertain tax
position relating to certain foreign exchange income applicable to fiscal 2015.
Net income attributable to Unifi, Inc. for the fiscal quarter ended December 24, 2017 includes the reversal of a $3,807
valuation allowance on certain historical NOLs in connection with a tax status change unrelated to the federal tax reform
legislation signed into law in December 2017.
Income per share is computed independently for each of the periods presented. The sum of the income per share amounts
for the fiscal quarters may not equal the total for the fiscal year.
Net income attributable to Unifi, Inc. for the fiscal quarter ended December 25, 2016 includes a loss on sale of business of
$1,662.
27. Supplemental Cash Flow Information
Cash payments for interest and taxes consist of the following:
Interest, net of capitalized interest of $190, $652 and $704, respectively
Income taxes, net of refunds
Non-Cash Investing and Financing Activities
For the Fiscal Year Ended
June 24, 2018
4,459
$
9,962
June 25, 2017 June 26, 2016
3,066
$
9,923
3,282 $
8,123
As of June 24, 2018, June 25, 2017 and June 26, 2016, $3,187, $3,234 and $4,197, respectively, were included in accounts
payable for unpaid capital expenditures.
During fiscal 2017, UNIFI recorded reclassification and non-cash activity relating to a construction financing arrangement.
F-36