UNIFI, INC.
2023
Annual Report on Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 2, 2023
OR
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
Trading Symbol(s)
UFI
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 ☐ No ☒
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 ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
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Accelerated filer
Smaller reporting company
Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of December 30, 2022, the aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant was approximately
$137,729,564. The registrant has no non-voting stock.
As of August 21, 2023, the number of shares of the registrant’s common stock outstanding was 18,084,522.
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the registrant’s 2023
Annual Meeting of Shareholders are incorporated by reference in Part III of this report to the extent described herein.
DOCUMENTS INCORPORATED BY REFERENCE
FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, that relate to our plans, objectives, estimates, and
goals. Statements expressing expectations regarding our future, or projections or estimates relating to products, sales,
revenues, expenditures, costs, strategies, initiatives, or earnings, are typical of such statements and are made under the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs,
assumptions and expectations about our future performance, considering the information currently available to management.
The words “believe,” “may,” “could,” “will,” “should,” “would,” “anticipate,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek,”
“strive,” and words of similar import, or the negative of such words, identify or signal the presence of forward-looking
statements. These statements are not statements of historical fact; they involve risks and uncertainties that may cause our
actual results, performance, or financial condition to differ materially from the expectations of future results, performance, or
financial condition that we express or imply in any forward-looking statement. Factors that could contribute to such differences
include, but are not limited to:
• the competitive nature of the textile industry and the impact of global competition;
• changes in the trade regulatory environment and governmental policies and legislation;
• the availability, sourcing, and pricing of raw materials;
• general domestic and international economic and industry conditions in markets where the Company competes,
including economic and political factors over which the Company has no control;
• changes in consumer spending, customer preferences, fashion trends, and end-uses for the Company’s products;
• the financial condition of the Company’s customers;
• the loss of a significant customer or brand partner;
• natural disasters, industrial accidents, power or water shortages, extreme weather conditions, and other disruptions
at one of the Company’s facilities;
• the disruption of operations, global demand, or financial performance as a result of catastrophic or extraordinary
events, including, but not limited to, epidemics or pandemics such as strains of coronavirus (such as “COVID-19”);
• the success of the Company’s strategic business initiatives;
• the volatility of financial and credit markets, including the impacts of counterparty risk (e.g., deposit concentration
and recent depositor sentiment and activity);
• the ability to service indebtedness and fund capital expenditures and strategic business initiatives;
• the availability of and access to credit on reasonable terms;
• changes in foreign currency exchange, interest, and inflation rates;
• fluctuations in production costs;
• the ability to protect intellectual property;
• the strength and reputation of the Company’s brands;
• employee relations;
• the ability to attract, retain, and motivate key employees;
• the impact of climate change or environmental, health, and safety regulations;
• the impact of tax laws, the judicial or administrative interpretations of tax laws, and/or changes in such laws or
interpretations; and
• other factors discussed below in “Item 1A. Risk Factors” or in the Company’s other periodic reports and information
filed with the Securities and Exchange Commission (the “SEC”).
All such factors are difficult to predict, contain uncertainties that may materially affect actual results, and may be beyond our
control. New factors emerge from time to time, and it is not possible for management to predict all such factors or to assess
the impact of each such factor on the Company. Any forward-looking statement speaks only as of the date on which such
statement is made, and we do not undertake any obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made, except as may be required by federal securities laws.
In light of all the above considerations, we reiterate that forward-looking statements are not guarantees of future performance,
and we caution you not to rely on them as such.
UNIFI, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JULY 2, 2023
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 ....................................................................................................................
Information about our Executive Officers ..........................................................................................
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.
Item 9C
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Equity Securities...........................................................................................................................
[Reserved] .........................................................................................................................................
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...............................................................................................................................
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections...............................................
PART III
Directors, Executive Officers and Corporate Governance.................................................................
Executive Compensation...................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters..........................................................................................................................................
Certain Relationships and Related Transactions, and Director Independence .................................
Principal Accountant Fees and Services ...........................................................................................
PART IV
Exhibits and Financial Statement Schedules ....................................................................................
Form 10-K Summary .........................................................................................................................
Signatures .........................................................................................................................................
Consolidated Financial Statements ...................................................................................................
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F-i
Fiscal Year
The fiscal year for Unifi, Inc., its domestic subsidiaries, and its subsidiary in El Salvador ends on the Sunday in June or July nearest
June 30 of each year. Unifi, Inc.’s fiscal 2023, 2022, and 2021 ended on July 2, 2023, July 3, 2022, and June 27, 2021, respectively.
Unifi, Inc.’s remaining material operating subsidiaries’ fiscal years end on June 30. There were no significant transactions or events
that occurred between Unifi, Inc.’s fiscal year end and such wholly owned subsidiaries’ fiscal year ends. Unifi, Inc.’s fiscal 2023 and
2021 each consisted of 52 weeks, while its fiscal 2022 consisted of 53 weeks.
Presentation
All amounts, except per share amounts, are presented in thousands (000s), unless otherwise noted.
1
PART I
Item 1. Business
Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, “UNIFI,” the “Company,” “we,” “us,” or “our”), is a
multinational company that manufactures and sells innovative recycled and synthetic products, made from polyester and nylon,
primarily to other yarn manufacturers and knitters and weavers (UNIFI’s “direct customers”) that produce yarn and/or fabric for the
apparel, hosiery, home furnishings, automotive, industrial, medical, and other end-use markets (UNIFI’s “indirect customers”). We
sometimes refer to these indirect customers as “brand partners.” Polyester products include partially oriented yarn (“POY”) and
textured, solution and package dyed, twisted, beamed, and draw wound yarns, and each is available in virgin or recycled varieties.
Recycled solutions, made from both pre-consumer and post-consumer waste, include plastic bottle flake (“Flake”), polyester polymer
beads (“Chip”), and staple fiber. Nylon products include virgin or recycled textured, solution dyed, and spandex covered yarns.
UNIFI maintains one of the textile industry’s most comprehensive product offerings that includes a range of specialized, value-added
and commodity solutions, with principal geographic markets in North America, Central America, South America, Asia, and Europe.
UNIFI has direct manufacturing operations in four countries and participates in joint ventures with operations in Israel and the United
States (the “U.S.”).
UNIFI has three reportable segments based on the primary geographies in which UNIFI distributes its products:
• The Americas Segment primarily sells recycled and synthetic products to yarn manufacturers, knitters and weavers that
produce yarn and/or fabric for the apparel, hosiery, home furnishings, automotive, industrial, medical, and other end-use
markets principally in North and Central America. The Americas Segment consists of sales and manufacturing operations
in the U.S., El Salvador, and Colombia.
• The Brazil Segment primarily sells recycled and synthetic products to knitters and weavers that produce fabric for the apparel,
home furnishings, automotive, industrial, and other end-use markets principally in Brazil. The Brazil Segment includes a
manufacturing location and sales offices in Brazil.
• The Asia Segment primarily sells recycled and synthetic products to yarn manufacturers, knitters and weavers that produce
fabric for the apparel, home furnishings, automotive, industrial, and other end-use markets principally in Asia and Europe.
The Asia Segment has no manufacturing assets and includes sales organizations in China, Turkey, and Hong Kong.
Other information for UNIFI’s reportable segments is provided in Note 24, “Business Segment Information,” to the accompanying
consolidated financial statements.
Strategic Overview and Operating Results
We believe UNIFI’s underlying performance during recent fiscal years reflects the strength of our global
initiative to deliver
differentiated solutions to customers and brand partners throughout the world. Our supply chain has been developed and enhanced
in multiple regions around the globe, allowing us to deliver a diverse range of fibers and polymers to key customers in the markets we
serve, especially apparel. These textile products are supported by quality assurance, product development, product and fabric
certifications, hangtags, and co-marketing along with technical and customer service teams across UNIFI’s operating subsidiaries.
We have developed this successful operating platform by improving operational and business processes and deriving value from
sustainability-based initiatives, including polyester and nylon recycling.
This platform has provided underlying 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:
• accelerating innovation and high-quality manufacturing processes;
• expanding the REPREVE® brand;
• growing market share in our major textile regions; and
• penetrating new markets and end-uses.
We believe that further commercial expansion will require a continued stream of new technology and innovation that generates
products with meaningful consumer benefits. Along with our recycled platform, UNIFI has significant yarn technologies that provide
optimal performance characteristics for today’s marketplace, including moisture management, temperature moderation, stretch, ultra-
violet protection, and fire retardation, among others. To achieve further growth, UNIFI remains focused on 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.
increasing the awareness for recycled solutions in applications across fibers and polymers and furthering
We believe that
sustainability-based initiatives with like-minded brand partners will be key to our future success. We also believe that our
manufacturing processes and our technical knowledge and capabilities will allow us to grow market share and develop new textile
programs with new and existing customers. Ultimately, combining leading-edge innovation with our prominent, high-quality brand and
agile regional business model will allow for underlying sales and profitability growth.
2
Our recent efforts to alleviate competitive pressures from imported yarn into the U.S. are intended to complement our strategic
initiatives and to stabilize the market share decline we have experienced in the U.S., while improving facility utilization and cost
absorption. These efforts are further discussed below under the heading “Trade Regulation and Rules of Origin.” Execution on both
our strategic and trade initiatives is expected to increase revenue and profitability.
Fiscal 2023 Financial Performance
The current economic environment and a significant decrease in textile product demand adversely impacted our consolidated sales
and profitability in fiscal 2023. In addition to the current unfavorable economic environment and the inventory destocking measures
taken by brands and retailers, the following pressures continued from fiscal 2022 into fiscal 2023: (i) the impact of inflation on consumer
spending and our own manufacturing costs, (ii) rising interest rates, (iii) the Russia-Ukraine conflict, and (iv) supply chain volatility. As
it pertains to the global business and the Americas Segment in particular, UNIFI will continue to monitor these and other aspects of
the current economic environment and work closely with stakeholders to ensure business continuity and liquidity.
In fiscal 2023, the Brazil Segment's results decreased primarily due to the combination of high priced raw material inventory impacting
gross margins in the first half of the fiscal year and decreasing market prices in Brazil due to low-cost import competition.
In fiscal 2023, the Asia Segment's results decreased primarily due to lower sales volumes in connection with weaker global demand.
The Asia Segment is better able to withstand volatility in product demand due to its asset-light model and the lack of fixed cost
absorption that can be unfavorable in times of weaker demand for asset intensive operations like our Americas and Brazil Segments.
The existing challenges and future uncertainty, particularly for global demand, labor productivity, and potential further inflation, could
worsen and/or continue for prolonged periods, materially impacting our financial performance. The need for future selling price
adjustments could impact our ability to retain current customer programs and compete successfully for new programs in certain
regions.
Cash Deposits and Financial Institution Risk
During fiscal 2023, certain regional bank crises and failures generated additional uncertainty and volatility in the financial and credit
markets. UNIFI currently holds the vast majority of its cash deposits with large foreign banks in our associated operating regions, and
management believes that it has the ability to repatriate cash to the U.S. relatively quickly. Accordingly, UNIFI has not modified its mix
of financial institutions holding cash deposits, but UNIFI will continue to monitor the environment and current events to ensure any
increase in concentration or credit risk is appropriately and timely addressed. Likewise, if any of the financial institutions within our
credit facility or construction financing arrangement (“lending counterparties”) are unable to perform on their commitments, our liquidity
could be impacted. We actively monitor all lending counterparties, and none have indicated that they may be unable to perform on
their commitments. In addition, we periodically review our lending counterparties, considering the stability of the institutions and other
aspects of the relationships. Based on our monitoring activities, we currently believe our lending counterparties will be able to perform
their commitments.
Russia-Ukraine Conflict
We recognize the disruption to global markets and supply chains caused by Russia’s invasion of Ukraine. While volatility and
uncertainty continue, we have no significant customers or supply chain partners in the conflicted region, and we have not been directly
impacted by the conflict. Indirectly, we recognize that additional or prolonged impacts to the petroleum or other global markets could
cause further inflationary pressures to our raw material costs or unforeseen adverse impacts.
COVID-19 Pandemic
Beginning in March 2020 with the World Health Organization’s declaration of the COVID-19 outbreak as a global pandemic, the global
economy experienced the negative effects of local, state and federal containment efforts. These measures significantly reduced
economic activity and demand for UNIFI’s products from March 2020 to December 2020.
In an effort to protect the health and safety of our employees, customers and communities, UNIFI took proactive, aggressive actions
that included implementing safety measures and cost reductions in both manufacturing and selling, general, and administrative
(“SG&A”) expenses without impacting our ability to service customers. Containment measures were relaxed in the U.S. in fiscal 2022
and are evaluated regularly against local, state, and federal recommendations.
Throughout calendar 2020, the Asia Segment’s overall performance and profitability was moderately impacted by the COVID-19
pandemic, while our Americas and Brazil Segments’ operations were more adversely impacted, most notably in the June 2020 and
September 2020 quarters during the most intense declines in global demand.
During fiscal 2021, the local government in Sao Paolo, Brazil issued lockdown orders during late March 2021 that continued into April
2021 in an effort to slow the spread of COVID-19 resulting in store closings and manufacturing shutdowns. The restrictions caused
an immediate disruption of our Brazil Segment’s revenue during the quarantine period, although demand levels recovered at the end
of fiscal 2021.
3
Beginning in March 2022, China implemented a strict COVID-19 zero-tolerance policy that included geographic markets near Suzhou,
China, where our sales and administrative office is located. Due to these severe lockdowns in China, the Asia Segment’s results were
adversely impacted, primarily during the fourth quarter of fiscal 2022 and the first half of fiscal 2023.
While pandemic restrictions eased during fiscal 2023, reversion could adversely impact our operating results.
UNIFI has been able to navigate the negative effects of the COVID-19 pandemic to minimize the overall impact to UNIFI for fiscal
2021, 2022, and 2023 as global demand and consumer spending levels were predominantly restored over fiscal 2021 and such
economic levels did not decline within fiscal 2022.
REPREVE®
In the early 2000s, by recycling our own production waste into useful polyester fibers, we took the first steps toward building an
important supply chain with a focus on sustainability and environmental responsibility. After nearly two decades, our REPREVE brand
has become the quintessential recycled fiber of choice for brand, retail, and textile partners around the globe. REPREVE is most
commonly offered in the following fiber forms: polyester staple fiber, polyester filament, nylon staple fiber, and nylon filament,
comprising our REPREVE Fiber platform. We also sell REPREVE Chip, which is a polyester resin product. Beyond the high quality,
versatility, and breadth of application that REPREVE offers, UNIFI combines transparency, traceability, and certification for REPREVE
products to support our customers’ own sustainability narratives.
REPREVE is our flagship and 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 for expansion into new end uses and markets for REPREVE, as well as continued growth of 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. Expanding sales of REPREVE is an important component of our business strategy,
and we expect to achieve improved margins and deeper relationships with customers accordingly.
We remain committed to sustainability. During fiscal 2023, we achieved a significant milestone by surpassing more than 35 billion
recycled plastic bottles transformed since the inception of REPREVE.
In addition, in fiscal 2021 and 2023, we received comparably
favorable Higg Materials Sustainability Index scores for REPREVE produced in the U.S., demonstrating that the brand’s global
warming potential is meaningfully better than conventional alternatives. Our dedication continues as we pursue our next goal of
reaching the 50 billion recycled plastic bottles mark by December 2025. We will continue growing the business for our REPREVE
products and believe our engagement and research and development work with brands and retailers continues to create new,
worldwide sales opportunities.
The primary metric for tracking growth of the REPREVE brand is REPREVE Fiber sales. REPREVE Fiber represents UNIFI's collection
of fiber products on its recycled platform, with or without added technologies. Of our consolidated net sales in fiscal 2021, 2022, and
2023, REPREVE Fiber sales comprised 37%, 36% and 30%, or $245,832, $293,080, and $186,161, respectively. The decline in such
REPREVE Fiber sales for fiscal 2023 was driven primarily by weak global demand and lower sales volume for our Asia Segment.
Capital Investments
In fiscal 2018, we completed a significant, three-year capital investment plan to increase our manufacturing capabilities and capacity,
expand our technological foundation, and customize our asset base to improve our ability to deliver small-lot and high-value solutions.
These investments were made primarily for the Americas Segment.
Most notably, we made significant investments in the production and supply chain for REPREVE, including backward integration by
building a bottle processing facility and additional production lines in the REPREVE Recycling Center.
Subsequent to the multi-year capital investment plan, our capital investments ranged from approximately $15,000 to $25,000 each
fiscal year, and most recently included making (i) further improvements in production capabilities and technological enhancements in
the Americas and (ii) annual maintenance capital expenditures.
Fiscal 2021 through 2023 capital investments increased in connection with our planned investment of approximately $100,000 into
the Americas and Brazil Segments for new eAFK Evo texturing machinery that has significant efficiency, productivity, and flexibility
benefits over our legacy equipment. We are encouraged by the performance metrics surrounding the eAFK Evo texturing machines
currently operating in our facilities, and we expect these upgrades to generate meaningful investment returns in the future when
product demand recovers. When approximately 75% of the $100,000 project was completed in March 2023 and all related investments
for the Brazil Segment had been completed, UNIFI negotiated a contract modification with the equipment vendor because of the
weaker demand environment in fiscal 2023. The contract modification was executed at a cost to UNIFI of $623 and allows UNIFI to
delay the remaining equipment purchases and installation activities for 18 months, such that approximately $25,000 of capital
expenditures originally expected over the March 2023 to September 2024 period are now expected to occur over the September 2024
to March 2026 period. This action allows for improved short- and mid-term liquidity in light of the current subdued levels of sales and
facility utilization and allows for a better matching of future capital expenditures with expected higher levels of future business activity.
4
In fiscal 2024, we expect to invest between $14,000 and $16,000 in capital projects, including making further improvements in
production capabilities and technological enhancements in the Americas and annual maintenance capital expenditures.
Nonetheless, as demonstrated in fiscal 2023, economic disruptions and other factors could adversely impact the speed at which we
invest in capital projects, as we continue to prioritize liquidity, safety, and maintenance.
Share Repurchases
In addition to capital investments and debt retirement, UNIFI may utilize excess cash for strategic share repurchases. On October 31,
2018, UNIFI announced that the Company's Board of Directors (the “Board”) approved a share repurchase program (the “2018 SRP”)
under which UNIFI is authorized to acquire up to $50,000 of its common stock. Under the 2018 SRP, purchases may be made from
time to time in the open market at prevailing market prices or through private transactions or block trades. The timing and amount of
repurchases will depend on market conditions, share price, applicable legal requirements, and other factors. The share repurchase
authorization is discretionary and has no expiration date.
As of July 2, 2023, UNIFI had repurchased 701 shares at an average price of $15.90 per share, none of which occurred in fiscal 2023,
leaving $38,859 available for repurchase under the 2018 SRP. UNIFI will continue to evaluate opportunities to use excess cash flows
from operations or existing borrowings to repurchase additional stock, while maintaining sufficient liquidity to support its operational
needs and to fund future strategic growth opportunities.
Developments in Principal Markets
Americas
Our operations in the U.S., El Salvador and Colombia utilize the Dominican Republic—Central America Free Trade Agreement
(“CAFTA-DR”) and the United States-Mexico-Canada Agreement (“USMCA”). Prior to the establishment of the USMCA, we benefited
from a similar, historical agreement known as the North American Free Trade Agreement (“NAFTA”).
Over the last several years, apparel production experienced growth in the North and Central America regions, which comprise the
principal markets for UNIFI’s Americas Segment. The share of synthetic apparel production for these regions as a percentage of U.S.
retail stabilized at approximately 18%. 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.
During the last six fiscal years, several key drivers affected our financial results in the Americas. During fiscal 2018 and 2019, our
operations in the U.S. were unfavorably impacted by (i) rising raw material costs and (ii) a surge of imported polyester textured yarn
that depressed our pricing, market share, and fixed cost absorption. During fiscal 2020, our financial results began to improve following
more stable import and raw material cost environments. However, the COVID-19 pandemic had a significant unfavorable impact to
product demand and our annual profitability suffered accordingly. Near the end of fiscal 2020, we divested a minority interest
investment and significantly improved our liquidity position, supporting business preservation and the ability to capture long-term
growth opportunities. Throughout fiscal 2021, our businesses experienced sequential improvement alongside global demand and
economic recovery, and we capitalized on profitable opportunities that fueled strong consolidated results. Throughout fiscal 2022 and
2023, we experienced adverse pressure from rising input costs and weakening manufacturing productivity. In addition, in fiscal 2023,
the Americas Segment experienced lower volumes as a result of lower global demand in connection with the inventory destocking
efforts of major brands and retailers. Looking ahead, we believe our operations remain well-positioned to capture long-term growth
opportunities, and we are working to mitigate any potential recessionary impacts.
Brazil
UNIFI’s Brazilian operations play a key role in our strategy. This segment is primarily impacted by (i) price pressures from imported
fiber, fabric, and finished goods (similar to our U.S. operations), (ii) the inflation rate in Brazil, and (iii) changes in the value of the
Brazilian Real (“BRL”). Competition and economic and political volatility remain challenging conditions in South America, despite our
strong performance in fiscal 2021 and 2022, thus UNIFI continues to (i) aggressively pursue mix enrichment and market share by
working with customers to develop programs using our differentiated products, including REPREVE, and (ii) implement process
In addition, our installation of eAFK Evo machinery in
improvements and manufacturing efficiency plans to help lower per-unit costs.
Brazil has been highly successful in generating manufacturing efficiencies and the associated finished goods have been highly
regarded by customers.
Asia
UNIFI’s Asia operations remain an important part of our strategy due to the significant capacity and production that exists in Asia,
which enhances our ability to service customers with global supply chains. Competition in the Asia region remains high; however,
interest and demand for UNIFI’s products in Asia have helped support strong underlying 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
portfolio and expect a rebound in the Asian market in the second half of fiscal 2024.
Looking ahead, we expect to expand into additional markets in India, Europe, Africa, and the Middle East utilizing the asset-light
supply chain and service model that has been successful for us in Asia.
5
As we expand our operations outside of the Americas, we will continue to evaluate the level of capital investment required to support
the needs of our customers and we intend to 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, medical, and home furnishings, among others. 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.
According to data compiled by PCI WoodMackenzie, a global leader in research and analysis for the polyester and raw material
markets, global demand for polyester yarns has grown steadily since 1980. In calendar 2003, polyester replaced cotton as the fiber
with the largest percentage of worldwide fiber sales. Global polyester consumption has accounted for an estimated 56% of global
fiber consumption, and global demand was projected to increase by approximately 3.0% to 3.5% annually through calendar 2025.
Global nylon consumption accounts for an estimated 5% of global fiber consumption. 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 account for
approximately 62% of North American textile consumption.
According to the National Council of Textile Organizations, the U.S. textile and apparel industry’s total shipments were approximately
$65.8 billion for calendar 2022 as the U.S. textile and apparel industry exported nearly $34.0 billion of textile and apparel products.
The U.S. textile industry remains a large manufacturing employer.
Trade Regulation and Rules of Origin
The duty rate on imports into the U.S. 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 U.S. 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 the Americas Segment and the Colombia and Peru free trade agreements (collectively, the
“Regional FTAs”). The 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 the Regional FTAs.
The U.S.'s adoption of the USMCA in calendar 2020 did not significantly impact textile and apparel trade in the region. The USMCA
includes strong rules of origin and closed several loopholes in the NAFTA that allowed non-originating inputs, such as sewing thread,
pocketing, and narrow elastic fabrics.
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 U.S. and must consist of yarns and fibers produced in the U.S. UNIFI
believes it is the largest producer of polyester and nylon filament 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 half of UNIFI’s sales within the Americas Segment 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 region covered by the Americas
Segment will continue to maintain its share of apparel production as a percentage of U.S. retail. UNIFI believes the remaining synthetic
apparel production within these markets is more specialized and defensible, and, in some cases, apparel producers are bringing
programs back to this region as part of a balanced sourcing strategy for certain brands and retailers. Because UNIFI is the largest of
only a few significant producers of Compliant Yarns under the Regional FTAs, UNIFI continues 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 this region.
Over the longer term, the textile industry in this region is expected to continue to be impacted by Asian supply chains where costs are
much lower and regulation is limited.
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Imports of polyester textured yarn from China and India, which increased approximately 79% from calendar 2013 to 2017 and which
continued to grow during calendar 2018, remained elevated during fiscal 2019 and created considerable pressure on our margins and
competitiveness in the U.S. Accordingly, in October 2018, UNIFI filed antidumping and countervailing duty cases with the U.S.
Department of Commerce (the “Commerce Department”) and the U.S. International Trade Commission (the “ITC”) alleging that
dumped and subsidized imports of polyester textured yarn from China and India were causing material injury to the domestic polyester
textured yarn industry.
In response to antidumping and countervailing duty cases filed with the Commerce Department and the ITC in October 2018, the
Commerce Department announced on April 29, 2019 affirmative preliminary countervailing duty determinations on unfairly subsidized
imports of polyester textured yarn from (i) China at rates of 32% or more and (ii) India at rates of 7% or more. Subsequently, the
Commerce Department and the ITC completed their investigations and began imposing associated final duties on imports. Pursuant
to the conclusion of these investigations, subject imports from China and India are assessed combined antidumping and countervailing
duty rates of 97% and higher and 18% and higher, respectively, in addition to normal course duties in effect. The positive developments
in our pursuit of relief from low-cost and subsidized imports are critical steps in our efforts to compete against imported yarns that
have flooded the U.S. market in recent years.
Subsequent to the completion of the trade initiatives against China and India, imports from Indonesia, Malaysia, Thailand, and Vietnam
(the “Subject Countries”) seemingly replaced the imports from China and India and surged into the U.S. market. Subject import volume
from the Subject Countries increased from calendar 2017 to calendar 2019 by over 80%. Similar to the adverse impacts of imports
from China and India in previous years, the subject imports from the Subject Countries undersold the domestic industry, taking sales
from, and exerting considerable downward pricing pressure on, yarns produced by UNIFI. Accordingly, UNIFI was again a petitioner
to the Commerce Department and the ITC alleging dumping of polyester textured yarn in the U.S. market from the Subject Countries.
In December 2020, the ITC made affirmative determinations in its preliminary phase of antidumping duty investigations concerning
polyester textured yarn from the Subject Countries. In May 2021, the Commerce Department announced preliminary antidumping duty
rates on imports from the Subject Countries. In November 2021, the ITC determined that the U.S. textile industry was materially injured
by reason of imports of polyester textured yarn from the Subject Countries, and in December 2021, the Commerce Department issued
unanimous final antidumping duty orders on such imports. The applicable rates for the applicable countries range as follows:
Indonesia, 7% to 26%; Malaysia, 8%; Thailand, 14% to 56%; and Vietnam, 2% to 22%.
While the ultimate short-term and long-term impacts of these duties are not yet known, UNIFI expects these countervailing and
antidumping duty rates to play a significant role in helping to normalize the competitive position of UNIFI’s yarns in the U.S. market
against the respective imported yarns.
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 that 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 have significant 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 products that UNIFI historically has been able to leverage
to generate higher margins.
UNIFI’s major competitors in the Americas region for polyester yarns are Aquafil O'Mara; United Textiles of America S.de R.L. de
C.V.; NanYa Plastics Corp. of America (“NanYa”); AKRA, S.A. de C.V.; and C S Central America S.A. de C.V.
UNIFI’s major competitors in Brazil are 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, much of our portfolio in the Asia region is advantaged by specialty and recycled products and a global sourcing and support
model that assists in differentiation.
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UNIFI’s major competitors for nylon yarn sales in the U.S. are Sapona Manufacturing Company, Inc. and McMichael Mills, Inc.
Globally, competitors for our REPREVE products include recycled brands from Far Eastern New Century, Tiejin, Radici, and
Polygenta.
Raw Materials, Suppliers and Sourcing
The primary raw material supplier for the Americas Segment of virgin Chip and POY is NanYa. For the Brazil Segment, Reliance
Industries, Ltd. is the primary supplier of POY. The primary suppliers of nylon raw materials for the Americas Segment are U.N.F.
Industries Ltd. (“UNF”); UNF America, LLC (“UNFA”); The LYCRA Company; and Nilit Ltd. Each of UNF and UNFA is a joint venture
owned 50% by UNIFI. Currently, there are multiple domestic and foreign suppliers available to fulfill UNIFI’s sourcing requirements
for its recycled products. The majority of plastic bottles we utilize in the U.S. are obtained in open-market transactions from various
entities throughout the U.S., while our Asian subsidiaries source recycled materials from various countries and entities throughout
Asia.
For its operations in the U.S., UNIFI produces and buys certain of its raw material fibers for Compliant Yarns from a variety of sources
in both the U.S. 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.
UNIFI’s 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 technological advancements in recycling, we believe the Flake
produced at the bottle processing facility enhances our ability to grow REPREVE into other markets, such as nonwovens, carpet fiber,
and packaging.
The prices of the principal raw materials used by UNIFI continuously fluctuate, and it is difficult or impossible to predict trends or
upcoming developments. During fiscal 2020 and 2021, UNIFI operated in a predominantly decreasing polyester raw material cost
environment. During fiscal 2022, UNIFI operated in a predominantly increasing polyester raw material cost environment. During fiscal
2023, the prices of polyester raw materials used by UNIFI began to decrease from their peak during the summer of calendar 2022.
We consider the raw material price decreases during most of fiscal 2020 and fiscal 2021 to be the result of a decline in COVID-related
global demand, while increasing raw material prices during the second half of fiscal 2021 and most of fiscal 2022 appeared to reflect
global demand rebounds and inflationary pressures. We consider the raw material price decreases during most of fiscal 2023 to be
the result of a decline in global demand. 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, increase, or decrease. In any event, UNIFI monitors these dynamic factors closely and does not currently engage
in hedges of polyester or nylon raw materials.
Products, Technologies and Related Markets
Our virgin and recycled products sold across all geographies range from specialty, value-added to commodity. We provide products
to a variety of end-use markets, principally apparel, industrial, furnishings, and automotive.
We estimate consolidated net sales for fiscal 2023 were distributed across our primary end markets as listed below.
• Apparel (including hosiery and footwear) represented approximately 65% of our consolidated net sales.
• Industrial represented approximately 11% of our consolidated net sales, and includes medical, belting, tapes, filtration, ropes,
protective fabrics, and awnings.
• Furnishings (including both contract and home furnishings) represented approximately 9% of our consolidated net sales, and
are largely dependent upon the housing market, which, in turn, is influenced by consumer confidence and credit availability.
• Automotive represented approximately 4% of our consolidated net sales.
• All other markets represented approximately 11% of our consolidated net sales.
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. UNIFI’s branded yarns can be found in a variety of products of well-known international brands, retailers, and
department stores.
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: water repellency, flame retardation, soil release, enhanced color-fastness achieved with less water use,
and protection from ultra-violet rays, among other attributes.
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As we continue to diversify our portfolio beyond apparel and pursue new end markets, we expect to gain margin accretive sales and
improve facility utilization.
Customers
UNIFI’s Americas Segment, Brazil Segment, and Asia Segment serve approximately 500, 400, and 600 customers, respectively, 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. One direct customer, OIA Global, comprised 15% of the Asia Segment's sales in fiscal
2023. UNIFI’s top 10 direct customers accounted for approximately 26% of consolidated net sales for fiscal 2023 and approximately
28% of receivables as of July 2, 2023. However, UNIFI’s consolidated net sales are dependent on demand from a relatively small
number of brand partners.
Sales and Marketing
UNIFI employs an internal sales force of approximately 60 persons operating out of sales offices primarily in the U.S., Brazil, China,
El Salvador, Colombia, Turkey, and Europe. UNIFI also relies on independent sales agents for sales in several other countries. UNIFI
seeks to create strong customer relationships and to build and strengthen those relationships throughout the supply chain. Through
frequent communications with customers, partnering 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 products, including recent engagements involving REPREVE at multiple events and
venues in the U.S. UNIFI then works with key fabric mill partners to develop specific fabrics for those brands and retailers utilizing
UNIFI 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 enable consumers to find REPREVE and other performance technology products 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 Brazil and transfers relevant technical knowledge to its asset light operations in Asia for manufacture with trusted supply
chain partners. UNIFI believes that its flexibility and expertise in producing specialty recycled and synthetic products provide important
development and commercialization advantages, in addition to the recent ability to integrate vertically with post-industrial and post-
consumer materials.
UNIFI produces Flake, 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, dyeing, twisting, beaming, draw winding, and covering. The
texturing process 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. Solution dyeing and package dyeing allow for
matching of customer-specific color requirements for yarns sold into various 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. Lastly, covering operations utilize a spandex core to produce yarns with more
stretch, compression, or comfort.
UNIFI’s subsidiaries in Asia offer the same high-quality and innovative 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 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 130 persons, primarily in the U.S., 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 yarns that meet the needs of evolving consumer
preferences. Most of UNIFI’s branded yarns, including its flagship REPREVE brand, were derived from its research and development
initiatives.
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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 2023, 2022, and 2021, UNIFI incurred $10,871, $12,103, and $11,483, respectively, in costs for research and development
(including salaries and benefits of the personnel involved in those efforts).
Intellectual Property
UNIFI has numerous trademarks registered in the U.S. 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.
UNIFI licenses certain trademarks, including Dacron® and Softec™, from Invista S.a.r.l. (“INVISTA”).
UNIFI also employs its innovative manufacturing know-how, methods, and processes to produce and deliver proprietary solutions to
customers and brand partners. UNIFI relies on the copyright and trade secret laws of the U.S. and other countries, as well as
nondisclosure and confidentiality agreements, to protect these rights.
Human Capital
As of July 2, 2023, UNIFI had approximately 2,800 employees, which includes approximately 200 individuals working under temporary
labor contracts. The number of employees in each of the Americas, Brazil, and Asia Segments and the corporate office were
approximately 2,000, 610, 90, and 100, respectively, at July 2, 2023. While employees of our Brazil Segment are unionized, none of
the labor forces employed by UNIFI’s domestic or other foreign subsidiaries are currently covered by a collective bargaining
agreement. UNIFI believes the Company has a good relationship with its employees.
We believe in the importance of the retention, growth, and development of our employees. UNIFI endeavors to offer competitive
compensation and benefits packages to our employees, as well as professional development opportunities to cultivate talent
throughout the organization. We focus on employee health and safety initiatives, with thorough training and monitoring practices to
enhance workplace safety. We also value people and ideas from varying backgrounds and are constantly striving to create a more
diverse workforce and inclusive organization.
Geographic Data
Geographic information reported in conformance with U.S. generally accepted accounting principles (“GAAP”) is included in Note 24,
“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 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.
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, along 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 report.
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Inflation
Prior to fiscal 2021, UNIFI’s input costs had experienced steady and predictable increases. However, in calendar 2021 and 2022,
UNIFI, along with many other textile manufacturers and a range of other industries, began to experience above-average inflationary
pressures on a range of input costs, including, but not limited to, labor, freight, energy, and raw materials. Accordingly, we began
implementing responsive selling price adjustments during both fiscal 2021 and 2022 to protect gross margins. In calendar 2023, UNIFI
experienced a slight decline in these inflationary pressures, but some of these input costs were still above historical levels. While our
selling price adjustments have thus far been successful at mitigating much of the inflationary pressure that has occurred, further
significant fluctuations in input costs may not be immediately recoverable via selling price adjustments and our gross margins could
suffer. However, we monitor our input costs closely, and we expect to maintain our ability to respond quickly to cost fluctuations to
minimize any potential adverse impacts to earnings.
Beyond the current inflationary environment experienced in fiscal 2022 and 2023, UNIFI expects that costs could continue to rise long
term for certain consumables used to produce and ship its products, as well as for its utilities and labor. UNIFI expects to mitigate the
impacts of such rising costs through increased operational efficiencies and increased selling prices, but rising inflation could be a
factor that negatively impacts UNIFI’s profitability.
In the past, selling price adjustments were primarily associated with changes in the price of polyester and nylon raw materials, but the
current environment requires that selling price adjustments accommodate significant increases in all categories of input costs,
including packaging, supplies, additives, and labor. For the majority of our portfolio, we were able to implement selling price
adjustments to protect gross margins in fiscal 2022. However, some selling price adjustments in the U.S. and Central America were
not realized rapidly enough in fiscal 2022 to avoid temporary gross margin declines in certain portions of our portfolio. While we
navigated the dynamic cost environment during fiscal 2021 through 2023 better than in earlier prior years, fixed cost absorption and
manufacturing productivity have adversely impacted our gross margin and remain current headwinds to UNIFI’s profitability, most
notably in the Americas Segment.
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), 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.
On September 30, 2004, Unifi Kinston, LLC (“UK”), a subsidiary of Unifi, Inc., completed its acquisition of polyester filament
manufacturing assets located in Kinston, North Carolina (“Kinston”) 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 (the “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, UK entered into a lease termination agreement associated with conveyance of certain assets at the Kinston site to DuPont.
This agreement terminated the Ground Lease and relieved UK of any future responsibility for environmental remediation, other than
participation with DuPont, if so called upon, with regard to UK’s period of operation of the Kinston site, which was from 2004 to 2008.
At this time, UNIFI has no basis to determine if or when it will have any responsibility or obligation with respect to the AOCs or the
extent of any potential liability for the same. UK continues to own property (the “Kentec site”) acquired in the 2004 transaction with
INVISTA that has contamination from DuPont’s prior operations and is monitored by DEQ. The Kentec site has been remediated by
DuPont, and DuPont has received authority from DEQ to discontinue further remediation, other than natural attenuation. Prior to
transfer of responsibility to UK, DuPont and UK had a duty to monitor and report the environmental status of the Kentec site to DEQ.
Effective April 10, 2019, UK assumed sole remediator responsibility of the Kentec site pursuant to its contractual obligations with
INVISTA and received $180 of net monitoring and reporting costs due from DuPont.
In connection with monitoring, UK expects to
sample and report to DEQ annually. At this time, UNIFI does not expect any active site remediation will be required but expects that
any costs associated with active site remediation, if ever required, would likely be immaterial.
Joint Ventures and Unconsolidated Affiliates
UNIFI participates in two joint ventures that supply raw materials to the Americas Segment, one located in the U.S. and one in Israel.
As of July 2, 2023, UNIFI had $2,997 recorded for these investments in unconsolidated affiliates. 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 under the subheading “Investments in Unconsolidated Affiliates” in Note 10, "Other Non-Current Assets," to the
accompanying consolidated financial statements.
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Available Information
UNIFI’s website is www.unifi.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-
K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), as well as proxy statements and other information we file with, or furnish to, the 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 or linked to or from our website is
not a part of this report and is not incorporated by reference in this 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: Corporate 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.
Strategic Risks
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 U.S. 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 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, if new and/or larger competitors
emerge in the future, or if UNIFI’s brand reputation is detrimentally impacted, 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 Americas region losing market share
to Chinese imports, thereby adversely impacting UNIFI’s sales and profits. While foreign competitors have traditionally focused on
commodity production, entities are now increasingly focused on value-added products and unbranded recycled products. Competition
from unbranded recycled yarns has recently increased, and could drive market share losses for our flagship REPREVE brand. 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 partners’ supply chains. A significant portion of our
overall sales is tied to ongoing programs for a limited 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.
12
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 quarters, 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 related 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. When it can, there is typically a time lag that adversely affects
UNIFI and its margins during one or more quarters. 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 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
chip and recycled chip 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.
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 that 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/or financial condition.
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 U.S. 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.
13
Financial Risks
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 foreign operations in Brazil, China, Colombia, El Salvador, and Turkey and participates in joint ventures located in Israel
and the U.S.
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 ventures
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 anti-
bribery and corruption laws and regulations of other countries in which we do business. UNIFI maintains policies prohibiting these
practices but 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 may be subject to greater tax liabilities.
UNIFI is subject to income tax and other taxes in the U.S. and in numerous foreign jurisdictions. UNIFI’s domestic and foreign income
tax liabilities are dependent on the jurisdictions in which profits are determined to be earned and taxed. Additionally, the amount of
taxes paid is subject to UNIFI’s interpretation of applicable tax laws in the jurisdictions in which we operate. Changes in tax laws
including further regulatory developments arising from U.S. tax reform legislation, judicial interpretations in the jurisdictions in which
we operate, and multi-jurisdictional changes enacted in response to the action items provided by the Organization for Economic Co-
operation and Development could have an adverse effect on UNIFI’s business, financial condition, operating results, and cash flows.
Significant judgment, knowledge, and experience are required in determining our worldwide provision for income taxes.
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.
During fiscal 2023, certain regional bank crises and failures generated additional uncertainty and volatility in the financial and credit
markets. UNIFI currently holds the vast majority of its cash deposits with large foreign banks in our associated operating regions, and
management believes that it has the ability to repatriate cash to the U.S. relatively quickly, although management recognizes that
various inherent risks do exist in executing the repatriation of cash from foreign subsidiaries. If any of the financial institutions within
our 2022 Credit Agreement or construction financing arrangement our lending counterparties are unable to perform on their
commitments, our liquidity could be adversely impacted, and we may not be able to adequately fund our operations and pay our debts
as they become due. We actively monitor all lending counterparties, and none have indicated that they may be unable to perform on
their commitments. In addition, we periodically review our lending counterparties, considering the stability of the institutions and other
aspects of the relationships. Based on our monitoring activities, we currently believe our lending counterparties will be able to perform
their commitments.
Operational Risks
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, dyes, and chemicals. 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 USMCA/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
14
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.
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, pandemics, 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 to 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.
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. We carry cyber liability insurance
against cyber attacks, with limits we deem adequate for the reimbursement for damage to our computers, equipment, and networks
and resulting disruption of our operations. However, any disruption from a cyber attack 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. We have been a target of cybersecurity attacks in the past and, while such attacks have not resulted
in a material impact on our operations, business, or customer relationships, such attacks could in the future.
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 significant liability and reputational harm as a result. In addition, devoting
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.
A decline or change in general economic conditions, political conditions, and/or levels of 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 U.S. 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 facilities and equipment, amortizable
intangible assets, and equity affiliates.
We recognize the disruption to global markets and supply chains caused by Russia’s invasion of Ukraine. While volatility and
uncertainty continue, we have no significant customers or supply chain partners in the conflicted region, and we have not been directly
impacted by the conflict. Indirectly, we recognize that additional or prolonged impacts to the petroleum or other global markets could
cause further inflationary pressures to our raw material costs or unforeseen adverse impacts.
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 and other transformations,
which could have an adverse effect on UNIFI’s business and financial condition.
15
General Risks
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, India, and Vietnam.
Political and policy-driven influences are subjecting international trade regulations to significant volatility. 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 import duties in the U.S. and other countries in which we operate might also result in
increased direct and indirect costs on items imported to support UNIFI’s operations and/or countervailing or responsive changes
applicable to exports of our products outside the U.S.
According to industry experts and trade associations, there has been a significant amount of illegal transshipments of POY and apparel
products into the U.S. and into certain other countries in the Americas region 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
USMCA/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 order to compete effectively, we must attract, retain, and motivate qualified 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
retaining key personnel and management as well as 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.
Catastrophic or extraordinary events, including epidemics or pandemics such as the COVID-19 pandemic, could disrupt
global economic activity and/or demand and negatively impact our financial performance and results of operations.
The COVID-19 pandemic negatively impacted the global economy, disrupted consumer spending, and affected global supply chains.
Specifically, containment efforts in China have impacted our supply chain, negatively impacting the results of our Asia Segment. The
long-term impact on our businesses is currently unknown.
UNIFI will continue to monitor the COVID-19 pandemic by prioritizing health and safety while delivering on customer demand.
However, the COVID-19 pandemic could resurge or another epidemic or pandemic could arise, and, accordingly, could adversely
affect our organization.
The risks associated with climate change, localized energy management initiatives, and other environmental impacts could
negatively affect UNIFI’s business and operations.
UNIFI’s business is susceptible to risks associated with climate change, including, but not limited to, disruptions to our supply chain,
which could potentially impact the production and distribution of our products and the availability and pricing of raw materials. Increased
frequency and intensity of weather events could lead to supply chain disruption, energy and resource rationing, or an adverse event
at one of our manufacturing facilities or the facilities of our manufacturing partners. Further, regulatory responses to climate change
could adversely affect our operations. For instance, the recent energy management initiatives in China temporarily constrained global
supply chains and reduced supplier and customer activity. Additionally, weaknesses in energy infrastructure could result in supply
disruptions that could indirectly affect our operations and could adversely impact our results of operations and cash flows.
16
Item 1B.
Unresolved Staff Comments
None.
Item 2. Properties
The following table contains information about the principal properties owned or leased by UNIFI as of July 2, 2023 (not in thousands):
Location
Administrative
Greensboro, North Carolina
Americas Segment
Domestic
Yadkinville, North Carolina
Yadkinville, North Carolina
Yadkinville, North Carolina
Yadkinville, North Carolina
Yadkinville, North Carolina
Yadkinville, North Carolina
Yadkinville, North Carolina
Yadkinville, North Carolina
Yadkinville, North Carolina
Yadkinville, North Carolina
Reidsville, North Carolina
Reidsville, North Carolina
Madison, North Carolina
Madison, North Carolina
Foreign
Ciudad Arce, El Salvador
Ciudad Arce, El Salvador
Bogota, Colombia
Bogota, Colombia
Brazil Segment
Foreign
Alfenas, Brazil
Alfenas, Brazil
Sao Paulo, Brazil
Asia Segment
Foreign
Suzhou, China
Suzhou, China
Suzhou, China
Principal Use
Approx.
Total Area
(Sq. Ft.)
Owned
or Leased
Corporate headquarters
121,000
Owned
Manufacturing facility
Manufacturing facility
Manufacturing facility
Manufacturing facility
Manufacturing facility
Warehouse
Warehouse
Warehouse
Warehouse
Warehouse
Manufacturing facility
Manufacturing facility
Manufacturing facility
Warehouse
Manufacturing facility
Warehouse
Manufacturing facility
Sales office
Manufacturing facility
Warehouse
Corporate office
Sales office
Warehouse
Warehouse
261,000
212,000
812,000
413,000
147,000
400,000
120,000
217,000
61,000
82,000
384,000
160,000
947,000
31,000
132,000
59,000
31,000
1,000
355,000
356,000
13,000
16,000
75,000
59,000
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Owned
Owned
Owned
Owned
Leased
Leased
Owned
Leased
Owned
Owned
Leased
Leased
Leased
Leased
Management believes all of UNIFI’s operating properties are well maintained and in good condition.
In fiscal 2023, UNIFI’s
manufacturing facilities in the Americas Segment operated below capacity for most of the year, primarily due to a decline in demand
throughout the apparel supply chains. Management does not perceive any capacity constraints in the foreseeable future.
Item 3. Legal Proceedings
We are from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business.
With respect to all such lawsuits, claims and proceedings, we record reserves when it is probable a liability has been incurred and the
amount of loss can be reasonably estimated. We do not believe that any of these proceedings, individually or in the aggregate, would
be expected to have a material adverse effect on our results of operations, financial position or cash flows. We maintain liability
insurance for certain risks that is subject to certain self-insurance limits.
Item 4. Mine Safety Disclosures
Not applicable.
17
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
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 occupation 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.
Edmund M. Ingle – Age: 58 – Mr. Ingle has served as Chief Executive Officer of UNIFI and a member of the Board since June 2020.
From May 2019 to June 2020, he served as Chief Executive Officer of the Recycling group of Indorama Ventures, a world-class
chemicals company and a global integrated leader in PET and fibers serving major customers in diversified end-use markets. From
May 2018 to May 2019, he was Chairperson and Chief Executive Officer of Indorama’s Wellman International division. Prior to that,
Mr. Ingle was with UNIFI for approximately 30 years, during which time he held various key leadership positions, including Vice
President of Global Corporate Sustainability, Vice President of Supply Chain, General Manager of the Company’s Flake and Chip
business, Vice President and General Manager of REPREVE® Polymers, General Manager of the Company’s Nylon business, and
Director of Global Procurement.
Albert P. Carey – Age: 71 – Mr. Carey has served as Executive Chairman of the Board since April 2019. Mr. Carey previously served
as Non-Executive Chairman of the Board from January 2019 to March 2019.
In March 2019, Mr. Carey retired from PepsiCo, Inc., a
consumer products company, after a 38-year career with the company in which he held a number of senior leadership roles, including
Chief Executive Officer of PepsiCo North America from March 2016 to January 2019, Chief Executive Officer of PepsiCo North
America Beverages from July 2015 to March 2016, Chief Executive Officer of PepsiCo Americas Beverages from September 2011 to
July 2015, and President and Chief Executive Officer of Frito-Lay North America from June 2006 to September 2011.
Craig A. Creaturo – Age: 53 – Mr. Creaturo has served as Executive Vice President & Chief Financial Officer of UNIFI since September
2019. Mr. Creaturo served as Chief Financial Officer & Vice President-Administration of Chromalox, Inc., an advanced thermal
technologies manufacturing company, from February 2015 to March 2019. Prior to that, he served as Chief Financial Officer of II-VI
Incorporated (“II-VI”), a publicly traded global leader in engineered materials and optoelectronic components, from 2004 to 2014,
Treasurer of II-VI from 2000 to 2014, and Corporate Controller of II-VI from 1998 to 2000. From 1992 to 1998, he held a variety of
audit roles at Arthur Andersen LLP. Mr. Creaturo is a Certified Public Accountant in the Commonwealth of Pennsylvania. Mr. Creaturo
has notified the Company that he will resign from all of his positions with the Company and its subsidiaries and affiliates, effective as
of the end of the day on August 25, 2023.
Hongjun Ning – Age: 56 – Mr. Ning has served as an Executive Vice President of UNIFI since July 2020, President of Unifi Textiles
(Suzhou) Co. Ltd. (“UTSC”) (UNIFI’s subsidiary in China) since March 2020, and President of Unifi Asia Pacific since June 2017.
Previously, he served as Vice President of UTSC from September 2013 to June 2017, Director of Sales & Marketing of UTSC from
August 2008 to September 2013, and General Manager, Sales & Marketing of a former UNIFI joint venture in China from January
2006 to August 2008.
Gregory K. Sigmon – Age: 33 – Mr. Sigmon, age 33, has served as an Executive Officer of UNIFI since July 2022 and as General
Counsel and Corporate Secretary of the Company since June 2020. Previously, Mr. Sigmon served as a Vice President of UNIFI from
June 2020 to July 2022 and as Assistant General Counsel of the Company from September 2019 to June 2020. Before joining UNIFI,
Mr. Sigmon served as an officer in the legal department of BB&T Corporation (“BB&T”) in Winston-Salem, North Carolina, where he
was a graduate of BB&T’s Leadership Development Program and held progressively senior roles from 2015 to 2019, including Vice
President from April 2018 to August 2019 when he joined UNIFI. Mr. Sigmon is a member of the North Carolina State Bar.
18
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.”
As of August 24, 2023, there were 117 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 4,350 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 October 31, 2018, UNIFI announced that the Board approved the 2018 SRP under which UNIFI is authorized to acquire up to
$50,000 of its common stock. Under the 2018 SRP, purchases may be made from time to time in the open market at prevailing market
prices or through private transactions or block trades. The timing and amount of repurchases will depend on market conditions, share
price, applicable legal requirements, and other factors. The share repurchase authorization is discretionary and has no expiration
date.
As of July 2, 2023, UNIFI had repurchased 701 shares of its common stock at an average price of $15.90 per share, leaving $38,859
available for repurchase under the 2018 SRP. UNIFI will continue to evaluate opportunities to use excess cash flows from operations
or existing borrowings to repurchase additional stock, while maintaining sufficient liquidity to support its operational needs and to fund
future strategic growth opportunities.
In fiscal 2023, UNIFI withheld 7 shares in satisfaction of tax withholding obligations under net share settle transactions of stock-based
compensation awards.
In fiscal 2022, UNIFI repurchased 617 shares of its common stock at an average price of $14.84 per share.
19
PERFORMANCE GRAPH - SHAREHOLDER RETURN ON COMMON STOCK
The below graphic comparison assumes the investment of $100 in each of UNIFI common stock, the S&P SmallCap 600 Index (a
benchmark index containing inclusion characteristics closely associated with UNIFI) and the NYSE Composite Index (a broad equity
market index), all at June 22, 2018. The resulting cumulative total return assumes that dividends, if any, were reinvested. Past
performance is not indicative of future performance.
Unifi, Inc.
S&P 600
NYSE Composite
June 22, 2018
100.00
$
100.00
100.00
June 28, 2019
57.65
$
91.61
106.00
June 26, 2020
37.02
$
75.77
96.67
June 25, 2021
78.52
$
132.92
141.83
July 1, 2022
44.48
$
109.53
127.50
June 30, 2023
25.60
$
117.23
141.81
Item 6.
[Reserved]
20
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 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.
Strategic Priorities
We believe UNIFI’s underlying performance during recent fiscal years reflects the strength of our global
initiative to deliver
differentiated solutions to customers and brand partners throughout the world. Our supply chain has been developed and enhanced
in multiple regions around the globe, allowing us to deliver a diverse range of fibers and polymers to key customers in the markets we
serve, especially apparel. These textile products are supported by quality assurance, product development, product and fabric
certifications, hangtags, co-marketing, and technical and customer service teams across UNIFI’s operating subsidiaries. We have
developed this successful operating platform by improving operational and business processes and deriving value from sustainability-
based initiatives, including polyester and nylon recycling.
We believe that further commercial expansion will require a continued stream of new technology and innovation that generates
products with meaningful consumer benefits. Along with our recycled platform, UNIFI has significant yarn technologies that provide
optimal performance characteristics for today’s marketplace, including moisture management, temperature moderation, stretch, ultra-
violet protection, and fire retardation, among others. To achieve further growth, UNIFI remains focused on 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 and furthering
sustainability-based initiatives with like-minded brand partners will be key to our future success. We also believe that our
manufacturing processes and our technical knowledge and capabilities will allow us to grow market share and develop new textile
programs with new and existing customers. Ultimately, we believe that combining leading-edge innovation with our prominent, high-
quality brand and agile regional business model will allow for underlying sales and profitability growth.
Significant Developments and Trends
During the last six fiscal years, several key drivers affected our financial results.
• During fiscal 2018 and 2019, our operations in the U.S. were unfavorably impacted by (i) rising raw material costs and (ii) a
surge of imported polyester textured yarn that depressed our pricing, market share, and fixed cost absorption.
• During fiscal 2020, our financial results began to improve following more stable import and raw material cost environments.
However, the COVID-19 pandemic had a significant unfavorable impact to product demand and our annual profitability
suffered accordingly. Near the end of fiscal 2020, we divested a minority interest investment and significantly improved our
liquidity position, supporting business preservation and the ability to capture long-term growth opportunities.
• Throughout fiscal 2021, our businesses experienced sequential
improvement alongside global demand and economic
recovery, and we capitalized on profitable opportunities that fueled strong consolidated results.
• Throughout fiscal 2022, we experienced adverse pressure from rising input costs and a weakening of labor productivity
primarily in our domestic operations.
• Throughout fiscal 2023, we experienced a downturn in global textile demand as brands and retailers began to destock their
inventory levels. Looking ahead, we believe our operations remain well-positioned to capture long-term growth opportunities
and we are working to mitigate any potential recessionary impacts.
Once global economic pressures subside, we believe incremental revenue for the Americas Segment will be generated from both the
polyester textured yarn trade petitions, along with continued demand for innovative and sustainable products. The Asia Segment
continues to capture demand for recycled products and serves as a significant component of future growth. The Brazil Segment has
returned to more normalized levels of performance and is expected to maintain healthy volumes and margins following the current
pressures from low-cost imports. As the Asia market improves, the volume of low-cost Asian imports into Brazil is expected to
decrease.
21
The following developments and trends occurred or were occurring in fiscal 2023.
• Demand levels for the majority of our business lines in the Americas and Asia Segments experienced declines during fiscal
2023 as a result of lower global demand in connection with the inventory destocking efforts of major brands and retailers in
addition to pandemic-related lockdowns in Asia, partially offset by higher selling prices in response to higher raw material
and input costs.
• Our REPREVE family of products continued to gain momentum with brands, retailers, and mill partners who value
sustainability and UNIFI’s ability to produce leading-edge products with in-demand technologies.
• The Americas Segment experienced weaker global demand, weak fixed cost absorption in connection with lower production,
and overall higher raw material cost levels in beginning inventory, despite a decrease in raw material costs during fiscal 2023.
• The Brazil Segment was able to capture market share from competitors, but incurred selling price pressures from lower cost
imports.
• The Asia Segment's sales growth slowed in fiscal 2023 due to a slowdown in global demand; however, there remains healthy
demand for REPREVE, generating continued portfolio expansion.
Fluctuations in Raw Material Costs and Foreign Currency Exchange Rates
Raw material costs represent a significant portion of UNIFI’s product costs. The prices for the principal raw materials used by UNIFI
continually fluctuate, and it is difficult or impossible to predict trends or upcoming developments.
The first half of fiscal 2021 included stable, lower raw material costs, while economic recovery, weather events, and supply chain
challenges generated raw material cost increases during the second half of fiscal 2021 and the first half of fiscal 2022. For the majority
of our portfolio, we were able to implement selling price adjustments throughout fiscal 2021 and 2022. However, recycled inputs in
the U.S. experienced continued cost increases during fiscal 2022. Despite the responsive selling price increases, we still experienced
meaningful gross profit pressure during fiscal 2022 and 2023, primarily from the U.S. labor shortage and speed at which input costs
increased.
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, increase, or
decrease, UNIFI monitors these dynamic factors closely. In addition, UNIFI attempts to pass on to its customers increases in raw
material costs but due to market pressures, this is not always possible. When price increases can be implemented, there is typically
a time lag that adversely affects UNIFI and its margins during one or more quarters. 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 cost 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 all of its customers.
UNIFI is also impacted by significant fluctuations in the value of the Brazilian Real (the “BRL”) and the Chinese Renminbi (the “RMB”),
the local currencies for our operations in Brazil and China, respectively. Appreciation of the BRL and the 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 and actual financial results, 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.
The BRL to USD weighted average exchange rate was 5.17, 5.21, and 5.38 for fiscal 2023, 2022, and 2021, respectively. The RMB
to USD weighted average exchange rate was 6.94, 6.45, and 6.60 for fiscal 2023, 2022, and 2021, respectively.
22
Key Performance Indicators and Non-GAAP Financial Measures
UNIFI continuously reviews performance indicators to measure its success. These performance indicators form the basis of
management’s discussion and analysis included below:
• sales volume and revenue for UNIFI and for each reportable segment;
• gross profit and gross margin for UNIFI and for each reportable segment;
• net (loss) income and (loss) earnings per share ("EPS");
• Segment Profit, which equals segment gross (loss) profit plus segment depreciation expense;
• unit conversion margin, which represents unit net sales price less unit raw material costs, for UNIFI and for each reportable
segment;
• working capital, which represents current assets less current liabilities;
• Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), which represents net (loss) income before net
interest expense, income tax expense and depreciation and amortization expense;
• Adjusted EBITDA, which represents EBITDA adjusted to exclude, from time to time, certain other adjustments necessary to
understand and compare the underlying results of UNIFI;
• Adjusted Net (Loss) Income, which represents net (loss) income calculated under GAAP, adjusted to exclude certain amounts
which management believes do not reflect the ongoing operations and performance of UNIFI and/or for which exclusion may
be necessary to understand and compare the underlying results of UNIFI;
• Adjusted EPS, which represents Adjusted Net (Loss) Income divided by UNIFI’s weighted average common shares
outstanding;
• Adjusted Working Capital, which equals receivables plus inventories and other current assets, less accounts payable and
other current liabilities; and
• Net Debt, which represents debt principal less cash and cash equivalents.
EBITDA, Adjusted EBITDA, Adjusted Net (Loss) Income, Adjusted EPS, Adjusted Working Capital, and Net Debt (collectively, the
“non-GAAP financial measures”) are not determined in accordance with GAAP and should not be considered a substitute for
performance measures determined in accordance with GAAP. The calculations of the non-GAAP financial measures are subjective,
based on management’s belief as to which items should be included or excluded in order to provide the most reasonable and
comparable view of the underlying operating performance of the business. We may, from time to time, modify the amounts used to
determine our non-GAAP financial measures. When applicable, management’s discussion and analysis includes specific
consideration for items that comprise the reconciliations of its non-GAAP financial measures.
We believe that these non-GAAP financial measures better reflect UNIFI’s underlying operations and performance and that their use,
as operating performance measures, provides investors and analysts with a measure of operating results unaffected by differences
in capital structures, capital investment cycles and ages of related assets, among otherwise comparable companies.
Management uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in comparing our operating
performance on a consistent basis, as it removes the impact of items (a) directly related to our asset base (primarily depreciation and
amortization) and/or (b) that we would not expect to occur as a part of our normal business on a regular basis; (ii) for planning
purposes, including the preparation of our annual operating budget; (iii) as a valuation measure for evaluating our operating
performance and our capacity to incur and service debt, fund capital expenditures, and expand our business; and (iv) as one measure
in determining the value of other acquisitions and dispositions. Adjusted EBITDA is a key performance metric utilized in the
determination of variable compensation. We also believe Adjusted EBITDA is an appropriate supplemental measure of debt service
capacity because it serves as a high-level proxy for cash generated from operations and is relevant to our fixed charge coverage ratio.
Management uses Adjusted Net (Loss) Income and Adjusted EPS (i) as measurements of net operating performance because they
assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to
occur as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not
expect to occur as a part of our underlying taxable operations; (ii) for planning purposes, including the preparation of our annual
operating budget; and (iii) as measures in determining the value of other acquisitions and dispositions.
Management uses Adjusted Working Capital as an indicator of UNIFI’s production efficiency and ability to manage inventories and
receivables.
Management uses Net Debt as a liquidity and leverage metric to determine how much debt would remain if all cash and cash
equivalents were used to pay down debt principal.
See “Non-GAAP Reconciliations” below for reconciliations of non-GAAP metrics to the most directly comparable GAAP metric.
23
Review of Results of Operations for Fiscal 2023, 2022 and 2021
UNIFI’s fiscal 2023 and 2021 each consisted of 52 weeks, while its fiscal 2022 consisted of 53 weeks. The additional week in fiscal
2022 included approximately $8,700 of net sales, an insignificant impact to gross profit, and approximately $400 of selling, general
and administrative expenses.
Consolidated Overview
The below tables provide:
• the components of net (loss) income and the percentage increase or decrease over the prior fiscal year amounts,
• a reconciliation from net (loss) income to EBITDA and Adjusted EBITDA, and
• a reconciliation from net (loss) income to Adjusted Net (Loss) Income and Adjusted EPS.
Following the tables is a discussion and analysis of the significant components of net (loss) income.
Net (loss) income
Net sales
Cost of sales
Gross profit
SG&A
Benefit for bad debts
Other operating expense (income), net
Operating (loss) income
Interest expense, net
Earnings from unconsolidated affiliates
Recovery of non-income taxes, net
(Loss) income before income taxes
Provision for income taxes
Net (loss) income
nm – not meaningful
Fiscal 2023
%
Change
Fiscal 2022
$
$
623,527
609,286
14,241
47,345
(89)
7,856
(40,871)
5,468
(896)
—
(45,443)
901
(46,344)
(23.6) $
(17.1)
(82.3)
(9.8)
(80.0)
nm
nm
nm
48.1
nm
nm
(92.3)
nm $
815,758
735,273
80,485
52,489
(445)
(158)
28,599
1,561
(605)
815
26,828
11,657
15,171
$
%
Change
22.2
28.1
(13.9)
2.2
(66.2)
(103.2)
(25.9)
(42.6)
(18.1)
(108.4)
(42.1)
(32.5)
(47.8) $
Fiscal 2021
667,592
574,098
93,494
51,334
(1,316)
4,865
38,611
2,720
(739)
(9,717)
46,347
17,274
29,073
EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
The reconciliations of the amounts reported under GAAP for Net (Loss) Income to EBITDA and Adjusted EBITDA are as follows.
Net (loss) income
Interest expense, net
Provision for income taxes
Depreciation and amortization expense (1)
EBITDA
Asset abandonment (2)
Contract modification costs (3)
Recovery of non-income taxes, net (4)
Adjusted EBITDA
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
(46,344) $
5,468
901
27,020
(12,955)
8,247
623
—
(4,085) $
$
15,171
1,561
11,657
25,986
54,375
—
—
815
55,190
$
$
29,073
2,720
17,274
25,293
74,360
—
—
(9,717)
64,643
(1) Within this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are
reflected in interest expense, net. Within the accompanying consolidated statements of cash flows, amortization of debt issuance
costs is reflected in depreciation and amortization expense. In fiscal 2023, interest expense, net includes $273 of loss on debt
extinguishment.
(2) In fiscal 2023, UNIFI abandoned certain specialized machinery in the Americas and recorded an impairment charge. The
impairment charge was recorded to reflect the lack of future positive cash flows associated with the machinery, following multiple
years of investment recovery since its fiscal 2017 installation.
(3) In fiscal 2023, UNIFI amended certain existing contracts related to future purchases of texturing machinery by delaying the
scheduled receipt and installation of such equipment for approximately 18 months. UNIFI paid the associated vendor $623 to
establish the 18-month delay.
(4) In fiscal 2021, UNIFI recorded a recovery of non-income taxes of $9,717 related to favorable litigation results for its Brazilian
operations, generating overpayments that resulted from excess social program taxes paid in prior fiscal years. For fiscal 2022,
UNIFI reduced the estimated benefit based on additional clarity and review of the recovery process.
24
Adjusted Net (Loss) Income and Adjusted EPS (Non-GAAP Financial Measures)
The tables below set forth reconciliations of (i) (Loss) Income before income taxes (“Pre-tax (Loss) Income”), Provision for income
taxes (“Tax Impact”) and Net (Loss) Income to Adjusted Net (Loss) Income and (ii) Diluted EPS to Adjusted EPS.
GAAP results
Asset abandonment (1)
Contract modification costs (2)
Recovery of income taxes (3)
Adjusted results
Weighted average common shares outstanding
GAAP results
Recovery of non-income taxes, net (4)
Recovery of income taxes, net (5)
Adjusted results
Weighted average common shares outstanding
GAAP results
Recovery of non-income taxes, net (4)
Adjusted results
Weighted average common shares outstanding
$
$
$
$
$
$
Pre-tax Loss
Tax Impact
Net Loss
Diluted EPS
Fiscal 2023
(45,443) $
8,247
623
—
(36,573) $
(901) $
—
—
(3,799)
(4,700) $
(46,344) $
8,247
623
(3,799)
(41,273) $
(2.57)
0.46
0.03
(0.21)
(2.29)
18,037
Pre-tax
Income
Tax Impact
Net Income
Diluted EPS
Fiscal 2022
26,828
815
—
27,643
$
$
(11,657) $
(257)
(1,446)
(13,360) $
15,171
558
(1,446)
14,283
$
$
0.80
0.03
(0.07)
0.76
18,868
Pre-tax
Income
Tax Impact
Net Income
Diluted EPS
Fiscal 2021
46,347
(9,717)
36,630
$
$
(17,274) $
3,304
(13,970) $
29,073
(6,413)
22,660
$
$
1.54
(0.34)
1.20
18,856
(1) In fiscal 2023, UNIFI abandoned certain specialized machinery in the Americas and recorded an impairment charge. The
associated tax impact was estimated to be $0 due to a valuation allowance against net operating losses in the U.S.
(2) In fiscal 2023, UNIFI amended certain existing contracts related to future purchases of texturing machinery by delaying the
scheduled receipt and installation of such equipment in the U.S. and El Salvador for 18 months. UNIFI paid the associated vendor
$623 to establish the 18-month delay. The associated tax impact was estimated to be $0 due to (i) a valuation allowance against
net operating losses in the U.S. and (ii) UNIFI's effective tax rate in El Salvador.
(3) In fiscal 2023, UNIFI recorded a recovery of income taxes in connection with filing amended tax returns in Brazil relating to certain
income taxes paid in prior fiscal years following favorable legal rulings in fiscal 2023.
(4) In fiscal 2021, UNIFI recorded a recovery of non-income taxes of $9,717 related to favorable litigation results for its Brazilian
operations, generating overpayments that resulted from excess social program taxes paid in prior fiscal years. For fiscal 2022,
UNIFI reduced the estimated benefit based on additional clarity and review of the recovery process.
(5) In fiscal 2022, UNIFI recorded a recovery of income taxes in Brazil regarding certain income taxes paid in prior fiscal years.
Net Sales
Fiscal 2023 vs. Fiscal 2022
Consolidated net sales for fiscal 2023 decreased by $192,231, or 23.6%, and consolidated sales volumes decreased 25.3%,
compared to fiscal 2022. The decreases occurred primarily due to lower volumes in the Americas and Asia Segments as a result of
lower global demand in connection with the inventory destocking efforts of major brands and retailers in addition to pandemic-related
lockdowns in Asia, partially offset by higher selling prices in response to higher raw material and input costs.
Consolidated weighted average sales prices increased 1.7%, primarily attributable to higher selling prices in response to higher input
costs, partially offset by (a) competitive pricing pressures in Brazil and (b) a greater mix of Chip and Flake product sales in the Americas
Segment.
REPREVE Fiber products for fiscal 2023 comprised 30%, or $186,161, of consolidated net sales, down from 36%, or $293,080, for
fiscal 2022. The lower volumes and net sales in the Asia Segment, which has the highest portion of REPREVE® Fiber sales as a
percentage of segment net sales, was the main driver for the lower REPREVE® Fiber sales.
Fiscal 2022 vs. Fiscal 2021
Consolidated net sales for fiscal 2022 increased by $148,166, or 22.2%, and consolidated sales volumes increased 2.7%, compared
to fiscal 2021. The increases occurred primarily due to (i) higher selling prices in response to increasing raw material costs and (ii)
underlying sales growth led by the Asia Segment and REPREVE products.
25
Consolidated weighted average sales prices increased 19.5%, primarily attributable to higher selling prices in response to increasing
raw material costs.
REPREVE Fiber products for fiscal 2022 comprised 36%, or $293,080, of consolidated net sales, down from 37%, or $245,832, for
fiscal 2021. The decrease was primarily due to the pandemic lockdowns in China during the fourth quarter of fiscal 2022, reducing
recycled product sales for the Asia Segment.
Gross Profit
Fiscal 2023 vs. Fiscal 2022
Gross profit for fiscal 2023 decreased by $66,244, or 82.3%, compared to fiscal 2022. Gross profit decreased as a result of the decline
in net sales combined with weak fixed cost absorption for the Americas Segment, where utilization and productivity are materially
impactful to gross profit. Although raw material costs for the Americas Segment decreased meaningfully in the current fiscal year, the
associated benefit was muted by low production levels, weak demand, and higher priced raw material inventory impacting gross
margins in the first half of the fiscal year.
• For the Americas Segment, gross profit decreased due to weaker global demand, weak fixed cost absorption in connection
with lower production, and overall higher raw material cost levels in beginning inventory, despite a decrease in raw material
costs during fiscal 2023.
• For the Brazil Segment, gross profit decreased primarily due to the combination of high priced raw material inventory impacting
gross margins in the first half of the fiscal year and decreasing market prices in Brazil due to low-cost import competition.
• For the Asia Segment, gross profit decreased primarily due to lower sales volumes in connection with weaker global demand
and pandemic-related lockdowns in Asia.
Fiscal 2022 vs. Fiscal 2021
Gross profit for fiscal 2022 decreased by $13,009, or 13.9%, compared to fiscal 2021. Although we experienced a significant increase
in net sales, input cost and labor challenges negatively impacted our Americas gross profit, primarily in the last nine months of fiscal
2022.
• For the Americas Segment, gross profit decreased due to higher-than-expected input costs primarily for raw material, labor,
packaging, and supplies, along with weaker labor productivity, offsetting the benefit from the restoration of U.S. demand
following the worst months of the COVID-19 pandemic.
• For the Brazil Segment, gross profit decreased primarily due to lower volumes and a more normalized market environment in
fiscal 2022 following the exceptional performance of the Brazil Segment in fiscal 2021.
• For the Asia Segment, gross profit increased primarily due to higher sales volumes.
SG&A Expenses
The changes in SG&A expenses were as follows:
SG&A for fiscal 2021
Net increase in marketing expenses
Other net increases
Net decrease in incentive and other compensation expenses
SG&A for fiscal 2022
SG&A for fiscal 2022
Net decrease in incentive expenses
Net decrease in professional fees
Net decrease in marketing expenses
Other net decreases
SG&A for fiscal 2023
Fiscal 2023 vs. Fiscal 2022
$
$
$
$
51,334
2,007
3,319
(4,171)
52,489
52,489
(2,768)
(1,104)
(497)
(775)
47,345
SG&A expenses decreased from fiscal 2022, primarily due to (i) lower equity compensation in fiscal 2023 and (ii) lower discretionary
expenses, including marketing and advertising.
Fiscal 2022 vs. Fiscal 2021
SG&A expenses increased from fiscal 2021, primarily due to higher discretionary expenses, including marketing, advertising, and
travel, partially offset by lower incentive compensation for fiscal 2022.
26
Benefit for Bad Debts
Fiscal 2023 vs. Fiscal 2022
The benefit for bad debts decreased from a benefit of $445 in fiscal 2022 to a benefit of $89 in fiscal 2023. There was no material
activity in each fiscal year.
Fiscal 2022 vs. Fiscal 2021
The provision for bad debts decreased from a benefit of $1,316 in fiscal 2021 to a benefit of $445 in fiscal 2022. The provision
reflected no material activity in fiscal 2022. Fiscal 2021 reflected lower-than-expected credit losses on outstanding receivables
following the adverse effects of the COVID-19 pandemic on customer financial health.
Other Operating Expense (Income), Net
Fiscal 2023 vs. Fiscal 2022
Other operating expense (income), net was income of $158 in fiscal 2022 and expense of $7,856 in fiscal 2023, which includes foreign
currency transaction gains in fiscal 2022 and 2023. Fiscal 2023 also includes (i) $8,247 of impairment related to the abandonment
of certain machinery constructed in fiscal 2017 and (ii) $623 paid to a vendor to facilitate an 18-month delay for equipment purchases.
Fiscal 2022 vs. Fiscal 2021
Other operating (income) expense, net was expense of $4,865 in fiscal 2021 and income of $158 in fiscal 2022, which primarily reflects
(i) foreign currency transaction gains in fiscal 2022 and transaction losses in fiscal 2021 and (ii) a predominantly non-cash loss on
disposal of assets of $2,809 recorded in fiscal 2021.
Interest Expense, Net
Fiscal 2023 vs. Fiscal 2022
Interest expense, net increased from fiscal 2022 to fiscal 2023. The increase was attributable to higher debt principal following
continued capital investments and higher interest rates in fiscal 2023.
Interest expense, net for fiscal 2023 included a $273 loss on
debt extinguishment.
Fiscal 2022 vs. Fiscal 2021
Interest expense, net decreased from fiscal 2021 to fiscal 2022. The decrease was attributable to greater interest income in fiscal
2022, primarily generated from foreign cash on deposit.
Earnings from Unconsolidated Affiliates
There was no material activity for fiscal 2023, 2022, or 2021.
Recovery of Non-Income Taxes, Net
Brazilian companies are subject to various taxes on business operations, including turnover taxes used to fund social security and
unemployment programs, commonly referred to as PIS/COFINS taxes. UNIFI, along with numerous other companies in Brazil,
challenged the constitutionality of certain state taxes historically included in the PIS/COFINS tax base.
On May 13, 2021, Brazil’s Supreme Federal Court (the “SFC”) ruled in favor of taxpayers, and on July 7, 2021, the Brazilian Internal
Revenue Service withdrew its existing appeal. Following the SFC decision, the federal government will not issue refunds for these
taxes but will instead allow for the overpayments and associated interest to be applied as credits against future PIS/COFINS tax
obligations.
There are no limitations or restrictions on UNIFI’s ability to recover the associated overpayment claims as future income is generated.
Thus, during fiscal 2021, UNIFI recorded a $9,717 recovery of non-income taxes comprised of an estimate of prior fiscal year
PIS/COFINS overpayments of $6,167 and associated interest of $3,550.
During fiscal 2022, UNIFI reduced the estimated recovery by $815 based on additional clarity and the review of the recovery process
during the months following the associated SFC decision.
27
Provision for Income Taxes
The change in consolidated income taxes is as follows:
(Loss) income before income taxes
Provision for income taxes
Effective tax rate
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
(45,443)
901
(2.0)%
$
26,828
11,657
43.5%
46,347
17,274
37.3%
The effective tax rate is subject to variation due to a number of factors, including: variability in pre-tax and taxable income; the mix of
income by jurisdiction; changes in deferred tax valuation allowances; and changes in statutes, regulations, and case law. Additionally,
the impacts of discrete and other rate impacting items are greater when income before income taxes is lower.
Fiscal 2023 vs. Fiscal 2022
The decrease in the effective tax rate from fiscal 2022 to fiscal 2023 is primarily attributable to lower income for foreign subsidiaries,
in combination with the impact of further losses in the U.S. and the associated valuation allowance for deferred tax assets in the
current period. Additionally, a discrete tax benefit was recognized in the second quarter of fiscal 2023 related to the recovery of certain
Brazilian income taxes paid in prior years.
Fiscal 2022 vs. Fiscal 2021
The increase in the effective tax rate from fiscal 2021 to fiscal 2022 is primarily attributable to (i) an increase in the valuation allowance
in fiscal 2022 and (ii) a discrete benefit in fiscal 2021 for the retroactive GILTI high-tax exclusion. These increases are partially offset
by (i) lower U.S. tax on GILTI in in fiscal 2022 and (ii) a discrete benefit in fiscal 2022 related to a favorable SFC ruling in Brazil.
Net (Loss) Income
Fiscal 2023 vs. Fiscal 2022
Net loss for fiscal 2023 was $46,344, or $2.57 per diluted share, compared to net income of $15,171, or $0.80 per diluted share, for
fiscal 2022. The decrease was primarily attributable to (i) the decrease in gross profit, (ii) the associated adverse impact of lower U.S.
earnings on the effective tax rate in fiscal 2023, and (iii) the charge for asset abandonment of certain machinery in fiscal 2023, partially
offset by a discrete tax benefit was recognized in the second quarter of fiscal 2023 related to the recovery of certain Brazilian income
taxes paid in prior years.
Fiscal 2022 vs. Fiscal 2021
Net income for fiscal 2022 was $15,171, or $0.80 per diluted share, compared to net income of $29,073, or $1.54 per diluted share,
for fiscal 2021. The decrease in net income was primarily attributable to (i) lower gross profit, (ii) a higher effective tax rate in fiscal
2022, and (iii) the favorable impact of the recovery of non-income taxes in fiscal 2021.
Adjusted EBITDA
Adjusted EBITDA decreased from $55,190 for fiscal 2022 to ($4,085) for fiscal 2023, primarily in connection with the decrease in gross
profit.
Adjusted EBITDA decreased from $64,643 for fiscal 2021 to $55,190 for fiscal 2022, consistent with the decrease in gross profit.
Adjusted Net (Loss) Income
Adjusted Net (Loss) Income decreased from $14,283 for fiscal 2022 to ($41,273) for fiscal 2023, commensurate with lower gross profit
and an unfavorable effective tax rate.
Adjusted Net Income decreased from $22,660 for fiscal 2021 to $14,283 for fiscal 2022, commensurate with lower gross profit and an
unfavorable effective tax rate.
28
9.4%
14.9%
57.9%
49.6%
386,779
80,337
8,703
7,266
483,085
483,085
(92,593)
(8,703)
7,873
389,662
$
$
$
$
Segment Overview
Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for fiscal 2023,
2022, and 2021.
Americas 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 Americas Segment are as follows:
Fiscal 2023
% Change
Fiscal 2022
$
$
389,662
404,321
(14,659)
22,044
7,385
(19.3) $
(11.8)
(159.9)
4.2
(83.8) $
483,085
458,617
24,468
21,153
45,621
$
% Change
24.9
30.9
(32.8)
0.5
(20.6) $
Fiscal 2021
386,779
350,373
36,406
21,054
57,460
Net sales
Cost of sales
Gross (loss) 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
(3.8)%
1.9%
62.5%
19.3%
5.1%
9.4%
59.2%
44.2%
The changes in net sales for the Americas Segment are as follows:
Net sales for fiscal 2021
Net change in average selling price and sales mix
Increase due to an additional week of sales in fiscal 2022
Increase in sales volumes
Net sales for fiscal 2022
Net sales for fiscal 2022
Decrease in sales volumes
Decrease due to an additional week of sales in fiscal 2022
Net change in average selling price and sales mix
Net sales for fiscal 2023
The decrease in net sales for the Americas Segment from fiscal 2022 to fiscal 2023 was primarily attributable to lower sales volumes
following weaker global textile demand.
The increase in net sales for the Americas Segment from fiscal 2021 to fiscal 2022 was primarily attributable to (i) higher average
selling prices in response to increasing input costs and (ii) an additional week of sales in fiscal 2022.
The changes in Segment Profit for the Americas Segment are as follows:
Segment Profit for fiscal 2021
Change in underlying margins and sales mix
Increase in sales volumes
Segment Profit for fiscal 2022
Segment Profit for fiscal 2022
Change in underlying margins and sales mix
Decrease in sales volumes
Segment Profit for fiscal 2023
$
$
$
$
57,460
(12,918)
1,079
45,621
45,621
(29,492)
(8,744)
7,385
The decrease in Segment Profit for the Americas Segment from fiscal 2022 to fiscal 2023 was primarily attributable to lower production
volumes driving weaker fixed cost absorption in connection with lower sales volumes. The difference in fiscal weeks was not
meaningful to Segment Profit.
The decrease in Segment Profit for the Americas Segment from fiscal 2021 to fiscal 2022 was primarily attributable to the adverse
impacts of higher input costs outpacing selling price adjustments and weaker labor productivity. The difference in fiscal weeks was
not meaningful to Segment Profit.
29
Brazil Segment
The components of Segment Profit, each component as a percentage of net sales and the percentage increase or decrease over the
prior period amounts for the Brazil Segment are as follows:
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
Fiscal 2023
% Change
Fiscal 2022
$
$
119,062
106,900
12,162
2,035
14,197
(5.6) $
8.1
(55.2)
35.7
(50.4) $
126,066
98,925
27,141
1,500
28,641
$
% Change
31.4
53.9
(14.4)
14.1
(13.2) $
10.2%
11.9%
19.1%
37.0%
21.5%
22.7%
15.5%
27.8%
The changes in net sales for the Brazil Segment are as follows:
Net sales for fiscal 2021
Increase in average selling price and change in sales mix
Favorable foreign currency translation effects
Increase in sales volumes
Net sales for fiscal 2022
Net sales for fiscal 2022
Decrease in average selling price and change in sales mix
Increase in sales volumes
Favorable foreign currency translation effects
Net sales for fiscal 2023
$
$
$
$
Fiscal 2021
95,976
64,281
31,695
1,315
33,010
33.0%
34.4%
14.4%
28.5%
95,976
26,343
2,757
990
126,066
126,066
(19,862)
11,373
1,485
119,062
The decrease in net sales for the Brazil Segment from fiscal 2022 to fiscal 2023 was primarily attributable to selling price pressures
from low-priced imports. The Brazil Segment has undertaken aggressive pricing (i) against low-priced competitive imports and (ii) in
the pursuit of greater market share.
The increase in net sales for the Brazil Segment from fiscal 2021 to fiscal 2022 was primarily attributable to higher selling prices
associated with higher input costs and favorable foreign currency translation effects.
The changes in Segment Profit for the Brazil Segment are as follows:
Segment Profit for fiscal 2021
Decrease in underlying margins
Favorable foreign currency translation effects
Increase in sales volumes
Segment Profit for fiscal 2022
Segment Profit for fiscal 2022
Decrease in underlying margins
Increase in sales volumes
Favorable foreign currency translation effects
Segment Profit for fiscal 2023
$
$
$
$
33,010
(5,773)
1,063
341
28,641
28,641
(17,494)
2,594
456
14,197
The decrease in Segment Profit for the Brazil Segment from fiscal 2022 to fiscal 2023 was primarily attributable to an overall decrease
in gross margin mainly due to the decrease in selling prices discussed above and the impact of higher raw material costs in beginning
inventory.
The decrease in Segment Profit for the Brazil Segment from fiscal 2021 to fiscal 2022 was primarily attributable to an overall decrease
in gross margin following the normalization of the competitive environment in Brazil, which was exceptionally favorable for the Brazil
Segment during the fiscal 2021 economic recovery.
30
Asia Segment
The components of Segment Profit, each component as a percentage of net sales and the percentage increase or decrease over the
prior period amounts for the Asia Segment are as follows:
Fiscal 2023
% Change
Fiscal 2022
$
$
114,803
98,065
16,738
—
16,738
(44.4) $
(44.8)
(42.0)
—
(42.0) $
206,607
177,731
28,876
—
28,876
% Change
11.8
11.5
13.7
—
13.7
$
$
Fiscal 2021
184,837
159,444
25,393
—
25,393
14.6%
14.6%
18.4%
43.7%
14.0%
14.0%
25.3%
28.0%
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 Asia Segment are as follows:
Net sales for fiscal 2021
Change in average selling price and sales mix
Net increase in sales volumes
Favorable foreign currency translation effects
Net sales for fiscal 2022
Net sales for fiscal 2022
Net decrease in sales volumes
Unfavorable foreign currency translation effects
Change in average selling price and sales mix
Net sales for fiscal 2023
13.7%
13.7%
27.7%
21.9%
184,837
9,686
8,298
3,786
206,607
206,607
(92,535)
(13,455)
14,186
114,803
$
$
$
$
The decrease in net sales for the Asia Segment from fiscal 2022 to fiscal 2023 was primarily attributable to weaker global demand
and pandemic-related lockdowns driving lower sales volumes, partially offset by a strong sales mix.
The increase in net sales for the Asia Segment from fiscal 2021 to fiscal 2022 was primarily attributable to the continued momentum
of REPREVE-branded products contributing to underlying sales growth, partially offset by supply chain and shipping challenges in
Asia in connection with pandemic-related lockdowns during the fourth quarter of fiscal 2022.
The changes in Segment Profit for the Asia Segment are as follows:
Segment Profit for fiscal 2021
Change in underlying margins and sales mix
Increase in sales volumes
Favorable foreign currency translation effects
Segment Profit for fiscal 2022
Segment Profit for fiscal 2022
Decrease in sales volumes
Unfavorable foreign currency translation effects
Change in underlying margins and sales mix
Segment Profit for fiscal 2023
$
$
$
$
25,393
1,824
1,140
519
28,876
28,876
(12,885)
(1,981)
2,728
16,738
The decrease in Segment Profit for the Asia Segment from fiscal 2022 to fiscal 2023 follows the decline in net sales and sales volumes
discussed above, as the comparable gross margin rate for the Asia Segment improved due to a stronger sales mix.
The increase in Segment Profit for the Asia Segment from fiscal 2021 to fiscal 2022 was primarily attributable to higher sales volumes
with a stronger sales mix in fiscal 2022.
31
Liquidity and Capital Resources
UNIFI’s primary capital requirements are for working capital, capital expenditures, debt service and share repurchases. UNIFI’s
primary sources of capital are cash generated from operations and borrowings available under the 2022 ABL Revolver (as defined
below) of its credit facility.
As of July 2, 2023, all of UNIFI’s $140,899 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, and
99% of UNIFI’s cash and cash equivalents were held by its foreign subsidiaries. Cash and cash equivalents held by foreign subsidiaries
may not be presently available to fund UNIFI’s domestic capital requirements, including its domestic debt obligations. UNIFI employs
a variety of strategies to ensure that its worldwide cash is available in the locations where it is needed.
The following table presents a summary of cash and cash equivalents, borrowings available under financing arrangements, liquidity,
working capital and total debt obligations as of July 2, 2023 for domestic operations compared to foreign operations:
Cash and cash equivalents
Borrowings available under financing arrangements
Liquidity
Working capital
Total debt obligations
Domestic
Foreign
Total
$
$
$
$
292
55,735
56,027
89,758
140,899
$
$
$
$
46,668
—
46,668
$
$
132,307
$
— $
46,960
55,735
102,695
222,065
140,899
For fiscal 2023, cash generated from operations was $4,740 and, at July 2, 2023, excess availability under the 2022 ABL Revolver
was $55,735. Our liquidity position (calculated in the table above) remains elevated and is expected to be adequate to allow UNIFI
to manage through the current macro-economic environment and to respond quickly to demand recovery.
UNIFI considers $43,664 of its unremitted foreign earnings to be permanently reinvested to fund working capital requirements and
operations abroad, and has therefore not recognized a deferred tax liability for the estimated future taxes that would be incurred upon
repatriation. If these earnings were distributed in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries
were sold or otherwise transferred, UNIFI could be subject to additional tax liabilities of approximately $11,592.
Liquidity Considerations
Operationally, UNIFI navigated the impact on liquidity of the COVID-19 pandemic by diligently managing the balance sheet and
operational spending, in addition to utilizing cash received from a minority interest divestiture in April 2020. Following the COVID-19
pandemic, global demand recovery allowed for strong results and cash generation in fiscal 2021. However, inflationary pressures and
demand uncertainty throughout fiscal 2022 and 2023 created risks to liquidity.
Following the establishment of the 2022 Credit Agreement, UNIFI’s cash and liquidity positions are considered sufficient to sustain its
operations and meet its growth needs. However, further degradation in the macroeconomic environment could introduce additional
liquidity risk and require UNIFI to limit cash outflows for discretionary activities while further utilizing available and additional forms of
credit. Since the onset of the COVID-19 pandemic and the date of this report, we have not taken advantage of rent, lease or debt
deferrals, forbearance periods, or other concessions; or relied on supply chain financing, structured trade payables, or vendor
financing.
Although short-term global demand appears somewhat uncertain, we do not currently anticipate that any adverse events or
circumstances will place critical pressure on (i) our liquidity position; or (ii) our ability to fund our operations, capital expenditures, and
expected business growth. Should global demand, economic activity, or input availability decline considerably for a prolonged period
of time (for example, in connection with the Russia-Ukraine conflict or the macro-economic factors leading to inflation and a potential
recession), UNIFI maintains the ability to (i) seek additional credit or financing arrangements and/or (ii) re-implement cost reduction
initiatives to preserve cash and secure the longevity of the business and operations.
Additionally, UNIFI considers opportunities to repatriate existing cash to reduce debt and preserve or enhance liquidity. In fiscal 2023,
we repatriated approximately $19,000 from our operations in Asia to the U.S. via an existing intercompany note and, after remitting
the appropriate withholding taxes, utilized the cash to reduce our outstanding revolver borrowings, thereby increasing the availability.
Management regularly evaluates such repatriations and believes that it has the ability to take additional, similar actions from time to
time, as circumstances warrant.
Recognizing the continuing weak demand environment, in the third quarter of fiscal 2023, UNIFI negotiated a contract modification
with an equipment vendor from which significant capital expenditures had occurred and were planned to continue through September
2024. The contract modification was executed at a cost to UNIFI of $623 and allows UNIFI to delay the associated equipment
purchases and installation activities for 18 months, such that approximately $25,000 of capital expenditures originally expected over
the March 2023 to September 2024 period are now expected to occur over the September 2024 to March 2026 period. This action
allows for (i) improved short- and mid-term liquidity in light of the current subdued levels of sales and facility utilization and (ii) a better
matching of future capital expenditures with expected higher levels of future business activity.
During fiscal 2024, we expect the majority of our capital will be deployed to support further working capital needs associated with
recovering demand and product sales. Nonetheless, given the current global economic risks, we are prepared to act swiftly and
diligently to ensure the vitality of the business.
32
Debt Obligations
The following table presents details for UNIFI’s debt obligations:
ABL Revolver
ABL Term Loan
Finance lease obligations
Construction financing
Total debt
Current ABL Term Loan
Current portion of finance lease obligations
Unamortized debt issuance costs
Total long-term debt
Scheduled
Maturity Date
October 2027
October 2027
(1)
(2)
Weighted Average
Interest Rate as of
July 2, 2023
7.1%
6.6%
4.8%
6.9%
Principal Amounts as of
July 2, 2023
July 3, 2022
$
$
18,100
110,400
10,767
1,632
140,899
(9,200)
(2,806)
(289)
128,604
$
$
41,300
65,000
7,261
729
114,290
(10,000)
(1,726)
(255)
102,309
(1) Scheduled maturity dates for finance lease obligations range from March 2025 to May 2028, as further outlined in Note 4, “Leases.”
(2) Refer to the discussion below under the subheading “Construction Financing” for further information.
ABL Facility and Amendments
On October 28, 2022, Unifi, Inc. and certain of its subsidiaries entered into a Second Amended and Restated Credit Agreement (the
“2022 Credit Agreement”) with a syndicate of lenders. The 2022 Credit Agreement provides for a $230,000 senior secured credit
facility (the “2022 ABL Facility”), including a $115,000 revolving credit facility (the "2022 ABL Revolver") and a term loan (the "2022
ABL Term Loan") that can be reset up to a maximum amount of $115,000, once per fiscal year, if certain conditions are met. The 2022
ABL Facility has a maturity date of October 28, 2027. The 2022 ABL Term Loan requires quarterly principal payments of $2,300 that
began on February 1, 2023. Borrowings under the 2022 ABL Facility bear interest at SOFR plus 0.10% plus an applicable margin of
1.25% to 1.75%, or the Base Rate (as defined in the 2022 Credit Agreement) plus an applicable margin of 0.25% to 0.75%, with
interest paid most commonly on a monthly basis.
In connection with the 2022 Credit Agreement, UNIFI recorded a $273 loss on debt extinguishment to interest expense in the second
quarter of fiscal 2023.
Prior to entering into the 2022 Credit Agreement, Unifi, Inc. and certain of its subsidiaries maintained a similar credit agreement that
established a $200,000 senior secured credit facility (the “Prior ABL Facility”), including a $100,000 revolving credit facility (the “Prior
ABL Revolver”) and a term loan that could be reset up to a maximum amount of $100,000, once per fiscal year, if certain conditions
were met (the “Prior ABL Term Loan”). The Prior ABL Facility had a maturity date of December 18, 2023 and the significant terms and
conditions of the 2022 ABL Facility are nearly identical to those of the Prior ABL Facility.
Similar to the Prior ABL Facility, the 2022 ABL Facility is secured by a first-priority perfected security interest in substantially all owned
property and assets (together with all proceeds and products) of Unifi, Inc., Unifi Manufacturing, Inc., and a certain subsidiary guarantor
(collectively, the “Loan Parties”). It is also secured by a first-priority security interest in all (or 65% in the case of UNIFI’s first-tier
controlled foreign subsidiary, 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.
Similar to the Prior ABL Facility, if excess availability under the 2022 ABL Revolver falls below the Trigger Level (as defined in the
2022 Credit Agreement), a financial covenant requiring the Loan Parties to maintain a fixed charge coverage ratio on a quarterly basis
of at least 1.05 to 1.00 becomes effective. The Trigger Level as of July 2, 2023 was $22,540. In addition, the 2022 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 2022 ABL Term Loan may be prepaid at par, in whole or in part, at any time before the maturity
date, at UNIFI’s discretion.
Similar to the Prior ABL Facility, the applicable margin is based on (i) the excess availability under the 2022 ABL Revolver and (ii) the
consolidated leverage ratio, calculated as of the end of each fiscal quarter. UNIFI’s ability to borrow under the 2022 ABL Revolver is
limited to a borrowing base equal to specified percentages of eligible accounts receivable and inventories and is subject to certain
conditions and limitations. There is also a monthly unused line fee under the 2022 ABL Revolver of 0.25%.
As of July 2, 2023: UNIFI was in compliance with all financial covenants in the Credit Agreement; excess availability under the 2022
ABL Revolver was $55,735 and UNIFI had $0 of standby letters of credit. Management maintains the capability to improve the fixed
charge coverage ratio utilizing existing foreign cash and cash equivalents.
UNIFI had maintained three interest rate swaps to fix LIBOR at approximately 1.9% on $75,000 of variable-rate debt. Such swaps
terminated in May 2022 and no interest rate swaps were in effect during fiscal 2023.
UNIFI did not incur additional costs or administrative burdens during the transition from LIBOR to SOFR with the establishment of the
2022 Credit Agreement.
33
Finance Lease Obligations
During fiscal 2023, UNIFI entered into finance lease obligations totaling $5,629 for texturing machines. The maturity dates of these
obligations occur during fiscal 2028 with interest rates between 4.4% and 6.2%.
During fiscal 2022, UNIFI entered into finance lease obligations totaling $2,493 for texturing machines. The maturity dates of these
obligations occur during fiscal 2027 with interest rates between 3.0% and 4.4%.
During fiscal 2021, UNIFI entered into finance lease obligations totaling $740 for certain transportation equipment. The maturity date
of these obligations is June 2025 with an interest rate of 3.8%.
Construction Financing
In May 2021, UNIFI entered into an agreement with a third party lender that provides for construction-period financing for certain
texturing machinery included in our capital allocation plans. UNIFI records project costs to construction in progress and the
corresponding liability to construction financing (within long-term debt). The agreement provides for monthly, interest-only payments
during the construction period, at a rate of SOFR plus 1.25%, and contains terms customary for a financing of this type.
Each borrowing under the agreement provides for 60 monthly payments, which will commence upon the completion of the construction
period with a fixed interest rate of approximately SOFR plus 1.0% to 1.2%. In connection with this construction financing arrangement,
UNIFI has borrowed a total of $9,755 and transitioned $8,123 of completed asset costs to finance lease obligations as of July 2, 2023.
Scheduled Debt Maturities
The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the following five fiscal years and
thereafter.
ABL Revolver
ABL Term Loan
Finance lease obligations
Total (1)
Fiscal 2024 Fiscal 2025
— $
$
— $
9,200
2,806
12,006
$
9,200
2,779
11,979
$
$
Fiscal 2026
Fiscal 2027
— $
9,200
2,401
11,601
$
— $
9,200
1,902
11,102
Fiscal 2028
18,100
73,600
879
92,579
$
Thereafter
—
$
—
—
—
$
(1) Total reported excludes $1,632 for construction financing, described above.
Further discussion of the terms and conditions of the Credit Agreement and the Company’s existing indebtedness is outlined in Note
12, “Long-Term Debt,” to the accompanying consolidated financial statements.
Net Debt (Non-GAAP Financial Measure)
The reconciliations for Net Debt are as follows:
Long-term debt
Current portion of long-term debt
Unamortized debt issuance costs
Debt principal
Less: cash and cash equivalents
Net Debt
July 2, 2023
July 3, 2022
$
$
128,604
12,006
289
140,899
46,960
93,939
$
$
102,309
11,726
255
114,290
53,290
61,000
34
Working Capital and Adjusted Working Capital (Non-GAAP Financial Measures)
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
Income taxes receivable
Other current assets
Accounts payable
Other current liabilities
Income taxes payable
Current operating lease liabilities
Current portion of long-term debt
Working capital
Less: Cash and cash equivalents
Less: Income taxes receivable
Less: Income taxes payable
Less: Current operating lease liabilities
Less: Current portion of long-term debt
Adjusted Working Capital
July 2, 2023
July 3, 2022
$
$
$
46,960
83,725
150,810
238
12,327
(44,455)
(12,932)
(789)
(1,813)
(12,006)
222,065
(46,960)
(238)
789
1,813
12,006
189,475
$
$
$
53,290
106,565
173,295
160
18,956
(73,544)
(19,806)
(1,526)
(2,190)
(11,726)
243,474
(53,290)
(160)
1,526
2,190
11,726
205,466
Working capital decreased from $243,474 as of July 3, 2022 to $222,065 as of July 2, 2023, while Adjusted Working Capital decreased
from $205,466 to $189,475, both primarily in connection with slower overall economic conditions and higher input costs. 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 decrease in cash and cash equivalents was primarily driven by capital expenditures and scheduled debt service. The decrease
in receivables, net was primarily due to (i) a decrease in sales following lower global demand and (ii) a decrease in banker’s
acceptance notes held by our Asia Segment. The decrease in inventories was primarily attributable to a decline in raw material
purchases and costs in fiscal 2023. The decrease in other current assets was primarily due to utilization of the fiscal 2021 recovery of
non-income taxes in Brazil and lower vendor deposits. The decrease in accounts payable followed the decrease in inventories and
production activity in fiscal 2023. The decrease in other current liabilities primarily reflects lower business activities and the routine
timing differences for payroll and other operating expenses. Income taxes receivable and income taxes payable are immaterial to
working capital and Adjusted Working Capital. The change in current operating lease liabilities and current portion of long-term debt
were insignificant.
Capital Projects
In fiscal 2023, UNIFI invested $36,434 in capital projects, primarily relating to (i) texturing machinery, (ii) further improvements in
production capabilities and technological enhancements in the Americas, and (iii) routine annual maintenance capital expenditures.
Maintenance capital expenditures are necessary to support UNIFI’s current operations, capacities, and capabilities and exclude
expenses relating to repairs and costs that do not extend an asset’s useful life.
In fiscal 2022, UNIFI invested $39,631 in capital projects, primarily relating to (i) texturing machinery, (ii) further improvements in
production capabilities and technological enhancements in the Americas, and (iii) routine annual maintenance capital expenditures.
In fiscal 2021, UNIFI invested $21,178 in capital projects, primarily relating to (i) further improvements in production capabilities and
technological enhancements in the Americas, (ii) texturing machines, and (iii) routine annual maintenance capital expenditures.
In fiscal 2024, UNIFI expects to invest between $14,000 and $16,000 in capital projects, including making (i) further improvements in
production capabilities and technological 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 2024 could be more or less than the currently estimated amount depending on the
timing and scale of contemplated initiatives and is expected to be funded primarily with cash provided by operating activities and other
borrowings. UNIFI expects recent and future capital projects to provide benefits to future profitability. The additional assets from these
capital projects consist primarily of machinery and equipment.
35
Share Repurchase Program
On October 31, 2018, UNIFI announced that the Board approved the 2018 SRP under which UNIFI is authorized to acquire up to
$50,000 of its common stock. Under the 2018 SRP, purchases will be made from time to time in the open market at prevailing market
prices or through private transactions or block trades. The timing and amount of repurchases will depend on market conditions, share
price, applicable legal requirements and other factors. The share repurchase authorization is discretionary and has no expiration date.
As of July 2, 2023, UNIFI had repurchased 701 shares of its common stock at an average price of $15.90 per share, leaving $38,859
available for repurchase under the 2018 SRP. UNIFI will continue to evaluate opportunities to use excess cash flows from operations
or existing borrowings to repurchase additional stock, while maintaining sufficient liquidity to support its operational needs and to fund
future strategic growth opportunities.
Liquidity Summary
UNIFI has met its historical liquidity requirements for working capital, capital expenditures, debt service requirements, and other
operating needs from its cash flows from operations and available borrowings. UNIFI believes that its existing cash balances, cash
provided by operating activities, and credit facility will enable UNIFI to meet its foreseeable liquidity requirements. Domestically,
UNIFI’s cash balances, cash provided by operating activities, and borrowings available under the 2022 ABL Revolver continue to be
sufficient to fund UNIFI’s domestic operating activities as well as cash commitments for its investing and financing activities. For its
foreign operations, UNIFI expects its existing cash balances, cash provided by operating activities, and available foreign financing
arrangements will provide the needed liquidity to fund the associated operating activities and investing activities, such as future capital
expenditures. UNIFI’s foreign operations in Asia and Brazil are in a position to obtain local country financing arrangements due to the
operating results of each subsidiary.
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 (loss) income
Depreciation and amortization expense
Equity in earnings of unconsolidated affiliates
Impairment for asset abandonment
Recovery of taxes, net
Non-cash compensation expense
Deferred income taxes
Subtotal
Distributions received from unconsolidated affiliates
Change in inventories
Other changes in assets and liabilities
Net cash provided by operating activities
Fiscal 2023 Compared to Fiscal 2022
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
(46,344) $
27,186
(896)
8,247
(3,799)
2,805
(2,788)
(15,589)
—
24,431
(4,102)
4,740
$
$
15,171
26,207
(605)
—
815
3,555
(3,119)
42,024
750
(34,749)
(7,645)
380
$
29,073
25,528
(739)
—
(9,717)
3,462
5,087
52,694
750
(28,069)
11,306
36,681
The increase in operating cash flows was primarily due to reducing working capital associated with a decline in overall business activity
in fiscal 2023, which was primarily offset by significantly weaker earnings.
Fiscal 2022 Compared to Fiscal 2021
The decrease in net cash provided by operating activities from fiscal 2021 to fiscal 2022 was primarily due to an increase in working
capital associated with (i) higher raw material costs and consolidated sales activity driving higher inventory and accounts receivable
balances and (ii) lower other current liabilities resulting from the payment of incentive compensation earned in fiscal 2021.
36
Cash (Used) Provided by Investing Activities and Financing Activities
Fiscal 2023
Significant investing activities included $36,434 for capital expenditures, which primarily relate to texturing machinery along with
production capabilities and technological enhancements in the Americas. Significant financing activities included $22,200 of net
borrowings against the ABL Facility, along with $2,123 of payments on finance lease obligations during fiscal 2023.
Fiscal 2022
Significant investing activities included $39,631 for capital expenditures, which primarily relate to ongoing maintenance capital
expenditures along with production capabilities and technological enhancements in the Americas. Significant financing activities
included $28,800 of net borrowings against the ABL Facility, along with $3,707 of payments on finance lease obligations and $9,151
for share repurchases during fiscal 2022.
Fiscal 2021
Significant investing activities included (i) approximately $21,000 for capital expenditures that primarily relate to ongoing maintenance
capital expenditures along with production capabilities and technological enhancements in the Americas and (ii) approximately $3,600
for intangible asset purchases in connection with two bolt-on asset acquisitions in an effort to expand our customer portfolios in the
U.S. Significant financing activities included $10,000 of net payments against the ABL Facility, along with $3,646 of payments on
finance lease obligations.
Contractual Obligations
In addition to management’s discussion and analysis surrounding our liquidity and capital resources, long-term debt, finance leases,
operating leases, and the associated principal and interest components thereof, as of July 2, 2023, UNIFI’s contractual obligations
consisted of the following additional concepts and considerations.
1. Capital purchase obligations relate to contracts with vendors for the construction or purchase of assets, primarily for the
normal course operations in our manufacturing facilities. Such obligations are approximately $6,000 and $19,000 for fiscal
years 2024 and 2025, respectively.
2. Purchase obligations are 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. Such obligations, predominantly related to ongoing operations and service contracts in support of normal course
business, range from approximately $1,000 to $10,000 per annum and vary based on the renewal timing of specific
commitments and the range of services received.
3. Non-capital purchase orders totaled approximately $74,000 at the end of fiscal 2023 and are expected to be settled in fiscal
2024. Such 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.
4. Other balance sheet items are detailed within the notes to the consolidated financial statements, including, but not limited to,
post-employment plan liabilities, unpaid invoice and contract amounts, and other balances and charges that primarily relate
to normal course operations.
UNIFI does not engage in off-balance sheet arrangements and only enters into material contracts in the ordinary course of business
and/or to hedge the associated risks (e.g. interest rate swaps).
Recent Accounting Pronouncements
Issued and Pending Adoption
Upon review of each Accounting Standards Update (“ASU”) issued by the Financial Accounting Standards Board (the “FASB”) through
the date of this report, UNIFI identified no newly applicable accounting pronouncements that are expected to have a significant impact
on UNIFI’s consolidated financial statements.
Recently Adopted
There have been no newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a significant
impact on UNIFI’s consolidated financial statements.
Off-Balance Sheet Arrangements
UNIFI is not a party to any off-balance sheet arrangements that have had, or are reasonably likely to have, a current or future material
effect on UNIFI’s financial condition, results of operations, liquidity or capital expenditures.
37
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.
Inventory Net Realizable Value Adjustment
The inventory net realizable value adjustment is established based on many factors, including: historical recovery rates, inventory
age, 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 cost exceeds net realizable value. Anticipating selling
prices and evaluating the condition of the inventories require judgment and estimation, which may impact the resulting 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
forecasted 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 net realizable value adjustment during the past three fiscal
years. A plus or minus 10% change in the inventory net realizable value adjustment would not have been material to UNIFI’s
consolidated financial statements for the past three fiscal years.
Net realizable value adjustment
July 2, 2023
July 3, 2022
June 27, 2021
$
(5,625) $
(3,487) $
(2,407)
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 July 2, 2023, UNIFI had borrowings under its 2022 ABL
Term Facility totaling $128,500. After considering UNIFI’s outstanding debt obligations with fixed rates of interest, UNIFI’s sensitivity
analysis indicates that a 50-basis point increase in SOFR as of July 2, 2023 would result in an increase in annual interest expense of
approximately $700.
Foreign Currency Exchange Rate Risk
UNIFI conducts its business in various foreign countries and in various foreign currencies. Each of UNIFI’s subsidiaries may enter
into transactions (sales, purchases, fixed purchase commitments, etc.) that are denominated in currencies other than the subsidiary’s
functional currency and thereby expose UNIFI to foreign currency exchange rate risk. UNIFI may enter into foreign currency forward
contracts to hedge this exposure. UNIFI may also enter into foreign currency forward contracts to hedge its exposure for certain
equipment or inventory purchase commitments. As of July 2, 2023, UNIFI had no outstanding foreign currency forward contracts.
A significant portion of raw materials purchased by the Brazil Segment are denominated in USDs, requiring UNIFI to exchange BRL
for USD. A significant portion of sales and asset balances for the Asia Segment are denominated in USDs. During recent fiscal years,
UNIFI has been negatively impacted by fluctuations of the BRL and the RMB. 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.” UNIFI does not enter into foreign currency derivatives to hedge its net
investment in its foreign operations.
As of July 2, 2023, foreign currency exchange rate risk concepts included the following:
Percentage of total consolidated assets held by UNIFI's subsidiaries outside the U.S. whose functional
currency is not the USD
Cash and cash equivalents held outside the U.S.:
Denominated in USD
Denominated in RMB
Denominated in BRL
Denominated in other foreign currencies
Total cash and cash equivalents held outside the U.S.
Percentage of total cash and cash equivalents held outside the U.S.
Cash and cash equivalents held inside the U.S. in USD by foreign subsidiaries
38
Approximate
Amount or
Percentage
32%
18,137
18,275
9,441
224
46,077
98%
591
$
$
$
More information regarding UNIFI’s derivative financial instruments as of July 2, 2023 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 material and energy costs are derived from petroleum-based chemicals. The prices for petroleum
and petroleum-related products and related energy costs are volatile and dependent on global supply and demand dynamics, including
certain geo-political risks. A sudden rise in the price of petroleum and petroleum-based products could have a material impact on
UNIFI’s profitability. UNIFI does not use financial instruments to hedge its exposure to changes in these costs as management has
concluded that the overall cost of hedging petroleum exceeds the potential risk mitigation. The costs of the primary raw materials that
UNIFI uses throughout all of its operations are generally based on USD pricing, and such materials are purchased at market or at
fixed prices that are established with individual vendors as part of the purchasing process for quantities expected to be consumed in
the ordinary course of business. UNIFI manages fluctuations in the cost of raw materials primarily by making corresponding
adjustments to the prices charged to its customers. Certain customers are subject to an index-based pricing model in which UNIFI’s
prices are adjusted based on the change in the cost of raw materials in the prior quarter. Pricing adjustments for other customers
must be negotiated independently. UNIFI attempts to quickly pass on to its customers increases in raw material costs, but due to
market conditions, this is not always possible. When price increases can be implemented, there is typically a time lag that adversely
affects UNIFI’s margins during one or more quarters.
In ordinary market conditions in which raw material price increases have
stabilized and sales volumes are consistent with traditional levels, UNIFI has historically been successful in implementing price
adjustments within one to two fiscal quarters of the raw material price increase for its index-priced customers and within two fiscal
quarters of the raw material price increase for its non-index-priced customers.
During fiscal 2020 and the first six months of fiscal 2021, UNIFI experienced a predominantly favorable, declining raw material cost
environment, especially during calendar 2020 as the COVID-19 pandemic suppressed petroleum prices for several months.
As fiscal 2021 concluded, UNIFI experienced cost increases for raw materials, primarily related to (i) increases in petroleum prices
and (ii) supply chain disruptions that occurred in Texas during February 2021 due to abnormally cold weather. Our raw material costs
remained elevated in fiscal 2022 and 2023. We have been able to implement responsive selling price adjustments for the majority of
our portfolio, however our underlying gross margin has been pressured during fiscal 2022 and 2023. We expect the impact of recent
selling price adjustments to improve margins in future periods. Nonetheless, such costs remain subject to the volatility described
above and, should raw material costs increase unexpectedly, UNIFI’s results of operations and cash flows are likely to be adversely
impacted.
Cash Deposits and Financial Institution Risk
During calendar 2023, certain regional bank crises and failures generated additional uncertainty and volatility in the financial and credit
markets. UNIFI currently holds the vast majority of its cash deposits with large foreign banks in our associated operating regions, and
management believes that it has the ability to repatriate cash to the U.S. relatively quickly. Accordingly, UNIFI has not modified its mix
of financial institutions holding cash deposits, but UNIFI will continue to monitor the environment and current events to ensure any
increase in concentration or credit risk is appropriately and timely addressed. Likewise, if any of the financial institutions within our
2022 Credit Agreement or construction financing arrangement (“lending counterparties”) are unable to perform on their commitments,
our liquidity could be impacted. We actively monitor all lending counterparties, and none have indicated that they may be unable to
perform on their commitments. In addition, we periodically review our lending counterparties, considering the stability of the institutions
and other aspects of the relationships. Based on our monitoring activities, we currently believe our lending counterparties will be able
to perform their commitments.
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.
39
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of July 2, 2023, an evaluation of the effectiveness of UNIFI’s disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) promulgated under the 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 July 2, 2023, based on criteria established in Internal Control
– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that
assessment, management concluded that, as of July 2, 2023, UNIFI’s internal control over financial reporting was effective based on
the criteria established in Internal Control – Integrated Framework (2013).
Attestation Report of the Independent Registered Public Accounting Firm
The effectiveness of UNIFI’s internal control over financial reporting as of July 2, 2023 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 July 2, 2023.
Changes in Internal Control Over Financial Reporting
During UNIFI’s fourth quarter of fiscal 2023, 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
Insider Trading Arrangements
During the three months ended July 2, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act)
adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (as each term is
defined in Item 408 of Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
40
PART III
Item 10. Directors, Executive Officers and Corporate Governance
UNIFI will file with the SEC a definitive proxy statement for the Company’s 2023 Annual Meeting of Shareholders (the “Proxy
Statement”) no later than 120 days after the close of fiscal 2023. The information required with respect to our executive officers
appears both in the Proxy Statement and in Part I of this report under the heading “Information about our Executive Officers.” The
other information required by this item is furnished by incorporation by reference to the information under the headings “Election of
Directors” and “Corporate Governance” 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 by any
person, upon request, by writing to Unifi, Inc., 7201 West Friendly Avenue, Greensboro, North Carolina 27410, Attention: Corporate
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 or linked to or from our website is not a part of this report and is not incorporated by
reference in this report or any of our other filings with the SEC. Our non-employee directors and their respective principal occupation
or employment are as follows: Emma S. Battle (President and Chief Executive Officer, MarketVigor, L.L.C., a business services
company focused on strategic consulting and digital and online marketing); Francis S. Blake (Retired Chairman and Chief Executive
Officer of The Home Depot, Inc., the world’s largest home improvement retailer); Archibald Cox, Jr. (Chairman, Sextant Group, Inc.,
a financial advisory and private equity firm); Kenneth G. Langone (President and Chief Executive Officer, Invemed Associates LLC, a
private investment portfolio firm); Suzanne M. Present (Principal, Gladwyne Partners, LLC, a private partnership fund manager);
Rhonda L. Ramlo (Interim Chief Executive Officer of Atoria Family Baking Company, a privately-held food service company); and Eva
T. Zlotnicka (Managing Partner, Inclusive Capital Partners, L.P., a San Francisco-based investment firm)).
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.
41
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements
The financial statements listed in the accompanying Index to Consolidated Financial Statements on page F-i are filed as part
of this report.
Report of Independent Registered Public Accounting Firm (PCAOB ID: 185).
2. Financial Statement Schedules
Not applicable.
42
3. Exhibits
Exhibit
Number
Description
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12†
Restated Certificate of Incorporation of Unifi, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form
8-K filed October 31, 2016 (File No. 001-10542)).
Amended and Restated By-laws of Unifi, Inc., as of October 26, 2016 (incorporated by reference to Exhibit 3.2 to the
Current Report on Form 8-K filed October 31, 2016 (File No. 001-10542)).
Declaration of Amendment to the Amended and Restated By-laws of Unifi, Inc., effective April 30, 2019 (incorporated by
reference to Exhibit 3.1 to the Current Report on Form 8-K filed May 1, 2019 (File No. 001-10542)).
Description of Unifi, Inc. Common Stock (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K for
the fiscal year ended June 30, 2019 (File No. 001-10542)).
Registration Rights Agreement, dated as of January 1, 2007, by and between Unifi, Inc. and Dillon Yarn Corporation
(incorporated by reference to Exhibit 7.1 to the Schedule 13D filed January 16, 2007 by Dillon Yarn Corporation (File
No. 005-30881)).
Amended and Restated Credit Agreement, dated as of March 26, 2015, by and among Unifi, Inc. and certain of its
domestic subsidiaries, as borrowers, Wells Fargo Bank, National Association, as administrative agent, sole lead arranger
and sole book runner, and the lenders party thereto (incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K filed March 31, 2015 (File No. 001-10542)).
First Amendment to Amended and Restated Credit Agreement, dated as of June 26, 2015, by and among Unifi, Inc. and
Unifi Manufacturing, Inc., as borrowers, Wells Fargo Bank, National Association, as administrative agent, and the lenders
party thereto (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed June 30, 2015 (File No.
001-10542)).
Second Amendment to Amended and Restated Credit Agreement, dated as of November 19, 2015, by and among Unifi,
Inc. and Unifi Manufacturing, Inc., as borrowers, Wells Fargo Bank, National Association, as administrative agent, and
the lenders party thereto (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed November 23,
2015 (File No. 001-10542)).
Third Amendment to Amended and Restated Credit Agreement and Second Amendment to Amended and Restated
Guaranty and Security Agreement, dated as of December 18, 2018, by and among Unifi, Inc. and Unifi Manufacturing,
Inc., as borrowers, Unifi Sales & Distribution, Inc. and See 4 Process Improvement Solutions, LLC, as guarantors, Wells
Fargo Bank, National Association, as agent for the lenders party thereto, and the lenders party thereto (incorporated by
reference to Exhibit 4.1 to the Current Report on Form 8-K filed December 20, 2018 (File No. 001-10542)).
Fourth Amendment to Amended and Restated Credit Agreement, dated as of April 29, 2020, by and among Unifi, Inc.
and Unifi Manufacturing, Inc., as borrowers, Unifi Sales & Distribution, Inc. and See 4 Process Improvement Solutions,
LLC, as guarantors, Wells Fargo Bank, National Association, as agent for the lenders party thereto, and the lenders
party thereto (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed April 30, 2020 (File No.
001-10542)).
Fifth Amendment to Amended and Restated Credit Agreement, dated as of February 5, 2021, by and among Unifi, Inc.
and Unifi Manufacturing, Inc., as borrowers, Unifi Sales & Distribution, Inc., as guarantor, Wells Fargo Bank, National
Association, as agent for the lenders party thereto, and the lenders party thereto (incorporated by reference to Exhibit
4.1 to the Current Report on Form 8-K filed February 11, 2021 (File No. 001-10542)).
Sixth Amendment to Amended and Restated Credit Agreement, dated as of September 2, 2022, by and among Unifi,
Inc. and Unifi Manufacturing, Inc., as borrowers, Unifi Sales & Distribution, Inc., as guarantor, Wells Fargo Bank, National
Association, as agent for the lenders party thereto, and the lenders party thereto (incorporated by reference to Exhibit
4.1 to the Current Report on Form 8-K filed September 8, 2022 (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)).
Second Amended and Restated Credit Agreement, dated as of October 28, 2022, by and among Unifi Manufacturing,
Inc. and certain of its domestic affiliates (including, without limitation, Unifi, Inc.), 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 November 3, 2022 (File No. 001-
10542)).
43
Exhibit
Number
4.13
4.14
4.15
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
Description
Second Amended and Restated Guaranty and Security Agreement, dated as of October 28, 2022, 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 November 3, 2022 (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)).
2008 Unifi, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 99.1 to the Registration Statement on
Form S-8 filed December 12, 2008 (File No. 333-156090)).
Form of Incentive Stock Option Agreement for Employees for use in connection with the 2008 Unifi, Inc. Long-Term
Incentive Plan (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended
December 28, 2008 (File No. 001-10542)).
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)).
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)).
Unifi, Inc. 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form
8-K filed October 23, 2013 (File No. 001-10542)).
Form of Restricted Stock Unit Agreement for Non-Employee Directors for use in connection with the Unifi, Inc. 2013
Incentive Compensation Plan (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)).
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) (incorporated by reference
to Exhibit 10.9 to the Annual Report on Form 10-K for the fiscal year ended June 24, 2018 (File No. 001-10542)).
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)).
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) (incorporated by reference to
Exhibit 10.11 to the Annual Report on Form 10-K for the fiscal year ended June 24, 2018 (File No. 001-10542)).
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)).
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)).
Unifi, Inc. Amended and Restated 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K filed November 1, 2018 (File No. 001-10542)).
Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K filed November 2, 2020 (File No. 001-10542)).
Form of Vested Share Unit Agreement for Non-Employee Directors for use in connection with the Unifi, Inc. Amended
and Restated 2013 Incentive Compensation Plan and the Unifi, Inc. Second Amended and Restated 2013 Incentive
Compensation Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 2018 (File No. 001-10542)).
Form of Stock Option Agreement for Non-Employee Directors for use in connection with the Unifi, Inc. Amended and
Restated 2013 Incentive Compensation Plan and the Unifi, Inc. Second Amended and Restated 2013 Incentive
Compensation Plan (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarter
ended December 30, 2018 (File No. 001-10542)).
44
Exhibit
Number
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30
10.31
10.32
10.33
Description
Form of Restricted Stock Unit Agreement for Employees for use in connection with the Unifi, Inc. Amended and Restated
2013 Incentive Compensation Plan and the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation
Plan (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended September
30, 2018 (File No. 001-10542)).
Form of Cash-Settled Restricted Stock Unit Agreement for Employees for use in connection with the Unifi, Inc. Amended
and Restated 2013 Incentive Compensation Plan and the Unifi, Inc. Second Amended and Restated 2013 Incentive
Compensation Plan (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q for the quarter
ended December 30, 2018 (File No. 001-10542)).
Form of Incentive Stock Option Agreement for Employees for use in connection with the Unifi, Inc. Amended and
Restated 2013 Incentive Compensation Plan and the Unifi, Inc. Second Amended and Restated 2013 Incentive
Compensation Plan (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 2018 (File No. 001-10542)).
Form of Unifi, Inc. Performance Share Unit Agreement for Employees for use in connection with the Unifi, Inc. Second
Amended and Restated 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q for the quarter ended September 26, 2021 (File No. 001-10542)).
Unifi, Inc. Deferred Compensation Plan (formerly known as the Unifi, Inc. Supplemental Key Employee Retirement Plan)
(incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K for the fiscal year ended July 3, 2022
(File No. 001-10542)).
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)).
Unifi, Inc. Director Compensation Policy (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-
Q for the quarter ended December 29, 2019 (File No. 001-10542)).
Letter Agreement by and between Unifi, Inc. and Albert P. Carey, effective as of October 27, 2021 (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K filed October 28, 2021 (File No. 001-10542)).
Employment Agreement by and between Unifi, Inc. and Craig A. Creaturo, effective as of August 28, 2019 (incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed September 3, 2019 (File No. 001-10542)).
Employment Agreement by and between Unifi, Inc. and Edmund M. Ingle, effective as of April 16, 2020 (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K filed April 21, 2020 (File No. 001-10542)).
First Amendment to Employment Agreement by and between Unifi, Inc. and Edmund M. Ingle, effective as of June 9,
2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K/A filed June 15, 2020 (File No. 001-
10542)).
Employment Agreement by and between Unifi, Inc. and Hongjun Ning, effective as of July 1, 2020 (incorporated by
reference to Exhibit 10.3 to the Current Report on Form 8-K filed November 2, 2020 (File No. 001-10542)).
Employment Agreement by and between Unifi, Inc. and Lucas de Carvalho Rocha, effective as of July 1, 2020
(incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed November 2, 2020 (File No. 001-
10542)).
Employment Agreement by and between Unifi, Inc. and Gregory K. Sigmon, effective as of July 4, 2022 (incorporated
by reference to Exhibit 10.30 to the Annual Report on Form 10-K for the fiscal year ended July 3, 2022 (File No. 001-
10542)).
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)).
45
Exhibit
Number
10.34
10.35
21+
23+
24+
31.1+
31.2+
32++
101+
Description
to Sales and Services Agreement, effective as of January 1, 2012, by and between Unifi
Fourth Amendment
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)).
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)).
Subsidiaries of Unifi, Inc.
Consent of KPMG LLP.
Power of Attorney (included on the signature pages to this report).
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The following financial information from Unifi, Inc.’s Annual Report on Form 10-K for the fiscal year ended July 2, 2023,
filed August 25, 2023, formatted in Inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements
of Operations, (iii) the Consolidated Statements of Comprehensive (Loss) Income, (iv) the Consolidated Statements of
Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial
Statements.
104+
The cover page from Unifi, Inc.’s Annual Report on Form 10-K for the fiscal year ended July 2, 2023, filed August 25,
2023, formatted in Inline XBRL (included in Exhibit 101).
+ Filed herewith.
++ Furnished herewith.
* Indicates a management contract or compensatory plan or arrangement.
† Certain portions of this exhibit have been redacted in accordance with Item 601(b)(10) of Regulation S K.
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 25, 2023
UNIFI, INC.
By:
/s/ EDMUND M. INGLE
Edmund M. Ingle
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Edmund
M. Ingle and Craig A. Creaturo, 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/ EDMUND M. INGLE
Edmund M. Ingle
/s/ CRAIG A. CREATURO
Craig A. Creaturo
/s/ EMMA S. BATTLE
Emma S. Battle
/s/ FRANCIS S. BLAKE
Francis S. Blake
/s/ ALBERT P. CAREY
Albert P. Carey
/s/ ARCHIBALD COX, JR.
Archibald Cox, Jr.
/s/ KENNETH G. LANGONE
Kenneth G. Langone
/s/ SUZANNE M. PRESENT
Suzanne M. Present
/s/ RHONDA L. RAMLO
Rhonda L. Ramlo
/s/ EVA T. ZLOTNICKA
Eva T. Zlotnicka
Date: August 25, 2023
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Executive Vice President & Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Director
Director
Executive Chairman
Lead Independent Director
Director
Director
Director
Director
47
UNIFI, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm..........................................................................................
Consolidated Balance Sheets as of July 2, 2023 and July 3, 2022.................................................................................
Consolidated Statements of Operations for the fiscal years ended July 2, 2023, July 3, 2022 and June 27, 2021 ................
Consolidated Statements of Comprehensive (Loss) Income for the fiscal years ended July 2, 2023, July 3, 2022 and June
27, 2021............................................................................................................................................................
Consolidated Statements of Shareholders’ Equity for the fiscal years ended July 2, 2023, July 3, 2022 and June 27, 2021 .
Consolidated Statements of Cash Flows for the fiscal years ended July 2, 2023, July 3, 2022 and June 27, 2021 ...............
Notes to Consolidated Financial Statements ...............................................................................................................
F-1
F-4
F-5
F-6
F-7
F-8
F-9
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 July 2, 2023 and
July 3, 2022, the related consolidated statements of operations, comprehensive (loss) income, shareholders’ equity, and cash flows
for each of the years in the three-year period ended July 2, 2023, 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 July 2, 2023 and July 3, 2022, and the results of its operations and its cash flows for each of the years in the three-
year period ended July 2, 2023, 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 July 2, 2023, 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
25, 2023 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Evaluation of the net realizable value of raw material and finished goods inventories
As discussed in Note 7 to the consolidated financial statements, the Company’s consolidated raw material and finished goods
inventories balance as of July 2, 2023 was $138,015 thousand. The Company records adjustments to the cost basis of raw
material and finished goods inventories when the expected net realizable value of the inventories is below its cost basis. The
Company’s model estimates the net realizable value of its raw material and finished goods inventories based upon factors
including historical recovery rates, inventory age, and current economic conditions.
We identified the evaluation of the net realizable value of raw material and finished goods inventories held in the United States
as a critical audit matter. Complex auditor judgment was required to evaluate the recovery rates used in the determination of the
net realizable value of raw material and finished goods inventories, including the relevance of historical experience.
F-1
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested
the operating effectiveness of certain internal controls related to the evaluation of the net realizable value of raw material and
finished goods inventories. This included controls related to the determination of expected recovery rates used in the assessment
and whether historical rates are indicative of expected losses on current raw material and finished goods inventories. We
assessed whether historical recovery rates are indicative of expected losses by (1) comparing the prior period loss estimate to
actual loss experience, and (2) evaluating industry data for trends and conditions that may impact the estimate of net realizable
value. We also performed sensitivity analyses over management’s historical recovery rates to assess the impact of changes in
recovery rates on management’s determination of net realizable value of raw material and finished goods inventories.
/s/ KPMG LLP
We have served as the Company’s auditor since 2011.
Winston-Salem, North Carolina
August 25, 2023
F-2
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 July 2, 2023, 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 July 2, 2023, 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 July 2, 2023 and July 3, 2022, the related consolidated statements of
operations, comprehensive (loss) income, shareholders’ equity, and cash flows for each of the years in the three-year period ended
July 2, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated August 25, 2023
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
Winston-Salem, North Carolina
August 25, 2023
F-3
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
July 2, 2023
July 3, 2022
Cash and cash equivalents
Receivables, net
Inventories
Income taxes receivable
Other current assets
Total current assets
Property, plant and equipment, net
Operating lease assets
Deferred income taxes
Other non-current assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable
Income taxes payable
Current operating lease liabilities
Current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt
Non-current operating lease liabilities
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies
Common stock, $0.10 par value (500,000,000 shares authorized; 18,081,538 and
17,979,362 shares issued and outstanding as of July 2, 2023 and July 3, 2022,
respectively)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
$
$
$
$
$
$
46,960
83,725
150,810
238
12,327
294,060
218,521
7,791
3,939
14,508
538,819
44,455
789
1,813
12,006
12,932
71,995
128,604
6,146
3,364
5,100
215,209
53,290
106,565
173,295
160
18,956
352,266
216,338
8,829
2,497
8,788
588,718
73,544
1,526
2,190
11,726
19,806
108,792
102,309
6,736
4,983
4,449
227,269
1,808
68,901
306,792
(53,891)
323,610
538,819
$
1,798
66,120
353,136
(59,605)
361,449
588,718
See accompanying notes to consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Benefit for bad debts
Other operating expense (income), net
Operating (loss) income
Interest income
Interest expense
Equity in earnings of unconsolidated affiliates
Recovery of non-income taxes, net
(Loss) income before income taxes
Provision for income taxes
Net (loss) income
Net (loss) income per common share:
Basic
Diluted
$
$
$
$
July 2, 2023
For the Fiscal Year Ended
July 3, 2022
$
623,527
609,286
14,241
47,345
(89)
7,856
(40,871)
(2,109)
7,577
(896)
—
(45,443)
901
(46,344) $
815,758
735,273
80,485
52,489
(445)
(158)
28,599
(1,524)
3,085
(605)
815
26,828
11,657
15,171
June 27, 2021
667,592
$
574,098
93,494
51,334
(1,316)
4,865
38,611
(603)
3,323
(739)
(9,717)
46,347
17,274
29,073
$
(2.57) $
(2.57) $
0.82
0.80
$
$
1.57
1.54
See accompanying notes to consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
Net (loss) income
Other comprehensive income (loss):
Foreign currency translation adjustments
Changes in interest rate swaps, net of tax of nil, $282 and $310,
respectively
Other comprehensive income (loss), net
Comprehensive (loss) income
July 2, 2023
For the Fiscal Year Ended
July 3, 2022
$
(46,344) $
15,171
June 27, 2021
29,073
$
5,714
—
5,714
$
(40,630) $
(7,125)
952
(6,173)
8,998
$
9,368
1,006
10,374
39,447
See accompanying notes to consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
Balance at June 28, 2020
18,446 $
1,845 $ 62,392 $ 315,724 $
(63,806) $
316,155
Shares
Common
Stock
Capital in
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
Options exercised
Stock-based compensation
Conversion of equity units
Common stock withheld in satisfaction of tax
withholding obligations under net share settle
transactions
Other comprehensive income, net of tax
Net income
Balance at June 27, 2021
Options exercised
Stock-based compensation
Conversion of equity units
Common stock repurchased and retired under
publicly announced programs
Common stock withheld in satisfaction of tax
withholding obligations under net share settle
transactions
Other comprehensive loss, net of tax
Net income
Balance at July 3, 2022
Options exercised
Stock-based compensation
Conversion of equity units
Common stock withheld in satisfaction of tax
withholding obligations under net share settle
transactions
Other comprehensive income, net of tax
Net loss
Balance at July 2, 2023
1
4
45
—
1
4
—
3,137
(4)
—
—
—
—
—
—
—
3,138
—
(6)
—
—
18,490 $
(1)
—
—
(320)
—
—
1,849 $ 65,205 $ 344,797 $
—
—
29,073
16
5
107
1
1
11
27
3,290
(11)
—
—
—
(617)
(62)
(2,257)
(6,832)
(2)
—
—
(134)
—
—
1,798 $ 66,120 $ 353,136 $
—
—
15,171
—
10,374
—
(53,432) $
(321)
10,374
29,073
358,419
—
—
—
—
28
3,291
—
(9,151)
—
(6,173)
—
(59,605) $
(136)
(6,173)
15,171
361,449
55
2,803
(9)
—
—
—
—
—
—
56
2,804
—
(22)
—
—
17,979 $
7
11
91
(7)
—
—
18,081 $
1
1
9
(1)
—
—
—
(68)
—
—
— (46,344)
—
5,714
—
(53,891) $
(69)
5,714
(46,344)
323,610
1,808 $ 68,901 $ 306,792 $
See accompanying notes to consolidated financial statements.
F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
July 2, 2023
For the Fiscal Year Ended
July 3, 2022
$
53,290
$
78,253
June 27, 2021
75,267
$
Cash and cash equivalents at beginning of year
Operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Equity in earnings of unconsolidated affiliates
Distributions received from unconsolidated affiliates
Depreciation and amortization expense
Non-cash compensation expense
Deferred income taxes
Loss on disposal of assets
Impairment for asset abandonment
Recovery of taxes, net
Other, net
Changes in assets and liabilities:
Receivables, net
Inventories
Other current assets
Income taxes
Accounts payable and other current liabilities
Other non-current assets
Other non-current liabilities
Net cash provided by operating activities
Investing activities:
Capital expenditures
Purchases of intangible assets
Other, net
Net cash used by investing activities
Financing activities:
Proceeds from ABL Revolver
Payments on ABL Revolver
Payments on ABL Term Loan
Proceeds from construction financing
Payments on finance lease obligations
Common stock repurchased and retired under publicly announced program
Common stock withheld in satisfaction of tax withholding obligations under
net share settle transactions
Other
Net cash provided (used) by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at end of year
$
(46,344)
15,171
29,073
(896)
—
27,186
2,805
(2,788)
278
8,247
(3,799)
48
23,138
24,431
8,002
(751)
(35,701)
(471)
1,355
4,740
(36,434)
—
209
(36,225)
194,700
(165,400)
(7,100)
6,533
(2,123)
—
(69)
(603)
25,938
(783)
(6,330)
46,960
(605)
750
26,207
3,555
(3,119)
48
—
815
(99)
(13,533)
(34,749)
(2,860)
2,193
8,937
360
(2,691)
380
(39,631)
—
(2,103)
(41,734)
158,000
(116,700)
(12,500)
2,340
(3,707)
(9,151)
(345)
28
17,965
(1,574)
(24,963)
53,290
$
$
(739)
750
25,528
3,462
5,087
2,809
—
(9,717)
(495)
(40,059)
(28,069)
2,409
2,978
40,909
139
2,616
36,681
(21,178)
(3,605)
162
(24,621)
—
—
(10,000)
882
(3,646)
—
(111)
—
(12,875)
3,801
2,986
78,253
See accompanying notes to consolidated financial statements.
F-8
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
multinational company that manufactures and sells innovative recycled and synthetic products, made from polyester and nylon,
primarily to other yarn manufacturers and knitters and weavers (UNIFI’s “direct customers”) that produce yarn and/or fabric for the
apparel, hosiery, home furnishings, automotive, industrial, medical, and other end-use markets (UNIFI’s “indirect customers”). We
sometimes refer to these indirect customers as “brand partners.” Polyester products include partially oriented yarn (“POY”) and
textured, solution and package dyed, twisted, beamed, and draw wound yarns, and each is available in virgin or recycled varieties.
Recycled solutions, made from both pre-consumer and post-consumer waste, include plastic bottle flake (“Flake”), polyester polymer
beads (“Chip”), and staple fiber. Nylon products include virgin or recycled textured, solution dyed, and spandex covered yarns.
UNIFI maintains one of the textile industry’s most comprehensive product offerings that include a range of specialized, value-added
and commodity solutions, with principal geographic markets in North America, Central America, South America, Asia, and Europe.
UNIFI has direct manufacturing operations in four countries and participates in joint ventures with operations in Israel and the United
States (the “U.S.”).
Fiscal Year
The fiscal year for Unifi, Inc., its domestic subsidiaries, and its subsidiary in El Salvador ends on the Sunday in June or July nearest
to June 30 of each year. Unifi, Inc.’s fiscal 2023, 2022, and 2021 ended on July 2, 2023, July 3, 2022, and June 27, 2021, respectively.
Unifi, Inc.’s remaining material operating subsidiaries’ fiscal years end on June 30. There have been no significant transactions or
events that occurred between Unifi, Inc.’s fiscal year end and such wholly owned subsidiaries’ fiscal year ends. Unifi, Inc.’s fiscal 2023
and 2021 each consisted of 52 weeks, while its fiscal 2022 consisted of 53 weeks.
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. UNIFI evaluated GAAP requirements for the consideration of forecasted financial information, including, but not limited
to, the carrying value of long-lived assets in context with the information reasonably available to UNIFI and the unknown future impacts
of the economic environment as of July 2, 2023 and through the date of this filing.
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. For transactions with entities accounted for under the equity method, any intercompany profits on amounts still
remaining within inventory 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.
Cash and Cash Equivalents
Cash equivalents are defined as highly liquid, short-term investments having an original maturity of three months or less. Book
overdrafts, for which the bank has not advanced cash, if any, are reclassified to accounts payable and reflected as an offset thereto
within the accompanying consolidated statements of cash flows.
Receivables
Receivables are stated net of expected lifetime credit losses. Allowances are provided for known and potential losses arising from
quality claims and for amounts owed by customers. Reserves for quality claims have not been material and 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 recorded against 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.
F-9
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
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 net realizable value related to obsolete, slow-moving, or excess inventories are based upon many
factors, including historical recovery rates, inventory age, the expected net realizable value of specific products, and current economic
conditions.
Debt Issuance Costs
Debt issuance costs for revolving credit arrangements are recorded to other non-current assets. All other debt issuance costs are
recorded against long-term debt and amortized as additional interest expense using the effective interest method. In the event of any
prepayment of its debt obligations, UNIFI accelerates the recognition of a pro-rata amount of issuance costs.
Property, Plant and Equipment
Property, plant, and equipment (“PP&E”) are stated at historical cost less accumulated depreciation. Plant and equipment under
finance 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
5 to 20
7 to 40
2 to 25
3 to 7
3
3 to 15
Leasehold improvements are depreciated over the lesser of their estimated useful lives or the remaining term of the lease.
Assets under finance 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 eligible costs of developing internal software when the software is used as an integral part of its manufacturing or
business processes.
Internal software costs are amortized over a period of three years and, in accordance with the nature of the
project, 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 disposed. 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 (loss) 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 of an asset or asset group may not be recoverable. UNIFI periodically evaluates the reasonableness of the useful lives of
these assets. 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 their 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, along with assets
subject to abandonment, are reported at the lower of their carrying amount or estimated fair value.
Intangible Assets
Finite-lived intangible assets, such as customer lists, non-compete agreements, and trademarks 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 (asset groups) 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 intangible assets with indefinite lives.
F-10
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
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.
Fair Value Measurements
The accounting guidance for fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. Fair value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants in the principal market, or, if none exists, the most
advantageous market, for the specific asset or liability at the measurement date (the exit price). Fair value is based on assumptions
that market participants would use when pricing the asset or liability. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets and the lowest priority to unobservable inputs. UNIFI uses the following to measure fair value for its assets
and liabilities.
• Level 1 – Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.
• Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either indirectly or
directly.
• Level 3 – Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or
liability.
The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the
fair value measurement in its entirety. There were no transfers into or out of the levels of the fair value hierarchy for any years
presented.
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.
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
If UNIFI determines it is not more-likely-
reviews deferred tax assets to determine if it is more-likely-than-not they will be realized.
than-not that a deferred tax asset will be realized, it records a valuation allowance to reverse the previously recognized benefit.
Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings
are not deemed to be permanently invested.
UNIFI recognizes tax benefits related to uncertain tax positions if it believes it is more-likely-than-not of being sustained. Recognized
income tax positions are measured at the largest amount that is greater than 50% likely of being realized. UNIFI accrues for other tax
contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be
reasonably estimated. Penalties and interest related to income tax expense, if incurred, are 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 award exercises and 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 (loss) income
but are presented in a separate component of accumulated other comprehensive loss. UNIFI translates the results 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.
F-11
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Revenue Recognition
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied, which primarily
occurs at a point in time, upon either shipment or delivery to the customer. Revenue is recognized over time for contracts in which the
associated inventory produced has no alternative use and for which an enforceable right to payment exists or the associated services
have been rendered. Revenue is measured as the amount of consideration UNIFI expects to receive in exchange for completing its
performance obligations (i.e., transferring goods or providing services), which includes estimates for variable consideration. Variable
consideration includes volume-based incentives and product claims, which are offered within certain contracts between UNIFI and its
customers and is not material. Sales taxes and value added taxes assessed by governmental entities are excluded from the
measurement of consideration expected to be received. Shipping and handling costs incurred after a customer has taken control of
our goods are treated as a fulfillment cost and are not considered a separate performance obligation.
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) shipping, handling and warehousing costs, (v) depreciation expense, and (vi) 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 cost of sales as incurred.
Research and development costs were as follows:
Research and development costs
Selling, General, and Administrative Expenses
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
10,871
$
12,103
$
11,483
The major components of SG&A expenses are: (i) costs of UNIFI’s sales organization, marketing and advertising efforts, and external
commissions; (ii) costs of maintaining UNIFI’s general and administrative support functions including executive management,
information technology, human resources, legal, and finance; (iii) amortization of intangible assets, and (iv) all other costs required to
be classified as SG&A expenses.
Advertising Costs
Advertising costs are expensed as incurred and included in SG&A expenses. UNIFI’s advertising costs include spending for items
such as consumer marketing and branding initiatives, promotional items, trade shows, sponsorships, and other programs. Advertising
costs were as follows:
Advertising costs
Self-Insurance
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
4,003
$
4,673
$
2,919
UNIFI self-insures certain risks such as employee healthcare claims and maintains stop-loss coverage. 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.
F-12
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
3. Recent Accounting Pronouncements
Issued and Pending Adoption
There have been no newly issued accounting pronouncements that are expected to have a significant impact on UNIFI’s consolidated
financial statements.
Recently Adopted
There have been no accounting pronouncements adopted after fiscal 2021 that had a material impact to UNIFI's consolidated financial
statements.
4. Leases
UNIFI has adopted the following post-implementation practical expedients related to its accounting for leases:
• short-term lease accounting policy election allowing lessees to not recognize right-of-use assets and liabilities for leases with
a term of 12 months or less and to recognize lease payments on a straight-line basis over the lease term and variable
payments in the period the obligation is incurred; and
• the option not to separate lease and non-lease components for the transportation equipment asset class.
UNIFI 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. The lease terms
range from 1 to 15 years with various options for renewal. There are no residual value guarantees, restrictions, covenants, or sub-
leases related to these leases. Variable lease payments are determined as the amounts included in the lease payment that are based
on the change in index or usage. Disclosures related to the amount, timing and uncertainty of cash flows arising from leases are
included below.
The following table sets forth the balance sheet location and values of the Company’s lease assets and lease liabilities:
Balance Sheet Location
July 2, 2023
July 3, 2022
Classification
Lease Assets
Operating lease assets
Finance lease assets
Total lease assets
Lease Liabilities
Current operating lease liabilities
Current finance lease liabilities
Total current lease liabilities
Operating lease assets
Property, plant & equipment, net
Current operating lease liabilities
Current portion of long-term debt
Non-current operating lease liabilities
Non-current finance lease liabilities
Total non-current lease liabilities
Non-current operating lease liabilities
Long-term debt
Total lease liabilities
$
$
$
$
$
$
$
7,791
10,947
18,738
1,813
2,806
4,619
6,146
7,961
14,107
18,726
$
$
$
$
$
$
$
8,829
7,017
15,846
2,190
1,726
3,916
6,736
5,535
12,271
16,187
The following table sets forth the components of UNIFI’s total lease cost for fiscal 2023 and 2022:
Lease Cost
Operating lease cost
Variable lease cost
Finance lease cost:
Amortization of lease assets
Interest on lease liabilities
Short-term lease cost
Total lease cost
The following table presents supplemental information related to leases:
Other Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used by operating leases
Financing cash flows used by finance leases
Non-cash activities:
Leased assets obtained in exchange for new operating lease liabilities
Leased assets obtained in exchange for new finance lease liabilities
F-13
Fiscal 2023
Fiscal 2022
$
$
$
$
$
$
2,686
545
1,546
344
1,013
6,134
Fiscal 2023
2,686
2,123
2,733
5,629
$
$
$
$
$
$
2,766
502
1,981
258
967
6,474
Fiscal 2022
2,766
3,707
1,662
2,493
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
UNIFI calculates its operating lease liabilities and finance lease liabilities based upon UNIFI’s incremental borrowing rate (the “IBR”).
When determining the IBR, we consider our centralized treasury function and our current credit profile. UNIFI makes adjustments to
this rate for securitization, the length of the lease term (tenure), and leases denominated in foreign currencies. Generally, the IBR for
each jurisdiction approximates the specific risk-free rate for the respective jurisdiction incremented for UNIFI’s corporate credit risk
and adjusted for tenure.
The following table sets forth UNIFI's weighted average remaining lease term in years and discount rate percentage used in the
calculation of its outstanding lease liabilities:
Weighted Average Remaining Lease Term and Discount Rate
Weighted average remaining lease term (years):
Operating leases
Finance leases
Weighted average discount rate (percentage):
Operating leases
Finance leases
Lease Maturity Analysis
July 2, 2023
July 3, 2022
6.0
3.9
3.0%
4.8%
4.1
4.2
5.0%
3.6%
Future minimum finance lease payments and future minimum payments under non-cancelable operating leases with initial lease terms
in excess of one year as of July 2, 2023 by fiscal year were:
Maturity of Lease Liabilities
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Fiscal 2028
Fiscal years thereafter
Total minimum lease payments
Less estimated executory costs
Less imputed interest
Present value of net minimum lease payments
Less current portion of lease obligations
Long-term portion of lease obligations
5. Revenue Recognition
Finance Leases
Operating Leases
$
$
$
3,339
3,183
2,688
2,082
949
—
12,241
(338)
(1,136)
10,767
(2,806)
7,961
$
$
$
2,181
1,677
1,384
1,155
1,040
2,241
9,678
—
(1,719)
7,959
(1,813)
6,146
The following tables present net sales disaggregated by (i) classification of customer type and (ii) REPREVE Fiber sales:
Third-party manufacturer
Service
Net sales
REPREVE® Fiber
All other products and services
Net sales
Third-Party Manufacturer
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
$
$
618,391
5,136
623,527
Fiscal 2023
186,161
437,366
623,527
$
$
$
$
808,655
7,103
815,758
Fiscal 2022
293,080
522,678
815,758
$
$
$
$
656,763
10,829
667,592
Fiscal 2021
245,832
421,760
667,592
Third-party manufacturer revenue is primarily generated through sales to direct customers. Such sales represent satisfaction of
UNIFI’s performance obligations required by the associated revenue contracts. Each of UNIFI’s reportable segments derives revenue
from sales to third-party manufacturers.
Service Revenue
Service revenue is primarily generated, as services are rendered, through fulfillment of toll manufacturing of textile products or
transportation services governed by written agreements. Such toll manufacturing and transportation services represent satisfaction of
UNIFI’s performance obligations required by the associated revenue contracts.
F-14
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
REPREVE Fiber
REPREVE Fiber represents our collection of fiber products on our recycled platform, with or without added technologies.
Variable Consideration
For all variable consideration, where appropriate, UNIFI estimates the amount using the expected value method, which takes into
consideration historical experience, current contractual requirements, specific known market events and forecasted customer buying
and payment patterns. Overall, these reserves reflect UNIFI’s best estimates of the amount of consideration to which the customer is
entitled based on the terms of the contracts. Variable consideration has been immaterial to UNIFI’s financial statements for all years
presented.
Product claims
UNIFI generally offers customers claims support or remuneration for defective products. UNIFI estimates the amount of its product
sales that may be claimed as defective by its customers and records this estimate as a reduction of revenue in the period the related
product revenue is recognized.
6. Receivables, Net
Receivables, net consists of the following:
Customer receivables
Allowance for uncollectible accounts
Reserves for quality claims
Net customer receivables
Banker's acceptance notes
Other receivables
Total receivables, net
July 2, 2023
July 3, 2022
79,174
(1,362)
(682)
77,130
5,870
725
83,725
$
$
99,963
(1,498)
(860)
97,605
7,849
1,111
106,565
$
$
Banker’s acceptance notes (“BANs”), denominated in RMB, relate to the settlement of certain customer receivables generated from
trade activity in the Asia Segment. The BANs are redeemable upon maturity from the drawing financial institutions, or earlier at a
discount.
The changes in UNIFI’s allowance for uncollectible accounts and reserves for quality claims were as follows:
Balance at June 28, 2020
Credited (charged) to costs and expenses
Translation activity
Deductions
Balance at June 27, 2021
Credited (charged) to costs and expenses
Translation activity
Deductions
Balance at July 3, 2022
Credited (charged) to costs and expenses
Translation activity
Deductions
Balance at July 2, 2023
Allowance for
Uncollectible
Accounts
Reserves for
Quality Claims
$
$
$
$
(3,796)
1,316
(89)
44
(2,525)
445
40
542
(1,498)
89
(86)
133
(1,362)
$
$
$
$
(928)
(1,085)
(36)
1,346
(703)
(1,065)
12
896
(860)
(1,397)
7
1,568
(682)
Amounts credited (charged) to costs and expenses for the allowance for uncollectible accounts are reflected in the benefit 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 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.
F-15
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
7.
Inventories
Inventories consists of the following:
Raw materials
Supplies
Work in process
Finished goods
Gross inventories
Net realizable value adjustment
Total inventories
July 2, 2023
July 3, 2022
$
$
59,983
11,787
6,633
78,032
156,435
(5,625)
150,810
$
$
69,994
11,953
10,358
84,477
176,782
(3,487)
173,295
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 $58,490 and $53,793 as of July 2, 2023 and July 3, 2022, respectively, were valued under the average cost
method.
8. Other Current Assets
Other current assets consists of the following:
Vendor deposits
Value-added taxes receivable
Prepaid expenses and other
Recovery of non-income taxes, net
Contract assets
Total other current assets
July 2, 2023
July 3, 2022
$
$
3,863
3,398
2,584
1,933
549
12,327
$
$
6,910
1,987
3,004
6,770
285
18,956
Vendor deposits primarily relates to down payments made toward the purchase of inventory. Prepaid expenses consists of advance
payments for routine operating expenses. Value-added taxes receivable relates to recoverable taxes associated with the sales and
purchase activities of UNIFI’s foreign operations. Contract assets represents the estimated revenue attributable to UNIFI in connection
with completed performance obligations under contracts with customers for which revenue is recognized over time. The contract
assets are classified to receivables when the right to payment becomes unconditional.
Recovery of Non-Income Taxes, Net
Brazilian companies are subject to various taxes on business operations, including turnover taxes used to fund social security and
unemployment programs, commonly referred to as PIS/COFINS taxes. UNIFI, along with numerous other companies in Brazil,
challenged the constitutionality of certain state taxes historically included in the PIS/COFINS tax base.
On May 13, 2021, Brazil’s Supreme Federal Court (“SFC”) ruled in favor of taxpayers, and on July 7, 2021, the Brazilian Internal
Revenue Service withdrew its existing appeal. Following the SFC decision, the federal government will not issue refunds for these
taxes but will instead allow for the overpayments and associated interest to be applied as credits against future PIS/COFINS tax
obligations. In fiscal 2021, UNIFI recorded $11,519 to reflect the current and non-current recovery of PIS/COFINS taxes and
associated interest, with $942 of recoveries relating to fiscal 2021 included within net sales and $10,577 of recoveries relating to fiscal
years prior to 2021, which is reduced by fees related to the recovery efforts to comprise $9,717 for recovery of non-income taxes.
During fiscal 2022, UNIFI reduced the estimated recovery by $815, based on additional clarity and review of the recovery process
during the months following the associated SFC decision.
There are no limitations or restrictions on UNIFI’s ability to recover the associated overpayment claims as future income is generated
and the Company has been utilizing these amounts to offset its current tax obligations under PIC/COFINS. The Company expects to
apply the remaining balance to obligations within the next twelve months.
F-16
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
9. Property, Plant and Equipment, Net
PP&E, net consists of the following:
Land
Land improvements
Buildings and improvements
Assets under finance leases
Machinery and equipment
Computers, software and office equipment
Transportation equipment
Construction in progress
Gross PP&E
Less: accumulated depreciation
Less: accumulated amortization – finance leases
Total PP&E, net
Assets under finance leases consists of the following:
Transportation equipment
Machinery and equipment
Gross assets under finance leases
July 2, 2023
July 3, 2022
$
$
$
$
2,512
16,443
167,589
16,397
656,431
26,654
10,710
10,003
906,739
(682,768)
(5,450)
218,521
July 2, 2023
8,276
8,121
16,397
$
$
$
$
3,160
16,443
164,252
10,921
635,699
25,348
10,591
20,397
886,811
(666,569)
(3,904)
216,338
July 3, 2022
8,276
2,645
10,921
Depreciation and amortization expense and repair and maintenance expenses were as follows:
Depreciation and amortization expense
Repair and maintenance expenses
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
25,729
17,999
$
24,509
20,076
$
24,215
18,118
life to
In fiscal 2017, UNIFI constructed specialized bi-component spinning machinery in the Americas with a 15-year useful
accommodate tolling demand and development efforts of a specific U.S. customer. After multiple years of operating the machinery,
recovering the capital investment, and generating profitable sales, the contract terminated in accordance with its provisions, and
additional development and commercialization efforts ceased in fiscal 2023, primarily due to the specialized nature and generally
higher operating costs of the machinery. As a result of the lack of potential future demand, the machinery was considered to have
zero future sales potential and negative future cash flows and was abandoned by the Company. Accordingly, UNIFI recorded an
impairment of $8,247 to Other operating expense (income), net during the fourth quarter of fiscal 2023. Prior to the abandonment, the
asset's net book value was $8,247. The new book value of $0 reflects the lack of positive future cash flows, scrap or salvage value,
following the income method for the Level 3 measurement.
10. Other Non-Current Assets
Other non-current assets consists of the following:
Recovery of taxes
Investments in unconsolidated affiliates
Grantor trust
Intangible assets, net
Other
Total other non-current assets
Recovery of Taxes
July 2, 2023
July 3, 2022
$
$
5,957
2,997
2,496
1,210
1,848
14,508
$
$
1,463
2,072
2,196
2,500
557
8,788
In fiscal 2023, UNIFI recorded a recovery of income taxes in connection with filing amended tax returns in Brazil relating to certain
income taxes paid in prior fiscal years, following favorable legal rulings in fiscal 2023. The balance at July 3, 2022 relates to the
recovery of PIS/COFINS (non-income) taxes, as further described in Note 8, "Other Current Assets."
F-17
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Grantor Trust
During fiscal 2022, UNIFI established a grantor (or “rabbi”) trust to facilitate the payment of obligations under the Unifi, Inc. Deferred
Compensation Plan (the “DCP”), which was also established in fiscal 2022. In addition to providing certain key employees with the
ability to defer earned cash incentive compensation into the DCP, participants can generally choose the form and timing of deferred
amounts. The DCP assumed the participants, obligations, and major terms of the Unifi, Inc. Supplemental Key Employee Retirement
Plan (together with amendments, the “SERP”), an unfunded plan established in 2006 for purposes of generating supplemental
retirement income for key employees of UNIFI. The amounts credited to participant accounts are reflected in selling, general, and
administrative expenses. The assets of the trust are subject to the claims of UNIFI’s creditors in the event of insolvency. Investments
held for the DCP consist of mutual funds and are recorded based on market values. A change in the value of the trust assets would
substantially be offset by a change in the liability to the participants, resulting in an immaterial net impact to the consolidated financial
statements.
The fair value of the investment assets held by the trust were approximately $2,496 and $2,196 as of July 2, 2023 and July 3, 2022,
respectively, and are classified as trading securities within Other non-current assets. Trading gains and losses associated with these
investments are recorded to Other operating expense (income), net. The associated DCP liability is recorded within Other current
liabilities and Other long-term liabilities based on expected payment timing, and any increase or decrease in the liability is reflected
as compensation in SG&A expenses. During fiscal 2023 and 2022, we recorded (gains) or losses on investments held by the trust of
$(154) and $48, respectively.
Intangible Assets
Intangible assets, net consists of the following:
Customer lists
Non-compete agreement
Trademarks
Total intangible assets, gross
Accumulated amortization – customer lists
Accumulated amortization – non-compete agreement
Accumulated amortization – trademarks
Total accumulated amortization
Total intangible assets, net
July 2, 2023
July 3, 2022
$
$
3,605
—
24
3,629
(2,398)
—
(21)
(2,419)
1,210
$
$
5,220
1,875
104
7,199
(3,056)
(1,563)
(80)
(4,699)
2,500
Amortization expense for intangible assets consists of the following:
Customer lists
Non-compete agreement
Trademarks
Total amortization expense
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
957
312
21
1,290
$
$
1,007
375
96
1,478
$
$
556
375
147
1,078
The following table presents the expected intangible asset amortization for the next five fiscal years:
Expected amortization
Fiscal 2024 Fiscal 2025
108
$
528
$
Fiscal 2026
108
$
Fiscal 2027
108
$
Fiscal 2028
111
$
Thereafter
247
$
F-18
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Investments in Unconsolidated Affiliates
U.N.F. Industries, Ltd.
In September 2000, UNIFI and Nilit Ltd. ("Nilit") formed a 50/50 joint venture, U.N.F. Industries Ltd. (“UNF”), for the purpose of
operating nylon extrusion assets to manufacture nylon POY. Raw material and production services for UNF are provided by Nilit
under separate supply and services agreements. UNF’s fiscal year end is December 31 and it is a registered Israeli private company
located in Migdal Ha-Emek, Israel.
UNF America, LLC
In October 2009, UNIFI and Nilit America Inc. (“Nilit America”) formed a 50/50 joint venture, UNF America LLC (“UNFA”), for the
purpose of operating a nylon extrusion facility which manufactures nylon POY. Raw material and production services for UNFA are
provided by Nilit America under separate supply and services agreements. UNFA’s fiscal year end is December 31 and it is a limited
liability company located in Ridgeway, Virginia. UNFA is treated as a partnership for its income tax reporting.
In conjunction with the formation of UNFA, UNIFI entered into a supply agreement with UNF and UNFA (collectively, “UNFs”) 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 July 2, 2023, UNIFI’s open purchase orders related to this agreement were $762.
UNIFI’s raw material purchases under this supply agreement consist of the following:
UNFA
UNF
Total
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
26,683
31
26,714
$
$
29,637
1,175
30,812
$
$
18,932
548
19,480
As of July 2, 2023 and July 3, 2022, UNIFI had combined accounts payable due to UNF and UNFA of $3,440 and $5,565, respectively.
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 (i) UNIFI purchases substantially all of the output from the two entities and all intercompany sales would be eliminated in
consolidation, (ii) the two entities’ balance sheets constitute 5% or less of UNIFI’s current assets and total assets, and (iii) such
balances are not expected to comprise a larger portion in the future, UNIFI has not included the accounts of UNF and UNFA in its
consolidated financial statements and instead is accounting for these entities as equity investments. As of July 2, 2023 and July 3,
2022, UNIFI’s combined investments in UNF and UNFA were $2,997 and $2,072, respectively. 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.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Shareholders’ equity and capital accounts
UNIFI’s portion of undistributed earnings
Net sales
Gross profit
Income from operations
Net income
Depreciation and amortization
Distributions received
$
July 2, 2023
July 3, 2022
$
10,608
494
7,304
—
3,798
2,938
10,705
605
8,056
—
3,254
2,013
$
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
29,123
2,337
604
544
111
—
$
31,745
1,928
148
127
121
750
19,649
3,423
1,777
1,782
151
750
F-19
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
11. Other Current Liabilities
Other current liabilities consists of the following:
Payroll and fringe benefits
Utilities
Deferred revenue
Incentive compensation
Property taxes and other
Total other current liabilities
12. Long-Term Debt
Debt Obligations
July 2, 2023
July 3, 2022
$
$
6,981
1,634
1,441
298
2,578
12,932
$
$
9,414
2,287
1,694
3,916
2,495
19,806
The following table presents the details for UNIFI’s debt obligations:
ABL Revolver
ABL Term Loan
Finance lease obligations
Construction financing
Total debt
Current ABL Term Loan
Current portion of finance lease obligations
Unamortized debt issuance costs
Total long-term debt
Scheduled
Maturity Date
October 2027
October 2027
(1)
(2)
Weighted Average
Interest Rate as of
July 2, 2023
7.1%
6.6%
4.8%
6.9%
Principal Amounts as of
July 2, 2023
July 3, 2022
$
$
18,100
110,400
10,767
1,632
140,899
(9,200)
(2,806)
(289)
128,604
$
$
41,300
65,000
7,261
729
114,290
(10,000)
(1,726)
(255)
102,309
(1) Scheduled maturity dates for finance lease obligations range from March 2025 to May 2028.
(2) Refer to the discussion below under the subheading “Construction Financing” for further information.
ABL Facility and Amendments
On October 28, 2022, Unifi, Inc. and certain of its subsidiaries entered into a Second Amended and Restated Credit Agreement (the
“2022 Credit Agreement”) with a syndicate of lenders. The 2022 Credit Agreement provides for a $230,000 senior secured credit
facility (the “2022 ABL Facility”), including a $115,000 revolving credit facility (the "2022 ABL Revolver") and a term loan (the "2022
ABL Term Loan") that can be reset up to a maximum amount of $115,000, once per fiscal year, if certain conditions are met. The 2022
ABL Facility has a maturity date of October 28, 2027. The 2022 ABL Term Loan requires quarterly principal payments of $2,300 that
began on February 1, 2023. Borrowings under the 2022 ABL Facility bear interest at SOFR plus 0.10% plus an applicable margin of
1.25% to 1.75%, or the Base Rate (as defined in the 2022 Credit Agreement) plus an applicable margin of 0.25% to 0.75%, with
interest paid most commonly on a monthly basis. In connection with the 2022 Credit Agreement, UNIFI recorded a $273 loss on debt
extinguishment to interest expense in the second quarter of fiscal 2023.
Prior to entering the into 2022 Credit Agreement, Unifi, Inc. and certain of its subsidiaries maintained a similar credit agreement that
established a $200,000 senior secured credit facility (the “Prior ABL Facility”), including a $100,000 revolving credit facility (the “Prior
ABL Revolver”) and a term loan that could be reset up to a maximum amount of $100,000, once per fiscal year, if certain conditions
were met (the “Prior ABL Term Loan”). The Prior ABL Facility had a maturity date of December 18, 2023 and the significant terms and
conditions of the 2022 ABL Facility are nearly identical to those of the Prior ABL Facility.
Similar to the Prior ABL Facility, the 2022 ABL Facility is secured by a first-priority perfected security interest in substantially all owned
property and assets (together with all proceeds and products) of Unifi, Inc., Unifi Manufacturing, Inc., and a certain subsidiary guarantor
(collectively, the “Loan Parties”). It is also secured by a first-priority security interest in all (or 65% in the case of UNIFI’s first-tier
controlled foreign subsidiary, 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.
Similar to the Prior ABL Facility, if excess availability under the 2022 ABL Revolver falls below the Trigger Level (as defined in the
2022 Credit Agreement), a financial covenant requiring the Loan Parties to maintain a fixed charge coverage ratio on a quarterly basis
of at least 1.05 to 1.00 becomes effective. The Trigger Level as of July 2, 2023 was $22,540. In addition, the 2022 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 2022 ABL Term Loan may be prepaid at par, in whole or in part, at any time before the maturity
date, at UNIFI’s discretion.
F-20
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Similar to the Prior ABL Facility, the applicable margin is based on (i) the excess availability under the 2022 ABL Revolver and (ii) the
consolidated leverage ratio, calculated as of the end of each fiscal quarter. UNIFI’s ability to borrow under the 2022 ABL Revolver is
limited to a borrowing base equal to specified percentages of eligible accounts receivable and inventories and is subject to certain
conditions and limitations. There is also a monthly unused line fee under the 2022 ABL Revolver of 0.25%.
UNIFI did not incur additional costs or administrative burden during the transition from LIBOR to SOFR with the establishment of the
2022 Credit Agreement.
Finance Lease Obligations
During fiscal 2023, UNIFI entered into finance lease obligations totaling $5,629 for texturing machines. The maturity dates of these
obligations occur during fiscal 2028 with interest rates between 4.4% and 6.2%.
During fiscal 2022, UNIFI entered into finance lease obligations totaling $2,493 for texturing machines. The maturity dates of these
obligations occur during fiscal 2027 with interest rates between 3.0% and 4.4%.
Construction Financing
In May 2021, UNIFI entered into an agreement with a third party lender that provides for construction-period financing for certain
texturing machinery included in our capital allocation plans. UNIFI records project costs to construction in progress and the
corresponding liability to construction financing (within long-term debt). The agreement provides for monthly, interest-only payments
during the construction period, at a rate of SOFR plus 1.25%, and contains terms customary for a financing of this type.
Each borrowing under the agreement provides for 60 monthly payments, which will commence upon the completion of the construction
period with a fixed interest rate of approximately SOFR plus 1.0% to 1.2%. In connection with this construction financing arrangement,
UNIFI has borrowed a total of $9,755 and transitioned $8,123 of completed asset costs to finance lease obligations as of July 2, 2023.
Scheduled Debt Maturities
The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the following five fiscal years and
thereafter.
ABL Revolver
ABL Term Loan
Finance lease obligations
Total (1)
Fiscal 2024 Fiscal 2025
— $
$
— $
9,200
2,806
12,006
$
9,200
2,779
11,979
$
$
Fiscal 2026
Fiscal 2027
— $
9,200
2,401
11,601
$
— $
9,200
1,902
11,102
Fiscal 2028
18,100
73,600
879
92,579
$
Thereafter
—
$
—
—
—
$
(1) Total reported excludes $1,632 for construction financing, described above.
13. Other Long-Term Liabilities
Other long-term liabilities consists of the following:
Nonqualified deferred compensation plan obligation
Uncertain tax positions
Other
Total other long-term liabilities
July 2, 2023
July 3, 2022
$
$
2,659
1,973
468
5,100
$
$
1,982
1,575
892
4,449
As further described in Note 10, “Other Non-Current Assets,” UNIFI maintains a nonqualified deferred compensation plan for certain
key employees and reflects a long-term obligation for amounts due beyond twelve months.
Other primarily includes certain retiree and post-employment medical and disability liabilities.
F-21
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
14. Income Taxes
Components of (Loss) Income Before Income Taxes
The components of (loss) income before income taxes consist of the following:
U.S.
Foreign
(Loss) income before income taxes
Components of Provision for Income Taxes
Provision for income taxes consists of the following:
Current:
Federal
State
Foreign
Total current tax expense
Deferred:
Federal
State
Foreign
Total deferred tax expense
Provision for income taxes
Fiscal 2023
Fiscal 2022
Fiscal 2021
(63,773) $
18,330
(45,443) $
(18,364) $
45,192
26,828
$
(12,463)
58,810
46,347
Fiscal 2023
Fiscal 2022
Fiscal 2021
309
(7)
3,385
3,687
41
71
(2,898)
(2,786)
901
$
$
(1,163) $
2
15,935
14,774
(630)
33
(2,520)
(3,117)
11,657
$
(577)
25
12,739
12,187
(1,564)
131
6,520
5,087
17,274
$
$
$
$
On December 22, 2017, the U.S. government enacted comprehensive tax legislation H.R. 1, formerly known as the Tax Cuts and
Jobs Act. The Global Intangible Low-Taxed Income (“GILTI”) provisions included in H.R. 1 require that certain income earned by
foreign subsidiaries must be currently included in the gross income of the U.S. shareholder. UNIFI has elected to recognize GILTI as
a current-period expense. Under this policy, UNIFI has not provided deferred taxes related to temporary differences that, upon their
reversal, will affect the amount of income subject to GILTI in the period.
On July 20, 2020, the U.S. Treasury issued and enacted final regulations related to GILTI that allow certain U.S. taxpayers to elect to
exclude foreign income that is subject to a high effective tax rate from their GILTI inclusions. The GILTI high-tax exclusion is an annual
election and is retroactively available for tax years beginning after December 31, 2017. Fiscal 2021 includes a tax benefit of $4,816
related to the retroactive election.
Utilization of Net Operating Loss Carryforwards
Domestic deferred tax expense includes the utilization of federal net operating loss (“NOL”) carryforwards of $200, $110, and $5,312
for fiscal 2023, 2022, and 2021, respectively. Foreign deferred tax expense includes the utilization of NOL carryforwards of $166, $32,
and $441 for fiscal 2023, 2022, and 2021, respectively. State deferred tax expense includes the utilization of NOL carryforwards of
$109, $25, and $167 for fiscal 2023, 2022, and 2021, respectively.
F-22
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Effective Tax Rate
Reconciliation from the federal statutory tax rate to the effective tax rate is as follows:
Federal statutory tax rate
Change in valuation allowance
Repatriation of foreign earnings and withholding taxes
Change in uncertain tax positions
Foreign income taxed at different rates
U.S. tax on GILTI
Nondeductible compensation
Recovery of income taxes in Brazil
Research and other business credits
State income taxes, net of federal tax benefit
Tax expense on unremitted foreign earnings
Nontaxable income
Foreign tax credits
Deemed repatriation of foreign earnings under Subpart F
Domestic production activities deduction
Rate benefit of U.S. federal NOL carryback
Nondeductible expenses and other
Effective tax rate
Fiscal 2023
Fiscal 2022
Fiscal 2021
21.0%
(30.8)
(7.4)
(4.1)
(1.9)
(1.5)
(0.8)
9.2
3.6
3.2
3.0
2.5
2.3
—
—
—
(0.3)
(2.0)%
21.0%
12.6
3.9
2.4
10.7
0.2
2.1
—
(4.0)
(1.3)
5.5
(10.2)
(0.5)
—
—
—
1.1
43.5%
21.0%
5.0
1.8
0.5
9.0
3.9
1.4
—
(3.7)
(0.2)
7.0
(2.4)
(5.4)
1.5
0.6
(2.8)
0.1
37.3%
Deferred Income Taxes
The significant components of UNIFI’s deferred tax assets and liabilities consist of the following:
Deferred tax assets:
Capital loss carryforwards
NOL carryforwards
Tax credits
Research and development costs
Accrued compensation
Other items
Total gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
PP&E
Unremitted earnings
Recovery of non-income taxes
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)
July 2, 2023
July 3, 2022
$
$
16,390
16,235
11,634
9,137
1,396
5,614
60,406
(43,910)
16,496
(11,901)
(3,872)
—
(148)
(15,921)
575
$
$
16,318
6,603
12,079
7,409
2,106
4,877
49,392
(31,667)
17,725
(14,952)
(5,253)
132
(138)
(20,211)
(2,486)
Deferred Income Taxes – Valuation Allowance
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, cumulative losses in recent 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. Based on consideration of these items,
management has determined that enough uncertainty exists relative to the realization of its deferred income tax asset balances to
warrant the application of a full valuation allowance against the deferred tax assets of its U.S. consolidated group and certain foreign
subsidiaries as of July 2, 2023.
Components of UNIFI’s deferred tax valuation allowance are as follows:
Capital loss carryforwards
NOL carryforwards
Tax credits
Other deferred tax assets
Total deferred tax valuation allowance
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
(16,390) $
(16,235)
(10,800)
(485)
(43,910) $
(16,318) $
(4,570)
(10,779)
—
(31,667) $
(17,429)
(2,336)
(17,215)
—
(36,980)
F-23
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
During fiscal 2023, UNIFI’s valuation allowance increased by $12,243. The increase was primarily driven by a by an increase in the
valuation allowance on federal net operating loss and research credits carryforwards. The increase was partially offset by a decrease
in the valuation allowance on foreign tax credits.
During fiscal 2022, UNIFI’s valuation allowance decreased by $5,313. The decrease was primarily driven by a decrease in the
valuation allowance on foreign tax credits and capital loss carryforwards, offset by an increase in the valuation allowance on federal
net operating loss and research credits carryforwards.
During fiscal 2021, UNIFI’s valuation allowance decreased by $459. The decrease was primarily driven by a decrease in the valuation
allowance on investments in unconsolidated affiliates and foreign tax credits, offset by an increase in the valuation allowance on
research credits and capital loss carryforwards.
Unrecognized Tax Benefits
A reconciliation of beginning and ending gross amounts of unrecognized tax benefits is as follows:
Balance at beginning of year
Gross increases (decreases) related to tax positions in prior periods
Gross increases (decreases) related to current period tax positions
Gross decreases related to settlements with tax authorities
Gross decreases related to lapse of applicable statute of limitations
Balance at end of year
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
2,909
1,436
8
—
—
4,353
$
$
2,590
(89)
408
—
—
2,909
$
$
1,218
1,396
(24)
—
—
2,590
Unrecognized tax benefits would generate a favorable impact of $4,368 on UNIFI’s effective tax rate if recognized. Expense for interest
and penalties recognized by UNIFI within the provision for income taxes was $400, $287, and $141 for fiscal 2023, 2022, and 2021,
respectively. UNIFI had $959, $559, and $273 accrued for interest and/or penalties related to uncertain tax positions as of July 2,
2023, July 3, 2022 and June 27, 2021, respectively.
It is reasonably possible that the balance of unrecognized tax benefits could change within the next twelve months due to settlements
with tax authorities or expiration of statute of limitations on returns filed. However, audit outcomes and the timing of audit settlements
are subject to significant uncertainty. Therefore, UNIFI is unable to estimate the range of possible adjustments to the balance of
unrecognized tax benefits.
Expiration of Net Operating Loss Carryforwards and Tax Credit Carryforwards
As of July 2, 2023, UNIFI had U.S. federal capital loss carryforwards of $16,390, U.S. federal NOL carryforwards of $9,271, U.S. state
NOL carryforwards of $3,162 and foreign NOL carryforwards of $2,253. The NOL carryforwards begin expiring in varying amounts in
fiscal 2024. As of July 2, 2023, UNIFI had the following carryforward attributes held outside of the U.S. consolidated tax filing group:
U.S. federal NOL carryforwards of $292 and U.S. state NOL carryforwards of $513. The NOL carryforwards held outside of the U.S.
consolidated tax filing group begin expiring in fiscal 2024. As of July 2, 2023, UNIFI had U.S. federal foreign tax credit carryforwards
of $855 and foreign tax credit carryforwards in foreign jurisdictions of $3,404. The foreign tax credit carryforwards begin expiring in
varying amounts in fiscal 2028. As of July 2, 2023, UNIFI had U.S. federal and state research and other business tax credit
carryforwards of $7,375, which begin expiring in fiscal 2024. As of July 2, 2023, UNIFI had U.S. federal disallowed interest deduction
carryforwards of $1,692.
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 2020, the IRS expanded the audit to include fiscal 2018.
In fiscal 2019, the Internal Revenue Service (the “IRS”) initiated an audit of UNIFI’s domestic operations for fiscal years 2016 and
2017.
In fiscal 2021, the IRS expanded the audit to include fiscal
2019. Fiscal years 2009 through 2014 remain open for certain foreign tax credit amendments and net operating loss and general
business credit carrybacks.
Statutes related to material foreign jurisdictions are open from filing dates of their 2018 tax year and material US state jurisdictions
from filing dates of state tax returns ended on June 30, 2019. Certain carryforward tax attributes generated in years prior remain
subject to examination and could change in subsequent tax years.
F-24
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Indefinite Reinvestment Assertion
UNIFI considers $43,664 of its unremitted foreign earnings to be permanently reinvested to fund working capital requirements and
operations abroad and has therefore not recognized a deferred tax liability for the estimated future taxes that would be incurred upon
repatriation. If these earnings were distributed in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries
were sold or otherwise transferred, UNIFI could be subject to additional tax liabilities of approximately $11,592.
15. Shareholders’ Equity
On October 31, 2018, the Board approved a share repurchase program (the “2018 SRP”) under which UNIFI is authorized to acquire
up to $50,000 of its common stock. Under the 2018 SRP, purchases may be made from time to time in the open market at prevailing
market prices or through private transactions or block trades. The timing and amount of repurchases will depend on market conditions,
share price, applicable legal requirements, and other factors. The share repurchase authorization is discretionary and has no
expiration date. 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 2022 ABL Facility. UNIFI may discontinue repurchases at any time
that management determines additional purchases are not beneficial or advisable.
The following table summarizes UNIFI’s repurchases and retirements of its common stock under the 2018 SRP for the fiscal periods
noted:
Total Number
of Shares
Repurchased
as Part of Publicly
Announced Plans
or Programs
Approximate
Dollar Value that
May Yet Be
Repurchased
Under Publicly Announced
Plans or Programs
Average Price
Paid per Share
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Total
— $
$
84
— $
$
— $
$
701
617
23.72
14.84
— $
$
— $
$
— $
$
15.90
50,000
48,008
48,008
38,859
38,859
38,859
As of July 2, 2023, $38,859 remained available for repurchase under the 2018 SRP.
Repurchased shares are retired and have the status of authorized and unissued shares. The cost of the repurchased shares is
recorded as a reduction to common stock to the extent of the par value of the shares acquired and the remainder is allocated between
capital in excess of par value and retained earnings, on a pro rata basis.
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 expired,
were forfeited or otherwise terminated unexercised.
The 2013 Plan expired in accordance with its terms on October 24, 2018, and the Unifi, Inc. Amended and Restated 2013 Incentive
Compensation Plan (the “Amended 2013 Plan”) became effective on that same day, upon approval by shareholders at UNIFI’s annual
meeting of shareholders held on October 31, 2018. The Amended 2013 Plan increased the number of shares available for future
issuance pursuant to awards granted under the Amended 2013 Plan to 1,250 and removed provisions no longer applicable due to the
recent changes to Section 162(m) of the Internal Revenue Code of 1986, as amended. The material terms and provisions of the
Amended 2013 Plan are otherwise similar to those of the 2013 Plan.
F-25
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
On October 29, 2020, UNIFI’s shareholders approved the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation
Plan (the “2020 Plan”). The 2020 Plan set the number of shares available for future issuance pursuant to awards granted under the
2020 Plan to 850. No additional awards can be granted under prior plans; however, awards outstanding under a respective prior plan
remain subject to that plan’s provisions.
The following table provides information as of July 2, 2023 with respect to the number of securities remaining available for future
issuance under the 2020 Plan:
Authorized under the 2020 Plan
Plus: Awards expired, forfeited or otherwise terminated unexercised
Less: Awards granted to employees
Less: Awards granted to non-employee directors
Available for issuance under the 2020 Plan
850
4
(544)
(114)
196
Stock Options
A summary of UNIFI’s stock options granted to key employees and valued under the Black-Scholes model is as follows:
Quantity
Service period (years)
Weighted average exercise price
Weighted average grant date fair value
Fiscal 2023
Fiscal 2022
Fiscal 2021
—
—
— $
— $
—
—
— $
— $
155
3.0
15.64
6.75
$
$
The Black-Scholes model used the following weighted average assumptions for the above awards:
Expected term (years)
Risk-free interest rate
Volatility
Dividend yield
Fiscal 2023
Fiscal 2022
Fiscal 2021
—
—
—
—
—
—
—
—
5.5
0.4%
49.0%
—
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 2023 is as follows:
Outstanding at July 3, 2022
Granted
Exercised
Cancelled or forfeited
Expired
Outstanding at July 2, 2023
Vested and expected to vest as of July 2, 2023
Exercisable at July 2, 2023
Stock Options
982
Weighted
Average
Exercise Price
15.81
$
— $
—
11.08
(6) $
25.86
(30) $
11.09
(5) $
15.55
$
15.55
$
17.92
$
941
941
535
Weighted
Average
Remaining
Contractual
Life
(Years)
Aggregate
Intrinsic
Value
6.4
6.4
5.9
$
$
$
—
—
—
At July 2, 2023, the remaining unrecognized compensation cost related to the unvested stock options was $308, which is expected
to be recognized over a weighted average period of 1.4 years.
For fiscal 2023, 2022, and 2021, the total intrinsic value of stock options exercised was $15, $60, and $85, respectively. The amount
of cash received from the exercise of stock options was $0, $28, and $0 for fiscal 2023, 2022, and 2021, respectively. The tax benefit
realized from stock options exercised was $3, $8, and $11 for fiscal 2023, 2022, and 2021, respectively.
F-26
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Stock Units and Share Units
During fiscal 2023, 2022, and 2021, UNIFI granted 186, 80, and 73 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 weighted average fair value of each employee RSU granted during fiscal 2023, 2022,
and 2021 to be $8.58, $23.45, and $15.65, respectively.
During fiscal 2023, 2022, and 2021, UNIFI granted 61 vested share units (“VSUs”), 32 VSUs, and 37 RSUs (collectively, the “units”),
respectively, to UNIFI’s non-employee directors. The units became fully vested on the grant date but convey no rights of ownership
in shares of Company common stock until such units have been distributed to the grantee in the form of Company common stock.
If
a grantee defers his or her distribution, the units are 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. UNIFI estimated the fair value of
each unit granted during fiscal 2023, 2022, and 2021 to be $9.51, $22.03, and $15.91, respectively.
During fiscal 2023 and 2022, UNIFI granted 150 and 53 performance share units (“PSUs”), respectively, to certain key employees.
The employee PSUs are subject to a performance-based vesting restriction and convey no rights of ownership in shares of Company
common stock until such employee PSUs have vested and been distributed to the grantee in the form of Company common stock.
Consistent with the vesting provisions of each PSU, between 50% and 300% of the PSUs become vested, if at all, on the date that
the associated performance metric is achieved, and will be converted into shares of 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. The percentage
of PSUs that vest is based on the metric achieved on the vesting date compared to the targeted metric defined in the award agreement.
UNIFI estimated the weighted average fair value of each unit granted during fiscal 2023 to be $8.43.
UNIFI estimates the fair value of RSUs, VSUs and PSUs based on the market price of UNIFI’s common stock at the award grant date.
A summary of RSU, VSU and PSU activity for fiscal 2023 is as follows:
Outstanding at July 3, 2022
Granted
Vested
Converted
Cancelled or forfeited
Outstanding at July 2, 2023
Non-
vested
Weighted
Average
Grant Date
Fair Value
20.38
$
234
8.67
396
$
14.69
(145) $
—
— $
21.22
(5) $
12.42
$
480
Vested
245
—
145
(90)
—
300
Total
479
396
Weighted
Average
Grant Date
Fair Value
21.80
$
8.67
$
—
— $
19.31
(90) $
21.22
(5) $
15.42
$
780
As of July 2, 2023, no outstanding PSUs are expected to vest and, accordingly, the associated compensation expense was $0. At
July 2, 2023, the number of RSUs and VSUs vested and expected to vest was 578, with an aggregate intrinsic value of $4,730. The
aggregate intrinsic value of the 299 vested RSUs and VSUs at July 2, 2023 was $2,453.
The unrecognized compensation cost related to the unvested RSUs at July 2, 2023 was $1,601, which is expected to be recognized
over a weighted average period of 1.6 years.
For fiscal 2023, 2022, and 2021, the total intrinsic value of RSUs and VSUs converted was $882, $1,715, and $1,216, respectively.
The tax benefit realized from the conversion of RSUs was $165, $260, and $159 for fiscal 2023, 2022, and 2021, respectively.
Employee Stock Purchase Plan
On October 27, 2021, Unifi, Inc.’s shareholders approved the Unifi, Inc. Employee Stock Purchase Plan (the “ESPP”), under which an
aggregate of 100 shares of Company common stock have been authorized and reserved for issuance pursuant to the ESPP. The
ESPP permits employees to purchase common stock through payroll deductions at 85 percent of the fair market value of Company
common stock on a quarterly basis. For fiscal 2023, 6 shares of common stock were purchased under the ESPP. As of July 2, 2023,
94 shares were available for purchase under the ESPP.
Stock-based compensation expense associated with options granted under the ESPP is measured at the grant date based on the fair
value of the award, which is equal to the purchase discount, and is recognized over the service period (generally the vesting period)
on a straight-line basis.
F-27
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
Summary
The total cost related to all stock-based compensation was as follows:
Stock options
RSUs and VSUs
ESPP
Total compensation cost
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
575
2,120
11
2,706
$
$
928
2,253
—
3,181
$
$
1,047
2,015
—
3,062
In each of fiscal 2023, 2022, and 2021, UNIFI issued 12, 5, and 4 shares of common stock for $110, $110, and $75 of expense,
respectively, in connection with Board compensation.
The total income tax benefit recognized for stock-based compensation was $377, $386, and $297 for fiscal 2023, 2022, and 2021,
respectively.
As of July 2, 2023, total unrecognized compensation costs related to all unvested stock-based compensation arrangements were
$1,909. The weighted average period over which these costs are expected to be recognized is 1.5 years.
17. Defined Contribution Plans
401(k) 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 U.S. 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
Non-qualified Deferred Compensation Plan
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
2,967
$
3,215
$
2,578
The UNIFI, Inc. Deferred Compensation Plan (the “DCP”), established in fiscal 2022, is an unfunded non-qualified deferred
compensation plan in which certain key employees are eligible to participate. Under the DCP, participants may elect to defer all or a
portion of their annual cash incentive compensation to their account. The deferred amounts are paid in accordance with each
participant’s elections. In addition to elective deferrals, the DCP assumed the obligations of the Unifi, Inc. Supplemental Key Employee
Retirement Plan (the “SERP”), which includes amounts credited to eligible employees’ accounts based on a percentage of their annual
base compensation. Amounts due within the next operating cycle are reflected in Other current liabilities and the remaining DCP
obligation is reflected in Other long-term liabilities. The total DCP obligation as of July 2, 2023 and July 3, 2022 was $2,669 and
$2,359, respectively.
18. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities
Financial Instruments
Grantor Trust
The fair value of the investment assets held by the grantor trust established in connection with the DCP (as previously described in
the preceding Notes) were approximately $2,496 and $2,196 as of July 2, 2023 and July 3, 2022, respectively, and are classified as
trading securities within Other non-current assets. The grantor trust assets have readily-available market values and are classified
as Level 1 trading securities in the fair value hierarchy. Trading gains and losses associated with these investments are recorded to
Other operating expense, net. The associated DCP liability is recorded within Other long-term liabilities, and any increase or decrease
in the liability is also recorded in Other operating expense (income), net. During fiscal 2023 and 2022, we recorded (gains) losses on
investments held by the trust of $(154) and $48, respectively.
Interest Rate Swaps
In 2017, UNIFI entered into three swaps to fix LIBOR at approximately 1.9% for $75,000 of variable rate borrowings which expired on
May 24, 2022. The designated hedges increased interest expense for fiscal 2022 and 2021 by $1,190 and $1,347, respectively. There
were no interest rate swaps in effect during fiscal 2023.
Non-Financial Assets and Liabilities
Asset abandonment detail is described in Note 9. "Property, Plant and Equipment, Net."
F-28
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
19. Accumulated Other Comprehensive Loss
The components of and the changes in accumulated other comprehensive loss, net of tax, as applicable, consist of the following:
Balance at June 28, 2020
Other comprehensive income, net of tax
Balance at June 27, 2021
Other comprehensive (loss) income, net of tax
Balance at July 3, 2022
Other comprehensive income, net of tax
Balance at July 2, 2023
Foreign
Currency
Translation
Adjustments
$
Changes in
Interest
Rate
Swaps
Accumulated
Other
Comprehensive
Loss
(1,958) $
1,006
(952) $
952
— $
—
— $
(63,806)
10,374
(53,432)
(6,173)
(59,605)
5,714
(53,891)
(61,848) $
9,368
(52,480) $
(7,125)
(59,605) $
5,714
(53,891) $
$
$
$
A summary of other comprehensive income (loss) for fiscal 2023, 2022, and 2021 is provided as follows:
Fiscal 2023
Fiscal 2022
Fiscal 2021
Pre-tax
Tax
After-
tax
Pre-tax
Tax
After-
tax
Pre-tax
Tax
After-
tax
Other comprehensive income
(loss):
Foreign currency translation
adjustments
Changes in interest rate
swaps, net of reclassification
adjustments
Other comprehensive income
$ 5,714
$ — $ 5,714
$ (7,125) $ — $ (7,125) $ 9,368
$
— $ 9,368
—
—
—
1,234
(282)
952
1,316
(310)
1,006
(loss), net
$ 5,714
$ — $ 5,714
$ (5,891) $ (282) $ (6,173) $10,684
$ (310) $10,374
20. Computation of Earnings Per Share
The computation of basic and diluted earnings per share (“EPS”) is as follows:
Basic EPS
Net (loss) income
Weighted average common shares outstanding
Basic EPS
Diluted EPS
Net (loss) income
Weighted average common shares outstanding
Net potential common share equivalents
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
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
$
$
(46,344) $
18,037
(2.57) $
(46,344) $
18,037
—
18,037
(2.57) $
—
333
$
$
$
$
15,171
18,429
0.82
15,171
18,429
439
18,868
0.80
225
333
29,073
18,472
1.57
29,073
18,472
384
18,856
1.54
497
333
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.
F-29
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
21. Other Operating Expense (Income), Net
Other operating expense (income), net primarily consists of the following:
Impairment for asset abandonment (1)
Contract modification costs (2)
Net loss on sale or disposal of assets
Foreign currency transaction (gains) losses
Other, net
Other operating expense (income), net
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
8,247
623
278
(1,104)
(188)
7,856
$
$
— $
—
48
(468)
262
(158) $
—
—
2,809
526
1,530
4,865
(1) In fiscal 2023, UNIFI abandoned certain specialized machinery in the Americas and recorded an impairment charge.
(2) In fiscal 2023, UNIFI amended certain existing contracts related to future purchases of texturing machinery by delaying the
scheduled receipt and installation of such equipment for approximately 18 months. UNIFI paid the associated vendor $623 to
establish the 18-month delay.
22. Commitments and Contingencies
Collective Bargaining Agreements
While employees of UNIFI’s Brazilian operations are unionized, none of the labor force employed by UNIFI’s domestic or other foreign
subsidiaries is currently covered by a collective bargaining agreement.
Environmental
On September 30, 2004, Unifi Kinston, LLC (“UK”), a subsidiary of Unifi, Inc., completed its acquisition of polyester filament
manufacturing assets located in Kinston, North Carolina (“Kinston”) 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 (the “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, UK entered into a lease termination agreement associated with conveyance of certain assets at the Kinston site to DuPont.
This agreement terminated the Ground Lease and relieved UK of any future responsibility for environmental remediation, other than
participation with DuPont, if so called upon, with regard to UK’s period of operation of the Kinston site, which was from 2004 to 2008.
At this time, UNIFI has no basis to determine if or when it will have any responsibility or obligation with respect to the AOCs or the
extent of any potential liability for the same. UK continues to own property (the “Kentec site”) acquired in the 2004 transaction with
INVISTA that has contamination from DuPont’s prior operations and is monitored by DEQ. The Kentec site has been remediated by
DuPont, and DuPont has received authority from DEQ to discontinue further remediation, other than natural attenuation. Prior to
transfer of responsibility to UK, DuPont and UK had a duty to monitor and report the environmental status of the Kentec site to DEQ.
Effective April 10, 2019, UK assumed sole remediator responsibility of the Kentec site pursuant to its contractual obligations with
In connection with monitoring, UK expects to
INVISTA and received $180 of net monitoring and reporting costs due from DuPont.
sample and report to DEQ annually. At this time, UNIFI does not expect any active site remediation will be required but expects that
any costs associated with active site remediation, if ever required, would likely be immaterial.
Unconditional Obligations
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 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Fiscal 2028
Thereafter
Unconditional purchase
obligations
Unconditional service obligations
Total unconditional obligations
$
$
6,850
2,655
9,505
$
$
5,563
1,178
6,741
$
$
2,684
1,010
3,694
$
$
2,684
954
3,638
$
$
— $
788
788
$
—
617
617
For fiscal 2023, 2022, and 2021 total costs incurred under these commitments consist of the following:
Costs for unconditional purchase obligations
Costs for unconditional service obligations
Total
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
23,567
1,158
24,725
$
$
24,236
912
25,148
$
$
22,689
967
23,656
F-30
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
23. Related Party Transactions
Related party balances and transactions are not material to the consolidated financial statements and, accordingly, are not presented
separately from other financial statement captions.
There were no related party receivables as of July 2, 2023 and July 3, 2022, and there were no revenues derived from related parties
in the current and prior two fiscal years.
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.
Related party payables for Salem Leasing Corporation consist of the following:
Accounts payable
Operating lease obligations
Finance lease obligations
Total related party payables
July 2, 2023
July 3, 2022
$
$
457
502
3,677
4,636
$
$
432
811
4,933
6,176
Related party transactions for the current and prior two fiscal years consist of the matters in the table below:
Affiliated Entity
Salem Leasing Corporation
Transaction Type
Payments for transportation
equipment costs and finance
lease debt service
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
4,568
$
4,343
$
4,122
24. Business Segment Information
UNIFI defines operating segments as components of the organization for which discrete financial information is available and operating
results are evaluated on a regular basis by UNIFI’s principal executive officer, who is the chief operating decision maker (the “CODM”),
in order to assess performance and allocate resources. Characteristics of UNIFI which were relied upon in making the determination
of reportable segments include the nature of the products sold, the internal organizational structure, the trade policies in the geographic
regions in which UNIFI operates, and the information that is regularly reviewed by the CODM for the purpose of assessing performance
and allocating resources.
In the fourth quarter of fiscal 2022, UNIFI realigned its operating and reportable segments to correspond with changes to its operating
model, management structure, and organizational responsibilities, reflecting the manner in which business performance is evaluated,
resources are allocated, and financial statement users can best understand the results of operations. Accordingly, UNIFI reports the
Americas Segment, Brazil Segment, and Asia Segment. The Americas Segment represents the combination of the previously reported
Polyester Segment, Nylon Segment, and All Other category. There are no changes to the composition of the historical Brazil Segment
and Asia Segment. Comparative prior period disclosures have been updated to conform to the new presentation.
UNIFI's three reportable segments are organized as follows:
• The operations within the Americas Segment exhibit similar long-term economic characteristics and primarily sell into an
economic trading zone covered by the USMCA and CAFTA-DR to similar customers utilizing similar methods of distribution.
These operations derive revenues primarily from manufacturing synthetic and recycled textile products with sales primarily
to yarn manufacturers, knitters, and weavers that produce yarn and/or fabric for the apparel, hosiery, automotive, home
furnishings, industrial, medical, and other end-use markets principally in North and Central America. The Americas Segment
consists of sales and manufacturing operations in the U.S., El Salvador, and Colombia.
• The Brazil Segment primarily manufactures and sells polyester-based products to knitters and weavers that produce fabric
for the apparel, automotive, home furnishings, industrial, and other end-use markets principally in Brazil. The Brazil Segment
includes a manufacturing location and sales offices in Brazil.
• The operations within the Asia Segment exhibit similar long-term economic characteristics and sell to similar customers
utilizing similar methods of distribution primarily in Asia and Europe. The Asia Segment primarily sources synthetic and
recycled textile products from third-party suppliers and sells to yarn manufacturers, knitters, and weavers that produce fabric
for the apparel, automotive, home furnishings, industrial, and other end-use markets principally in Asia. The Asia Segment
includes sales offices in China, Turkey, and Hong Kong.
UNIFI evaluates the operating performance of its segments based upon Segment Profit, which represents segment gross profit (loss)
plus segment depreciation expense. This measurement of segment profit or loss best aligns segment reporting with the current
assessments and evaluations performed by, and information provided to, the CODM.
F-31
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
The accounting policies for the segments are consistent with UNIFI’s accounting policies.
Intersegment sales are omitted from
segment disclosures, as they are (i) insignificant to UNIFI’s segments and eliminated from consolidated reporting and (ii) excluded
from segment evaluations performed by the CODM. However, an intersegment technologies expense charged from the Americas
Segment to the Asia Segment is not eliminated from segment results. The technologies expense (i) reflects the sharing of certain
manufacturing know-how, processes, and product technical information and design and (ii) is included in the segment evaluations
performed by the CODM.
Selected financial information is presented below:
Fiscal 2023
Americas
Brazil
Net sales
Cost of sales
Gross (loss) profit
Segment depreciation expense
Segment Profit
Net sales
Cost of sales
Gross profit
Segment depreciation expense
Segment Profit
Net sales
Cost of sales
Gross profit
Segment depreciation expense
Segment Profit
$
$
$
$
$
$
389,662
404,321
(14,659)
22,044
7,385
Americas
483,085
458,617
24,468
21,153
45,621
Americas
386,779
350,373
36,406
21,054
57,460
$
$
$
$
$
$
119,062
106,900
12,162
2,035
14,197
$
$
Asia
114,803
98,065
16,738
—
16,738
Fiscal 2022
Brazil
126,066
98,925
27,141
1,500
28,641
$
$
Asia
206,607
177,731
28,876
—
28,876
Fiscal 2021
Brazil
95,976
64,281
31,695
1,315
33,010
$
$
Asia
184,837
159,444
25,393
—
25,393
Total
623,527
609,286
14,241
24,079
38,320
Total
815,758
735,273
80,485
22,653
103,138
Total
667,592
574,098
93,494
22,369
115,863
$
$
$
$
$
$
The reconciliations of segment gross profit to consolidated (loss) income before income taxes are as follows:
Americas
Brazil
Asia
Segment gross profit
SG&A
Benefit for bad debts
Other operating expenses (income), net
Operating (loss) income
Interest income
Interest expense
Equity in earnings of unconsolidated affiliates
Recovery of non-income taxes, net
(Loss) income before income taxes
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
(14,659) $
12,162
16,738
14,241
47,345
(89)
7,856
(40,871)
(2,109)
7,577
(896)
—
(45,443) $
24,468
27,141
28,876
80,485
52,489
(445)
(158)
28,599
(1,524)
3,085
(605)
815
26,828
$
$
36,406
31,695
25,393
93,494
51,334
(1,316)
4,865
38,611
(603)
3,323
(739)
(9,717)
46,347
The reconciliations of segment depreciation and amortization expense to consolidated depreciation and amortization expense are as
follows:
Americas
Brazil
Asia
Segment depreciation expense
Other depreciation and amortization expense
Depreciation and amortization expense
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
22,044
2,035
—
24,079
3,107
27,186
$
$
21,153
1,500
—
22,653
3,554
26,207
$
$
21,054
1,315
—
22,369
3,159
25,528
F-32
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
The reconciliations of segment capital expenditures to consolidated capital expenditures are as follows:
Americas
Brazil
Asia
Segment capital expenditures
Other capital expenditures
Capital expenditures
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
25,943
10,244
41
36,228
206
36,434
$
$
29,841
9,253
236
39,330
301
39,631
$
$
16,053
3,461
666
20,180
998
21,178
The reconciliations of segment total assets to consolidated total assets are as follows:
Americas
Brazil
Asia
Segment total assets
Other current assets
Other PP&E
Other operating lease assets
Other non-current assets
Investments in unconsolidated affiliates
Total assets
Geographic Data
Net Sales
U.S.
China
Brazil
Remaining Foreign Countries
Total
Export sales from UNIFI’s U.S. operations to external customers
July 2, 2023
July 3, 2022
$
$
334,303
115,676
60,752
510,731
5,179
15,034
504
4,374
2,997
538,819
$
$
379,898
98,731
81,322
559,951
5,145
17,809
756
2,985
2,072
588,718
Fiscal 2023
Fiscal 2022
Fiscal 2021
$
$
$
355,197
100,183
119,061
49,086
623,527
52,051
$
$
$
430,381
185,558
126,066
73,753
815,758
74,589
$
$
$
341,897
171,261
95,976
58,458
667,592
59,055
The net sales amounts are based on the operating locations from where the items were produced or distributed.
Long-Lived Assets
U.S.
Brazil
China
Remaining Foreign Countries
Total
July 2, 2023
July 3, 2022
$
$
184,249
36,945
968
18,658
240,820
$
$
196,885
21,927
2,211
12,932
233,955
Long-lived assets are comprised of PP&E, net; operating lease assets; intangible assets, net; investments in unconsolidated affiliates;
and other non-current assets.
F-33
Unifi, Inc.
Notes to Consolidated Financial Statements – (Continued)
25. Quarterly Results (Unaudited)
Quarterly financial data and selected highlights are as follows:
October 2, 2022
January 1, 2023
April 2, 2023
July 2, 2023
For the Fiscal Quarter Ended
Net sales (1)
Gross profit (loss) (2)
Net (loss) income (3)
Net (loss) income per common share:
Basic (4)
Diluted (4)
$
$
$
$
179,519
6,563
(7,834)
(0.44) $
(0.44) $
$
136,212
(8,000)
(18,037)
(1.00) $
(1.00) $
$
156,738
9,653
(5,184)
(0.29) $
(0.29) $
151,058
6,025
(15,289)
(0.85)
(0.85)
Net sales (5)
Gross profit (6)
Net income (7)
Net income per common share:
Basic (4)
Diluted (4)
For the Fiscal Quarter Ended
September 26, 2021
195,992
$
26,097
8,680
December 26, 2021
201,410
$
16,890
929
$
$
0.47
0.46
$
$
0.05
0.05
$
$
$
March 27, 2022
July 3, 2022
200,780
19,144
2,066
0.11
0.11
$
$
$
217,576
18,354
3,496
0.19
0.19
(1) Net sales for all fiscal quarters of fiscal 2023 includes adverse demand pressures in the Americas and Asia Segments.
(2) Gross profit for our domestic operations for all fiscal quarters of fiscal 2023 was impacted by lower production volumes driving
weaker fixed cost absorption in connection with lower sales volumes.
(3) Net loss for our domestic operations for all fiscal quarters of fiscal 2023 includes the adverse pressures on gross profit. Net loss
for the fourth quarter of fiscal 2023 includes an impairment further described in Note 9, "Property, Plant and Equipment, Net."
(4) 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.
(5) The fiscal quarter ending July 3, 2022 included an additional week of sales of approximately $8,700.
(6) Gross profit for our domestic operations for all fiscal quarters of fiscal 2022 includes adverse pressures from (i) higher raw material
costs, (ii) rising input costs, and (iii) the weakening of labor productivity.
(7) Net income for our domestic operations for all fiscal quarters of fiscal 2022 includes the adverse pressures on gross profit.
26. Supplemental Cash Flow Information
Cash payments for interest and taxes consist of the following:
Interest, net of capitalized interest of $530, $396 and $229, respectively
Income taxes, net of refunds
$
5,820
6,069
$
2,921
13,045
$
3,158
8,239
Fiscal 2023
Fiscal 2022
Fiscal 2021
Cash payments for taxes shown above consist primarily of income and withholding tax payments made by UNIFI in both U.S. and
foreign jurisdictions, net of refunds. Fiscal 2022 includes an income tax payment of $3,749 related to the recovery of non-income
taxes described in Note 8, “Other Current Assets.”
Non-Cash Investing and Financing Activities
As of July 2, 2023, July 3, 2022, and June 27, 2021, $1,137, $2,456, and $2,080, respectively, were included in accounts payable for
unpaid capital expenditures.
During fiscal years ended July 2, 2023, July 3, 2022, and June 27, 2021, UNIFI recorded non-cash activity relating to finance leases
of $5,629, $2,493, and $740, respectively.
In connection with the commencement of the 2022 Credit Agreement in October 2022, $52,500 of borrowings outstanding on the
revolving credit facility were transferred to the term loan, such that revolver borrowings were reduced by $52,500 and term loan
borrowings were increased by $52,500 with no flow of cash.
F-34