UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to _____
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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.
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).
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 |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 1, 2024, there were
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that relate to our plans, objectives, estimates, and goals. Statements expressing expectations regarding our future, or projections or estimates relating to products, sales, revenues, expenditures, costs, strategies, initiatives, or earnings, are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs, assumptions, and expectations about our future performance, considering the information currently available to management. The words “believe,” “may,” “could,” “will,” “should,” “would,” “anticipate,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek,” “strive,” and words of similar import, or the negative of such words, identify or signal the presence of forward-looking statements. These statements are not statements of historical fact; they involve risks and uncertainties that may cause our actual results, performance, or financial condition to differ materially from the expectations of future results, performance, or financial condition that we express or imply in any forward-looking statement. Factors that could contribute to such differences include, but are not limited to:
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 of the above considerations, we reiterate that forward-looking statements are not guarantees of future performance, and we caution you not to rely on them as such.
UNIFI, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 29, 2024
TABLE OF CONTENTS
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Item 1. |
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1 |
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Condensed Consolidated Balance Sheets as of September 29, 2024 and June 30, 2024 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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21 |
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Item 4. |
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22 |
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Item 1. |
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23 |
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Item 1A. |
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24 |
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Item 5. |
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24 |
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Item 6. |
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24 |
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25 |
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
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September 29, 2024 |
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June 30, 2024 |
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ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables, net |
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Inventories |
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Income taxes receivable |
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Other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease assets |
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Deferred income taxes |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Accounts payable |
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$ |
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$ |
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Income taxes payable |
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Current operating lease liabilities |
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Current portion of long-term debt |
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Other current liabilities |
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Total current liabilities |
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Long-term debt |
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Non-current operating lease liabilities |
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Deferred income taxes |
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Other long-term liabilities |
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Total liabilities |
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Common stock, $ |
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Capital in excess of par value |
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Retained earnings |
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Accumulated other comprehensive loss |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except per share amounts)
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For the Three Months Ended |
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September 29, 2024 |
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October 1, 2023 |
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Net sales |
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$ |
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$ |
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Cost of sales |
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Gross profit (loss) |
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Selling, general and administrative expenses |
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Provision (benefit) for bad debts |
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Other operating expense, net |
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Operating loss |
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( |
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( |
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Interest income |
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( |
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Interest expense |
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Equity in earnings of unconsolidated affiliates |
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( |
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Loss before income taxes |
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( |
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( |
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Provision (benefit) for income taxes |
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( |
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Net loss |
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$ |
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$ |
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Net loss per common share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Comprehensive loss:
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For the Three Months Ended |
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September 29, 2024 |
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October 1, 2023 |
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Net loss |
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$ |
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$ |
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Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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( |
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Other comprehensive income (loss), net |
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( |
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Comprehensive loss |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands)
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Shares |
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Common Stock |
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Capital in Excess of Par Value |
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Retained Earnings |
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Accumulated Other Comprehensive Loss |
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Total Shareholders’ Equity |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Options exercised |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Other comprehensive gain, net of tax |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Balance at September 29, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Shares |
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Common Stock |
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Capital in Excess of Par Value |
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Retained Earnings |
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Accumulated Other Comprehensive Loss |
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Total Shareholders’ Equity |
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Balance at July 2, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Options exercised |
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— |
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— |
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— |
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Conversion of equity units |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Common stock withheld in satisfaction of tax withholding obligations under net share settle transactions |
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— |
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— |
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( |
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— |
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— |
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( |
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Other comprehensive loss, net of tax |
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— |
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— |
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— |
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— |
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( |
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( |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Balance at October 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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For the Three Months Ended |
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September 29, 2024 |
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October 1, 2023 |
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Cash and cash equivalents at beginning of period |
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$ |
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$ |
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Operating activities: |
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Net loss |
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( |
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( |
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Adjustments to reconcile net loss to net cash (used) provided by operating activities: |
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Equity in earnings of unconsolidated affiliates |
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( |
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( |
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Depreciation and amortization expense |
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Non-cash compensation expense |
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Deferred income taxes |
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( |
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Other, net |
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( |
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Changes in assets and liabilities: |
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Receivables, net |
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Inventories |
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( |
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Other current assets |
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( |
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Income taxes |
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( |
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( |
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Accounts payable and other current liabilities |
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( |
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( |
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Other, net |
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( |
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Net cash (used) provided by operating activities |
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( |
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Investing activities: |
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Capital expenditures |
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( |
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( |
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Other, net |
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— |
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Net cash used by investing activities |
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( |
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( |
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Financing activities: |
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Proceeds from ABL Revolver |
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Payments on ABL Revolver |
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( |
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( |
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Payments on ABL Term Loan |
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( |
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( |
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Payments on finance lease obligations |
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( |
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( |
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Other, net |
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( |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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Net (decrease) increase in cash and cash equivalents |
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( |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
4
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Background
Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, “UNIFI,” the “Company,” “we,” “us,” or “our”), is a multinational company that manufactures and sells innovative recycled and synthetic products, made from polyester and nylon, primarily to other yarn manufacturers and knitters and weavers (UNIFI’s “direct customers”) that produce yarn and/or fabric for the apparel, hosiery, home furnishings, automotive, industrial, medical, and other end-use markets (UNIFI’s “indirect customers”). We sometimes refer to these indirect customers as “brand partners.” Polyester products include partially oriented yarn (“POY”) and textured, solution and package dyed, twisted, beamed, and draw wound yarns, and each is available in virgin or recycled varieties. Recycled solutions, made from both pre-consumer and post-consumer waste, include plastic bottle flake (“Flake”), polyester polymer beads (“Chip”), and staple fiber. Nylon products include virgin or recycled textured, solution dyed, and spandex covered yarns.
UNIFI maintains one of the textile industry’s most comprehensive product offerings that includes a range of specialized, value-added, and commodity solutions, with principal geographic markets in North America, Central America, South America, Asia, and Europe. UNIFI has direct manufacturing operations in
2. Basis of Presentation; Condensed Notes
The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. As contemplated by the instructions of the SEC to Form 10-Q, the following notes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to UNIFI’s year-end audited consolidated financial statements and related notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended June 30, 2024 (the “2024 Form 10-K”).
The financial information included in this report has been prepared by UNIFI, without audit. In the opinion of management, all adjustments, which consist of normal, recurring adjustments, considered necessary for a fair statement of the results for interim periods have been included. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the amounts reported and certain financial statement disclosures. Actual results may vary from these estimates.
All amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted.
The fiscal quarter for each of Unifi, Inc., its primary domestic operating subsidiaries and its subsidiary in El Salvador ended on September 29, 2024. Unifi, Inc.’s remaining material operating subsidiaries’ fiscal quarter ended on September 30, 2024. There were no significant transactions or events that occurred between Unifi, Inc.’s fiscal quarter end and such wholly owned subsidiaries’ fiscal quarter end. The three-month periods ended September 29, 2024 and October 1, 2023 both consisted of 13 weeks.
3. Recent Accounting Pronouncements
Issued and Pending Adoption
In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU No. 2023-09 modifies the rules on income tax disclosures to require entities to disclose (i) specific categories in the rate reconciliation, (ii) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (iii) income tax expense or benefit from continuing operations (separated by federal, state, and foreign). The ASU also requires entities to disclose their income tax payments to international, federal, state, and local jurisdictions, among other changes. The ASU is effective for UNIFI's fiscal 2026, with early adoption permitted, and should be applied on a prospective basis, but retrospective application is permitted. UNIFI is currently evaluating the impact on the Company’s disclosures but does not expect this standard will have a material impact on its consolidated financial position, results of operations, or cash flows.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU No. 2023-07 expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The ASU is effective this fiscal year for annual reporting and in the first quarter of fiscal 2026 for interim reporting, with early adoption permitted. UNIFI has not adopted this standard. UNIFI is currently evaluating the impact on the Company’s disclosures but does not expect this standard will have a material impact on its consolidated financial position, results of operations, or cash flows.
Based on UNIFI’s review of ASUs issued since the filing of the 2024 Form 10-K, there have been no other newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a material impact on UNIFI’s consolidated financial statements.
5
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
4. Revenue
The following tables present net sales disaggregated by (i) classification of customer type and (ii) REPREVE® Fiber sales:
Third-Party Manufacturer
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For the Three Months Ended |
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September 29, 2024 |
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October 1, 2023 |
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Third-party manufacturer |
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$ |
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$ |
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Service |
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Net sales |
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$ |
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$ |
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For the Three Months Ended |
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September 29, 2024 |
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October 1, 2023 |
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REPREVE® Fiber |
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$ |
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$ |
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All other products and services |
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Net sales |
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$ |
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$ |
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Third-party manufacturer revenue is primarily generated through sales to direct customers. Such sales represent satisfaction of UNIFI’s performance obligations required by the associated revenue contracts. Each of UNIFI’s reportable segments derives revenue from sales to third-party manufacturers.
Service Revenue
Service revenue is primarily generated, as services are rendered, through fulfillment of toll manufacturing of textile products or transportation services governed by written agreements. Such toll manufacturing and transportation services represent satisfaction of UNIFI’s performance obligations required by the associated revenue contracts.
REPREVE® Fiber
REPREVE® Fiber represents UNIFI's collection of fiber products on our recycled platform, with or without added technologies.
Variable Consideration
For all variable consideration, where appropriate, UNIFI estimates the amount using the expected value method, which takes into consideration historical experience, current contractual requirements, specific known market events, and forecasted customer buying and payment patterns. Overall, these reserves reflect UNIFI’s best estimates of the amount of consideration to which the customer is entitled based on the terms of the contracts. Variable consideration has been immaterial to UNIFI’s financial statements for all periods presented.
5. Long-Term Debt
Debt Obligations
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Weighted Average |
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Scheduled |
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Interest Rate as of |
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Principal Amounts as of |
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Maturity Date |
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September 29, 2024 |
|
September 29, 2024 |
|
|
June 30, 2024 |
|
|||||
ABL Revolver |
|
|
|
% |
|
|
$ |
|
|
$ |
|
||||
ABL Term Loan |
|
|
|
% |
|
|
|
|
|
|
|
||||
Finance lease obligations |
|
(1) |
|
|
% |
|
|
|
|
|
|
|
|||
Total debt |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Current ABL Term Loan |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Current portion of finance lease obligations |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Unamortized debt issuance costs |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total long-term debt |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|||
ABL Facility and Amendments
On September 5, 2024, UNIFI, Inc. and certain of its subsidiaries entered into a First Amendment to the Second Amended and Restated Credit Agreement (the “First Amendment”) with a syndicate of lenders. The First Amendment primarily (i) permits the sale of a Company-owned real estate asset (consisting of an industrial warehouse building and land acreage) located in Yadkinville, North Carolina with application of the net proceeds to reduce the outstanding ABL Revolver balance, in lieu of the prescribed mandatory prepayment to the ABL Term Loan; (ii) reduces the Maximum Revolver Amount from $
6
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Applicable Margin on (a) SOFR-based loans to a new range of
Subsequent Event
On October 25, 2024, UNIFI entered into a new credit agreement with Wells Fargo Bank, National Association for a $
6. Income Taxes
The provision (benefit) for income taxes and effective tax rate were as follows:
|
|
For the Three Months Ended |
|
|||||
|
|
September 29, 2024 |
|
|
October 1, 2023 |
|
||
Provision (benefit) for income taxes |
|
$ |
|
|
$ |
( |
) |
|
Effective tax rate |
|
|
( |
)% |
|
|
% |
|
Income Tax Expense
UNIFI’s provision (benefit) for income taxes for the three months ended September 29, 2024 and October 1, 2023 was calculated by applying the estimated annual effective tax rate to year-to-date pre-tax book income and adjusting for discrete items that occurred during the period.
The effective tax rate for the three months ended September 29, 2024 and October 1, 2023 varied from the U.S. federal statutory rate primarily due to the U.S. generated losses for which UNIFI does not expect to realize a future tax benefit.
During the three months ended October 1, 2023, the Internal Revenue Service (the “IRS”) audit of fiscal years 2014 through 2019 was concluded with a net refund of $
Unrecognized Tax Benefits
UNIFI regularly assesses the outcomes of both completed and ongoing examinations to ensure that its provision for income taxes is sufficient. Certain returns that remain open to examination have utilized carryforward tax attributes generated in prior tax years, including net operating losses, which could potentially be revised upon examination.
Following the conclusion of the IRS audit during the period ended October 1, 2023, UNIFI adjusted the uncertain tax positions for fiscal years 2014 through 2019 that were effectively settled. The impact from releasing the netted uncertain tax position liabilities was insignificant.
7. Shareholders’ Equity
On October 31, 2018, UNIFI announced that the Company's Board of Directors approved a share repurchase program (the “2018 SRP”) under which UNIFI is authorized to acquire up to $
8. Stock-Based Compensation
On
The following table provides information as of September 29, 2024 with respect to the number of securities remaining available for future issuance under the 2020 Plan, as amended:
Authorized under the 2020 Plan |
|
|
|
|
Plus: Share reserve increase from the First Amendment |
|
|
|
|
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 |
|
|
|
7
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
9. Earnings Per Share
The components of the calculation of earnings per share (“EPS”) are as follows:
|
|
For the Three Months Ended |
|
|||||
|
|
September 29, 2024 |
|
|
October 1, 2023 |
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Basic weighted average shares |
|
|
|
|
|
|
||
Net potential common share equivalents |
|
|
— |
|
|
|
— |
|
Diluted weighted average shares |
|
|
|
|
|
|
||
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 |
|
|
|
|
|
|
||
The calculation of EPS is based on the weighted average number of Unifi, Inc.’s common shares outstanding for the applicable period. The calculation of diluted EPS presents the effect of all potential dilutive common shares that were outstanding during the respective period, unless the effect of doing so is anti-dilutive.
10. 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.
11. Related Party Transactions
Related party balances and transactions are not material to the condensed consolidated financial statements and, accordingly, are not presented separately from other financial statement captions.
There were
Related party payables for Salem Leasing Corporation consisted of the following:
|
|
September 29, 2024 |
|
|
June 30, 2024 |
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Operating lease obligations |
|
|
|
|
|
|
||
Finance lease obligations |
|
|
|
|
|
|
||
Total related party payables |
|
$ |
|
|
$ |
|
||
The following were the Company’s significant related party transactions:
|
|
|
|
For the Three Months Ended |
|
|||||
Affiliated Entity |
|
Transaction Type |
|
September 29, 2024 |
|
|
October 1, 2023 |
|
||
Salem Leasing Corporation |
|
Payments for transportation equipment costs and finance lease debt service |
|
$ |
|
|
$ |
|
||
8
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
12. Business Segment Information
UNIFI defines operating segments as components of the organization for which discrete financial information is available and operating results are evaluated on a regular basis by UNIFI’s chief executive officer, who is the chief operating decision maker (the “CODM”), in order to assess performance and allocate resources. Characteristics of UNIFI which were relied upon in making the determination of reportable segments include the nature of the products sold, the internal organizational structure, the trade policies in the geographic regions in which UNIFI operates, and the information that is regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.
UNIFI's
UNIFI evaluates the operating performance of its segments based upon Segment (Loss) Profit, which represents segment gross (loss) profit plus segment depreciation expense. This measurement of segment profit or loss best aligns segment reporting with the current assessments and evaluations performed by, and information provided to, the CODM.
The accounting policies for the segments are consistent with UNIFI’s accounting policies. Intersegment sales are omitted from segment disclosures, as they are (i) insignificant to UNIFI’s segments and eliminated from consolidated reporting and (ii) excluded from segment evaluations performed by the CODM.
Selected financial information is presented below:
|
|
For the Three Months Ended September 29, 2024 |
|
|||||||||||||
|
|
Americas |
|
|
Brazil |
|
|
Asia |
|
|
Total |
|
||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross (loss) profit |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Segment depreciation expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Segment Profit |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
For the Three Months Ended October 1, 2023 |
|
|||||||||||||
|
|
Americas |
|
|
Brazil |
|
|
Asia |
|
|
Total |
|
||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross (loss) profit |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Segment depreciation expense |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Segment (Loss) Profit |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The reconciliations of segment gross profit (loss) to consolidated loss before income taxes are as follows:
|
|
For the Three Months Ended |
|
|||||
|
|
September 29, 2024 |
|
|
October 1, 2023 |
|
||
Americas |
|
$ |
( |
) |
|
$ |
( |
) |
Brazil |
|
|
|
|
|
|
||
Asia |
|
|
|
|
|
|
||
Segment gross profit (loss) |
|
|
|
|
|
( |
) |
|
Selling, general and administrative expenses |
|
|
|
|
|
|
||
Provision (benefit) for bad debts |
|
|
|
|
|
( |
) |
|
Other operating expense, net |
|
|
|
|
|
|
||
Operating loss |
|
|
( |
) |
|
|
( |
) |
Interest income |
|
|
( |
) |
|
|
( |
) |
Interest expense |
|
|
|
|
|
|
||
Equity in earnings of unconsolidated affiliates |
|
|
( |
) |
|
|
( |
) |
Loss before income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
There have been no material changes in segment assets during fiscal 2025.
9
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
13. Investments in Unconsolidated Affiliates
Included within Other non-current assets are UNIFI’s investments in unconsolidated affiliates: U.N.F. Industries, Ltd. (“UNF”) and UNF America LLC (“UNFA”).
U.N.F. Industries, Ltd.
In December 2023, UNIFI dissolved its interest in UNF under an agreement whereby UNIFI agreed to pay the former joint venture partner $
UNF America LLC
Raw material and production services for UNFA are provided by Nilit America Inc. under separate supply and services agreements. UNFA’s fiscal year end is December 31, and it is a limited liability company located in Ridgeway, Virginia. UNFA is treated as a partnership for its income tax reporting.
In conjunction with the formation of UNFA, UNIFI entered into a supply agreement with UNF and UNFA whereby UNIFI agreed to purchase all of its first quality nylon POY requirements for texturing (subject to certain exceptions) from either UNF or UNFA. The supply agreement has no stated minimum purchase quantities and pricing is typically negotiated every six months, based on market rates. As of September 29, 2024, UNIFI’s open purchase orders related to this supply agreement, all with UNFA, were $
UNIFI’s raw material purchases under this supply agreement consisted of the following:
|
|
For the Three Months Ended |
|
|||||
|
|
September 29, 2024 |
|
|
October 1, 2023 |
|
||
UNFA |
|
$ |
|
|
$ |
|
||
UNF |
|
|
— |
|
|
|
— |
|
Total |
|
$ |
|
|
$ |
|
||
As of September 29, 2024 and June 30, 2024, UNIFI had accounts payable due to UNFA of $
UNIFI has determined that UNF was, and UNFA is, a variable interest entity and has also determined that UNIFI has been 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 and all intercompany sales would be eliminated in consolidation, (ii) the entity balance sheets constitute
Condensed balance sheet and income statement information for UNIFI’s unconsolidated affiliates (including reciprocal balances) are presented in the tables below.
|
|
September 29, 2024 |
|
|
June 30, 2024 |
|
||
Current assets |
|
$ |
|
|
$ |
|
||
Non-current assets |
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
|
||
Non-current liabilities |
|
|
— |
|
|
|
— |
|
Shareholders’ equity and capital accounts |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
UNIFI’s portion of undistributed earnings |
|
|
|
|
|
|
||
|
|
For the Three Months Ended |
|
|||||
|
|
September 29, 2024 |
|
|
October 1, 2023 |
|
||
Net sales |
|
$ |
|
|
$ |
|
||
Gross profit |
|
|
|
|
|
|
||
(Loss) income from operations |
|
|
( |
) |
|
|
|
|
Net (loss) income |
|
|
( |
) |
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Distribution received |
|
|
— |
|
|
|
— |
|
10
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
14. Supplemental Cash Flow Information
Cash payments for interest and taxes consist of the following:
|
|
For the Three Months Ended |
|
|||||
|
|
September 29, 2024 |
|
|
October 1, 2023 |
|
||
Interest, net of capitalized interest of $ |
|
$ |
|
|
$ |
|
||
Income tax payments, net |
|
|
|
|
|
|
||
Cash payments for taxes shown above consist primarily of income and withholding tax payments made by UNIFI in both U.S. and foreign jurisdictions, net of refunds.
Non-Cash Investing and Financing Activities
As of September 29, 2024 and June 30, 2024, $
During the three months ended September 29, 2024 and October 1, 2023, UNIFI recorded non-cash activity relating to finance leases of $
11
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
15. Other Financial Data
Select balance sheet information is presented in the following table.
|
|
September 29, 2024 |
|
|
June 30, 2024 |
|
||
Receivables, net: |
|
|
|
|
|
|
||
Customer receivables |
|
$ |
|
|
$ |
|
||
Allowance for uncollectible accounts |
|
|
( |
) |
|
|
( |
) |
Reserves for quality claims |
|
|
( |
) |
|
|
( |
) |
Net customer receivables |
|
|
|
|
|
|
||
Banker's acceptance notes |
|
|
|
|
|
|
||
Other receivables |
|
|
|
|
|
|
||
Total receivables, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Inventories: |
|
|
|
|
|
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Supplies |
|
|
|
|
|
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Gross inventories |
|
|
|
|
|
|
||
Net realizable value adjustment |
|
|
( |
) |
|
|
( |
) |
Total inventories |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Other current assets: |
|
|
|
|
|
|
||
Assets held for sale (1) |
|
$ |
|
|
$ |
|
||
Vendor deposits |
|
|
|
|
|
|
||
Prepaid expenses and other |
|
|
|
|
|
|
||
Value-added taxes receivable |
|
|
|
|
|
|
||
Contract assets |
|
|
|
|
|
|
||
Total other current assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Property, plant and equipment, net: |
|
|
|
|
|
|
||
Land |
|
$ |
|
|
$ |
|
||
Land improvements |
|
|
|
|
|
|
||
Buildings and improvements |
|
|
|
|
|
|
||
Assets under finance leases |
|
|
|
|
|
|
||
Machinery and equipment |
|
|
|
|
|
|
||
Computers, software and office equipment |
|
|
|
|
|
|
||
Transportation equipment |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Gross property, plant and equipment |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Less: accumulated amortization – finance leases |
|
|
( |
) |
|
|
( |
) |
Total property, plant and equipment, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Other non-current assets: |
|
|
|
|
|
|
||
Recovery of taxes |
|
$ |
|
|
$ |
|
||
Grantor trust |
|
|
|
|
|
|
||
Investments in unconsolidated affiliates |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other non-current assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Other current liabilities: |
|
|
|
|
|
|
||
Payroll and fringe benefits |
|
$ |
|
|
$ |
|
||
Utilities |
|
|
|
|
|
|
||
Incentive compensation |
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
||
Property taxes, interest and other |
|
|
|
|
|
|
||
Total other current liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Other long-term liabilities: |
|
|
|
|
|
|
||
Nonqualified deferred compensation plan obligation |
|
$ |
|
|
$ |
|
||
Uncertain tax positions |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other long-term liabilities |
|
$ |
|
|
$ |
|
||
(1) Assets held for sale as of September 29, 2024 relates to a warehouse located in Yadkinville, North Carolina. On October 30, 2024, this property was sold for $
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of certain significant factors that have affected UNIFI’s operations, along with material changes in financial condition, during the periods included in the accompanying condensed consolidated financial statements. A reference to a “note” in this section refers to the accompanying notes to condensed consolidated financial statements. A reference to the “current period” refers to the three-month period ended September 29, 2024, while a reference to the “prior period” refers to the three-month period ended October 1, 2023. Such references may be accompanied by certain phrases for added clarity. The current period and the prior period each consisted of 13 weeks.
Our discussions in this Item 2 focus on our results during, or as of, the three months ended September 29, 2024 and October 1, 2023, and, to the extent applicable, any material changes from the information discussed in the 2024 Form 10-K or other important intervening developments or information. These discussions should be read in conjunction with the 2024 Form 10-K for more detailed and background information about our business, operations, and financial condition.
Discussion of foreign currency translation is primarily associated with changes in the Brazilian Real (“BRL”) and changes in the Chinese Renminbi (“RMB”) versus the U.S. Dollar (“USD”). Weighted average exchange rates were as follows:
|
|
For the Three Months Ended |
|
|||||
|
|
September 29, 2024 |
|
|
October 1, 2023 |
|
||
BRL to USD |
|
|
5.55 |
|
|
|
4.89 |
|
RMB to USD |
|
|
7.17 |
|
|
|
7.25 |
|
All amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted.
Overview and Significant General Matters
UNIFI focuses on delivering products and solutions to direct customers and brand partners throughout the world, leveraging our internal manufacturing capabilities and an enhanced global supply chain that delivers a diverse range of synthetic and recycled fibers and polymers. Our strategic initiatives include (i) leveraging our competitive advantages to grow market share in each of the major geographies we serve, (ii) expanding our presence in non-apparel markets with additional REPREVE® products, (iii) advancing the development and commercialization of innovative and sustainable solutions, and (iv) increasing brand awareness for REPREVE®. We have increased our focus on sales opportunities beyond traditional apparel customers and continue to drive innovation throughout our portfolio to further diversify the business and enhance gross profit. We believe our strategic initiatives will increase revenue and profitability and generate improved cash flows from operations.
Current Economic Environment
The challenging environment for textile production and demand has adversely impacted our consolidated sales and profitability. In addition, the following pressures have been present: (i) the impact of inflation on consumer spending and (ii) elevated interest rates for consumers and customers, including the impact on the carrying costs of customer inventories. UNIFI will continue to monitor these and other aspects of the current environment and work closely with stakeholders to ensure business continuity and liquidity.
While we recognize the disruption to global markets and supply chains caused by the conflicts in Ukraine and the Middle East, we have not been directly impacted. Indirectly, we recognize that additional or prolonged impacts to the petroleum or other global markets could cause further inflationary pressures to our global raw material costs or additional unforeseen adverse impacts.
Input Costs and Global Production Volatility
Despite lowered input and freight costs and a marginally more stable labor pool recently, global demand volatility and uncertainty continued into fiscal 2025. The threat of recession and global tensions continue to create uncertainty. Such existing challenges and future uncertainty, particularly for rising input costs, labor productivity, and global demand, could worsen and/or continue for prolonged periods, materially impacting our consolidated sales, gross profit, and operating cash flows. Also, the need for future selling price adjustments in connection with inflationary costs could impact our ability to retain current customer programs and compete successfully for new programs in certain regions.
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:
13
EBITDA, Adjusted EBITDA, Adjusted Net Loss, Adjusted EPS, Adjusted Working Capital, and Net Debt (collectively, the “non-GAAP financial measures”) are not determined in accordance with GAAP and should not be considered a substitute for performance measures determined in accordance with GAAP. The calculations of the non-GAAP financial measures are subjective, based on management’s belief as to which items should be included or excluded in order to provide the most reasonable and comparable view of the underlying operating performance of the business. We may, from time to time, modify the amounts used to determine our non-GAAP financial measures. When applicable, management’s discussion and analysis includes specific consideration for items that comprise the reconciliations of its non-GAAP financial measures. We believe that these non-GAAP financial measures better reflect UNIFI’s underlying operations and performance and that their use, as operating performance measures, provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets, among otherwise comparable companies.
Management uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of items (a) directly related to our asset base (primarily depreciation and amortization) and/or (b) that we would not expect to occur as a part of our normal business on a regular basis; (ii) for planning purposes, including the preparation of our annual operating budget; (iii) as a valuation measure for evaluating our operating performance and our capacity to incur and service debt, fund capital expenditures, and expand our business; and (iv) as one measure in determining the value of other acquisitions and dispositions. Adjusted EBITDA is a key performance metric utilized in the determination of variable compensation. We also believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity because it serves as a high-level proxy for cash generated from operations and is relevant to our fixed charge coverage ratio.
Management uses Adjusted Net Loss and Adjusted EPS (i) as measurements of net operating performance because they assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to occur as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not expect to occur as a part of our underlying taxable operations; (ii) for planning purposes, including the preparation of our annual operating budget; and (iii) as measures in determining the value of other acquisitions and dispositions.
Management uses Adjusted Working Capital as an indicator of UNIFI’s production efficiency and ability to manage inventories and receivables.
Management uses Net Debt as a liquidity and leverage metric to determine how much debt would remain if all cash and cash equivalents were used to pay down debt principal.
14
Review of Results of Operations
Three Months Ended September 29, 2024 Compared to Three Months Ended October 1, 2023
Consolidated Overview
The below tables provide:
following the tables is a discussion and analysis of the significant components of net loss.
Net Loss
|
|
For the Three Months Ended |
|
|
|
|
||||||||||||||
|
|
September 29, 2024 |
|
|
October 1, 2023 |
|
|
|
|
|||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
% |
|
|||||
Net sales |
|
$ |
147,372 |
|
|
|
100.0 |
|
|
$ |
138,844 |
|
|
|
100.0 |
|
|
|
6.1 |
|
Cost of sales |
|
|
137,914 |
|
|
|
93.6 |
|
|
|
139,419 |
|
|
|
100.4 |
|
|
|
(1.1 |
) |
Gross profit (loss) |
|
|
9,458 |
|
|
|
6.4 |
|
|
|
(575 |
) |
|
|
(0.4 |
) |
|
nm |
|
|
SG&A |
|
|
11,842 |
|
|
|
8.0 |
|
|
|
11,609 |
|
|
|
8.4 |
|
|
|
2.0 |
|
Provision (benefit) for bad debts |
|
|
312 |
|
|
|
0.2 |
|
|
|
(209 |
) |
|
|
(0.2 |
) |
|
nm |
|
|
Other operating expense, net |
|
|
520 |
|
|
|
0.4 |
|
|
|
54 |
|
|
|
— |
|
|
nm |
|
|
Operating loss |
|
|
(3,216 |
) |
|
|
(2.2 |
) |
|
|
(12,029 |
) |
|
|
(8.6 |
) |
|
|
(73.3 |
) |
Interest expense, net |
|
|
2,250 |
|
|
|
1.5 |
|
|
|
1,904 |
|
|
|
1.4 |
|
|
|
18.2 |
|
Equity in earnings of unconsolidated affiliates |
|
|
(11 |
) |
|
|
— |
|
|
|
(200 |
) |
|
|
(0.1 |
) |
|
|
(94.5 |
) |
Loss before income taxes |
|
|
(5,455 |
) |
|
|
(3.7 |
) |
|
|
(13,733 |
) |
|
|
(9.9 |
) |
|
|
(60.3 |
) |
Provision (benefit) for income taxes |
|
|
2,177 |
|
|
|
1.5 |
|
|
|
(463 |
) |
|
|
(0.3 |
) |
|
nm |
|
|
Net loss |
|
$ |
(7,632 |
) |
|
|
(5.2 |
) |
|
$ |
(13,270 |
) |
|
|
(9.6 |
) |
|
|
(42.5 |
) |
nm = not meaningful
EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
The reconciliations of the amounts reported under GAAP for Net loss to EBITDA and Adjusted EBITDA were as follows:
|
|
For the Three Months Ended |
|
|||||
|
|
September 29, 2024 |
|
|
October 1, 2023 |
|
||
Net loss |
|
$ |
(7,632 |
) |
|
$ |
(13,270 |
) |
Interest expense, net |
|
|
2,250 |
|
|
|
1,904 |
|
Provision (benefit) for income taxes |
|
|
2,177 |
|
|
|
(463 |
) |
Depreciation and amortization expense (1) |
|
|
6,504 |
|
|
|
6,988 |
|
EBITDA |
|
|
3,299 |
|
|
|
(4,841 |
) |
|
|
|
|
|
|
|
||
Other adjustments (2) |
|
|
— |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
3,299 |
|
|
$ |
(4,841 |
) |
Adjusted Net Loss and Adjusted EPS (Non-GAAP Financial Measures)
For the current period and the prior period, there were no adjustments necessary to reconcile Net loss to Adjusted Net Loss or Adjusted EPS.
Net Sales
Consolidated net sales for the current period increased by $8,528, or 6.1%, while consolidated sales volumes increased 7.7%, compared to the prior period. Net sales in the current period were higher primarily due to improved sales volumes in each of the reportable segments, along with favorable pricing in Brazil. Despite these sales volume improvements, volumes remain depressed, particularly in the Americas and Asia Segments as a result of continued weak global demand.
Consolidated weighted average sales prices decreased 1.6% which partially offset the volume increase. The decrease in sales prices was primarily attributable to sales mix and lower average selling prices in Asia and the Americas Segment, together with unfavorable foreign currency translation effects from the weakening of the BRL versus the USD within our Brazil Segment.
REPREVE® Fiber products for the current period comprised 30%, or $44,742, of consolidated net sales, compared to 31%, or $42,461, for the prior period.
15
Gross Profit (Loss)
Gross profit for the current period increased to $9,458 from a gross loss of $(575) in the prior period. Gross profit increased primarily due to (i) increased sales volumes, (ii) variable cost saving initiatives, (iii) improved productivity, and (iv) higher conversion margins. However, gross profit continues to be unfavorably impacted by weak fixed cost absorption in the Americas Segment, where utilization and productivity remain below historical averages due to depressed demand.
SG&A
SG&A did not change meaningfully from the prior period to the current period, nor did the change include any significant offsetting impacts.
Provision (Benefit) for Bad Debts
The current period and prior period provision reflect no material activity.
Other Operating Expense, Net
The current period and the prior period include foreign currency transaction losses (gains) of $489 and $(33), respectively, with no other meaningful activity.
Interest Expense, Net
Interest expense, net increased primarily due to lower interest income in the current period, associated with lower global cash balances.
Equity in Earnings of Unconsolidated Affiliates
There was no material activity for the current period or the prior period.
Income Taxes
Provision (benefit) for income taxes and the effective tax rate were as follows:
|
|
For the Three Months Ended |
|
|||||
|
|
September 29, 2024 |
|
|
October 1, 2023 |
|
||
Provision (benefit) for income taxes |
|
$ |
2,177 |
|
|
$ |
(463 |
) |
Effective tax rate |
|
|
(39.9 |
)% |
|
|
3.4 |
% |
The effective tax rate is subject to variation due to a number of factors, including variability in pre-tax book income; the mix of income by jurisdiction; changes in deferred tax valuation allowances; and changes in statutes, audit settlement, regulations, and case law. Additionally, the impacts of discrete and other rate impacting items are more pronounced when loss before income taxes is lower.
The decrease in the effective tax rate is primarily attributable to a decrease in the valuation allowance on deferred tax asset balances adjusted by the IRS audit of tax years 2014 through 2019, which was concluded during the prior period. The impact of this on comparative results is heightened by a smaller loss before income taxes in the current period.
Net Loss
The improvement in net loss was primarily attributable to increased gross profit, partially offset by foreign currency transaction losses, higher interest expense, net, and higher income tax expense.
Adjusted EBITDA (Non-GAAP Financial Measure)
Adjusted EBITDA increased primarily attributable to increased gross profit, partially offset by foreign currency transaction losses.
16
Segment Overview
Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for the current period.
Americas Segment
The components of Segment Profit (Loss), each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Americas Segment, were as follows:
|
|
For the Three Months Ended |
|
|
|
|
||||||||||||||
|
|
September 29, 2024 |
|
|
October 1, 2023 |
|
|
|
|
|||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
% |
|
|||||
Net sales |
|
$ |
86,283 |
|
|
|
100.0 |
|
|
$ |
81,573 |
|
|
|
100.0 |
|
|
|
5.8 |
|
Cost of sales |
|
|
87,661 |
|
|
|
101.6 |
|
|
|
88,953 |
|
|
|
109.0 |
|
|
|
(1.5 |
) |
Gross loss |
|
|
(1,378 |
) |
|
|
(1.6 |
) |
|
|
(7,380 |
) |
|
|
(9.0 |
) |
|
|
(81.3 |
) |
Depreciation expense |
|
|
5,410 |
|
|
6.3 |
|
|
|
5,497 |
|
|
|
6.7 |
|
|
|
(1.6 |
) |
|
Segment Profit (Loss) |
|
$ |
4,032 |
|
|
|
4.7 |
|
|
$ |
(1,883 |
) |
|
|
(2.3 |
) |
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Segment net sales as a percentage of |
|
|
58.5 |
% |
|
|
|
|
|
58.8 |
% |
|
|
|
|
|
|
|||
Segment Profit (Loss) as a percentage of |
|
|
25.8 |
% |
|
|
|
|
|
(32.7 |
)% |
|
|
|
|
|
|
|||
The change in net sales for the Americas Segment was as follows:
Net sales for the prior period |
|
$ |
81,573 |
|
Increase in sales volumes |
|
|
6,692 |
|
Change in average selling price and sales mix |
|
|
(1,982 |
) |
Net sales for the current period |
|
$ |
86,283 |
|
The increase in net sales for the Americas Segment from the prior period to the current period was primarily attributable to higher sales volumes, partially offset by a lower-priced sales mix. Both periods were unfavorably impacted by the continued weak global textile demand environment.
The change in Segment Profit (Loss) for the Americas Segment was as follows:
Segment Loss for the prior period |
|
$ |
(1,883 |
) |
Change in underlying unit margins and sales mix |
|
|
6,069 |
|
Change in sales volumes |
|
|
(154 |
) |
Segment Profit for the current period |
|
$ |
4,032 |
|
The increase in Segment Profit for the Americas Segment from the prior period to the current period was primarily attributable to higher conversion margins primarily due to improved variable cost management efforts. Segment Profit for the Americas Segment continues to be negatively impacted by a lower proportion of fiber sales volumes. As fiber products carry a higher selling price and allocation of production costs versus Chip and Flake, lower fiber production drives weaker fixed cost absorption and adversely impacts gross profit and gross margin.
Brazil Segment
The components of Segment Profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Brazil Segment, were as follows:
|
|
For the Three Months Ended |
|
|
|
|
||||||||||||||
|
|
September 29, 2024 |
|
|
October 1, 2023 |
|
|
|
|
|||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
% |
|
|||||
Net sales |
|
$ |
34,310 |
|
|
|
100.0 |
|
|
$ |
29,909 |
|
|
|
100.0 |
|
|
|
14.7 |
|
Cost of sales |
|
|
26,373 |
|
|
|
76.9 |
|
|
|
27,742 |
|
|
|
92.7 |
|
|
|
(4.9 |
) |
Gross profit |
|
|
7,937 |
|
|
|
23.1 |
|
|
|
2,167 |
|
|
|
7.3 |
|
|
nm |
|
|
Depreciation expense |
|
|
741 |
|
|
|
2.2 |
|
|
|
840 |
|
|
|
2.8 |
|
|
|
(11.8 |
) |
Segment Profit |
|
$ |
8,678 |
|
|
|
25.3 |
|
|
$ |
3,007 |
|
|
|
10.1 |
|
|
|
188.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Segment net sales as a percentage of |
|
|
23.3 |
% |
|
|
|
|
|
21.5 |
% |
|
|
|
|
|
|
|||
Segment Profit as a percentage of |
|
|
55.5 |
% |
|
|
|
|
|
52.2 |
% |
|
|
|
|
|
|
|||
17
The change in net sales for the Brazil Segment was as follows:
Net sales for the prior period |
|
$ |
29,909 |
|
Increase in average selling price and change in sales mix |
|
|
4,952 |
|
Increase in sales volumes |
|
|
3,007 |
|
Unfavorable foreign currency translation effects |
|
|
(3,558 |
) |
Net sales for the current period |
|
$ |
34,310 |
|
The increase in net sales for the Brazil Segment from the prior period to the current period was primarily attributable to (i) higher average selling prices due to increasing raw material costs and (ii) an improvement in sales volumes from market share gains, partially offset by unfavorable foreign currency translation effects from the weakening of the BRL versus the USD.
The change in Segment Profit for the Brazil Segment was as follows:
Segment Profit for the prior period |
|
$ |
3,007 |
|
Increase in underlying unit margins |
|
|
5,722 |
|
Increase in sales volumes |
|
|
303 |
|
Unfavorable foreign currency translation effects |
|
|
(354 |
) |
Segment Profit for the current period |
|
$ |
8,678 |
|
The increase in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to (i) higher conversion margins and (ii) an increase in sales volumes discussed above, partially offset by unfavorable foreign currency translation effects. We continue to prioritize innovation and differentiation to improve our portfolio and competitive position in Brazil.
Asia Segment
The components of Segment Profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Asia Segment, were as follows:
|
|
For the Three Months Ended |
|
|
|
|
||||||||||||||
|
|
September 29, 2024 |
|
|
October 1, 2023 |
|
|
|
|
|||||||||||
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
% |
|
|||||
Net sales |
|
$ |
26,779 |
|
|
|
100.0 |
|
|
$ |
27,362 |
|
|
|
100.0 |
|
|
|
(2.1 |
) |
Cost of sales |
|
|
23,880 |
|
|
|
89.2 |
|
|
|
22,724 |
|
|
|
83.0 |
|
|
|
5.1 |
|
Gross profit |
|
|
2,899 |
|
|
|
10.8 |
|
|
|
4,638 |
|
|
|
17.0 |
|
|
|
(37.5 |
) |
Depreciation expense |
|
|
17 |
|
|
|
0.1 |
|
|
|
— |
|
|
|
— |
|
|
nm |
|
|
Segment Profit |
|
$ |
2,916 |
|
|
|
10.9 |
|
|
$ |
4,638 |
|
|
|
17.0 |
|
|
|
(37.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Segment net sales as a percentage of |
|
|
18.2 |
% |
|
|
|
|
|
19.7 |
% |
|
|
|
|
|
|
|||
Segment Profit as a percentage of |
|
|
18.7 |
% |
|
|
|
|
|
80.5 |
% |
|
|
|
|
|
|
|||
The change in net sales for the Asia Segment was as follows:
Net sales for the prior period |
|
$ |
27,362 |
|
Change in average selling price and sales mix |
|
|
(1,704 |
) |
Increase in sales volumes |
|
|
819 |
|
Favorable foreign currency translation effects |
|
|
302 |
|
Net sales for the current period |
|
$ |
26,779 |
|
The decrease in net sales for the Asia Segment from the prior period to the current period was primarily attributable to changes in sales mix, partially offset by (a) an improvement in sales volumes compared to the prior period despite continued weak global demand, particularly for apparel and (b) favorable foreign currency translation effects due to the strengthening of the RMB versus the USD.
The change in Segment Profit for the Asia Segment was as follows:
Segment Profit for the prior period |
|
$ |
4,638 |
|
Change in underlying unit margins and sales mix |
|
|
(1,920 |
) |
Increase in sales volumes |
|
|
139 |
|
Favorable foreign currency translation effects |
|
|
59 |
|
Segment Profit for the current period |
|
$ |
2,916 |
|
The decrease in Segment Profit for the Asia Segment from the prior period to the current period was attributable to a decline in gross margin rate associated with a change in sales mix of REPREVE products, partially offset by (a) the increase in sales volumes and (b) the favorable foreign currency translation effects.
18
Liquidity and Capital Resources
Note 5, “Long-Term Debt” to the condensed consolidated financial statements includes the detail of UNIFI’s debt obligations and terms and conditions thereof. Further discussion and analysis of liquidity and capital resources follow.
UNIFI’s primary capital requirements are for working capital, capital expenditures, and debt service. UNIFI’s primary sources of capital are cash generated from operations, borrowings available under the 2022 Credit Agreement, and 2024 Facility. For the current three-month period, cash used by operations was $12,834 and, at September 29, 2024, availability under the ABL Revolver was $38,645.
As of September 29, 2024, all of UNIFI’s $131,691 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, while nearly all of UNIFI’s cash and cash equivalents were held by its foreign subsidiaries. Cash and cash equivalents held by foreign subsidiaries may not be presently available to fund UNIFI’s domestic capital requirements, including its domestic debt obligations. UNIFI employs a variety of strategies to ensure that its worldwide cash is available in the locations where it is needed.
The following table presents a summary of cash and cash equivalents, borrowings available under financing arrangements, liquidity, working capital, and total debt obligations as of September 29, 2024 for domestic operations compared to foreign operations:
|
|
Domestic |
|
|
Foreign |
|
|
Total |
|
|||
Cash and cash equivalents |
|
$ |
479 |
|
|
$ |
13,224 |
|
|
$ |
13,703 |
|
Borrowings available under financing arrangements |
|
|
38,645 |
|
|
|
— |
|
|
|
38,645 |
|
Liquidity |
|
$ |
39,124 |
|
|
$ |
13,224 |
|
|
$ |
52,348 |
|
|
|
|
|
|
|
|
|
|
|
|||
Working capital |
|
$ |
73,177 |
|
|
$ |
101,769 |
|
|
$ |
174,946 |
|
Total debt obligations |
|
$ |
131,691 |
|
|
$ |
— |
|
|
$ |
131,691 |
|
Borrowings available under financing arrangements are generally collateralized by receivables and inventory owned in the U.S. and generally constrained by the fixed charge coverage ratio and trigger level prescribed in the 2022 Credit Agreement. Accordingly, not all of such funds are immediately available for use in UNIFI's operations. UNIFI’s primary cash requirements, in addition to normal course operating activities (e.g., working capital and payroll), primarily include (i) capital expenditures that generally have commitments of up to 12 months, (ii) contractual obligations that support normal course ongoing operations and production, (iii) operating leases and finance leases, (iv) debt service, and (v) share repurchases.
Liquidity Considerations
Following the establishment of the 2024 Facility, UNIFI believes its global cash and liquidity positions are sufficient to sustain its operations and to meet its growth needs for the foreseeable future. Additionally, UNIFI considers opportunities to repatriate existing cash to reduce debt and preserve or enhance liquidity. However, further degradation in the macroeconomic environment could introduce additional liquidity risk and require UNIFI to limit cash outflows for discretionary activities while further utilizing available and additional forms of credit.
We do not currently anticipate that any adverse events or circumstances will place critical pressure on our liquidity position or our ability to fund our operations and expected business growth. Should global demand, economic activity, or input availability decline considerably for an even longer period of time, UNIFI maintains the ability to (i) seek additional credit or financing arrangements and/or (ii) re-implement cost reduction initiatives to preserve cash and secure the longevity of the business and operations. Management continues to (i) explore cost savings opportunities and (ii) prioritize repayment of debt in the current operating environment.
When business levels increase, we expect to use cash in support of working capital needs.
The following outlines the attributes relating to our credit facility as of September 29, 2024:
On October 25, 2024, UNIFI entered into a new credit agreement with Wells Fargo Bank, National Association for a $25,000 revolving credit facility (the "2024 Facility"). The maturity date of the 2024 Facility is the earlier of (i) October 28, 2027 and (ii) the termination or refinancing of the 2022 Credit Agreement. The 2024 Facility is deemed unsecured financing for UNIFI, but is collateralized by certain assets pledged by related party Kenneth G. Langone, one of the members of UNIFI's Board of Directors. Borrowings under the 2024 Facility bear interest at a rate of SOFR plus 0.90%. The 2024 Facility contains no additional financial covenants beyond those already in effect for the 2022 Credit Agreement and is subject to a monthly unused line fee of 0.25% on available borrowing capacity. As of the report date, no amounts had been borrowed against the 2024 Facility.
In addition to making payments in accordance with the scheduled maturities of debt required under its existing debt obligations, UNIFI may, from time to time, elect to repay additional amounts borrowed under the ABL Facility and 2024 Facility. Funds to make such repayments may come from the operating cash flows of the business or other sources and will depend upon UNIFI’s strategy, prevailing market conditions, liquidity requirements, contractual restrictions within the 2022 Credit Agreement, and other factors.
19
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. For its foreign operations, UNIFI expects its existing cash balances, cash provided by operating activities, and available financing arrangements will provide the needed liquidity to fund the associated operating activities and investing activities, such as future capital expenditures. UNIFI believes its operations in Asia and Brazil are in a position to obtain local country financing arrangements due to the operating results of each subsidiary.
Net Debt (Non-GAAP Financial Measure)
The reconciliations for Net Debt are as follows:
|
|
September 29, 2024 |
|
|
June 30, 2024 |
|
||
Long-term debt |
|
$ |
119,324 |
|
|
$ |
117,793 |
|
Current portion of long-term debt |
|
|
12,153 |
|
|
|
12,277 |
|
Unamortized debt issuance costs |
|
|
214 |
|
|
|
229 |
|
Debt principal |
|
|
131,691 |
|
|
|
130,299 |
|
Less: cash and cash equivalents |
|
|
13,703 |
|
|
|
26,805 |
|
Net Debt |
|
$ |
117,988 |
|
|
$ |
103,494 |
|
The increase in Net Debt primarily reflects the increase in inventories and capital expenditures during the current period.
Working Capital and Adjusted Working Capital (Non-GAAP Financial Measure)
The following table presents the components of working capital and the reconciliation of working capital to Adjusted Working Capital:
|
|
September 29, 2024 |
|
|
June 30, 2024 |
|
||
Cash and cash equivalents |
|
$ |
13,703 |
|
|
$ |
26,805 |
|
Receivables, net |
|
|
77,885 |
|
|
|
79,165 |
|
Inventories |
|
|
145,350 |
|
|
|
131,181 |
|
Income taxes receivable |
|
|
1,355 |
|
|
|
164 |
|
Other current assets |
|
|
12,923 |
|
|
|
11,618 |
|
Accounts payable |
|
|
(41,250 |
) |
|
|
(43,622 |
) |
Other current liabilities |
|
|
(18,923 |
) |
|
|
(17,662 |
) |
Income taxes payable |
|
|
(1,510 |
) |
|
|
(754 |
) |
Current operating lease liabilities |
|
|
(2,434 |
) |
|
|
(2,251 |
) |
Current portion of long-term debt |
|
|
(12,153 |
) |
|
|
(12,277 |
) |
Working capital |
|
$ |
174,946 |
|
|
$ |
172,367 |
|
|
|
|
|
|
|
|
||
Less: Cash and cash equivalents |
|
|
(13,703 |
) |
|
|
(26,805 |
) |
Less: Income taxes receivable |
|
|
(1,355 |
) |
|
|
(164 |
) |
Less: Income taxes payable |
|
|
1,510 |
|
|
|
754 |
|
Less: Current operating lease liabilities |
|
|
2,434 |
|
|
|
2,251 |
|
Less: Current portion of long-term debt |
|
|
12,153 |
|
|
|
12,277 |
|
Adjusted Working Capital |
|
$ |
175,985 |
|
|
$ |
160,680 |
|
Adjusted Working Capital increased $15,305 from June 30, 2024 to September 29, 2024.
The increase in Adjusted Working Capital was primarily attributable to an increase in inventories, partially impacted by insignificant changes in other balance sheet accounts. The increase in inventories was primarily a result of weaker-than-expected sales levels in the U.S. and Asia, causing a decrease in inventory turnover.
20
Operating Cash Flows
The significant components of net cash (used) provided by operating activities are summarized below.
|
|
For the Three Months Ended |
|
|||||
|
|
September 29, 2024 |
|
|
October 1, 2023 |
|
||
Net loss |
|
$ |
(7,632 |
) |
|
$ |
(13,270 |
) |
Equity in earnings of unconsolidated affiliates |
|
|
(11 |
) |
|
|
(200 |
) |
Depreciation and amortization expense |
|
|
6,547 |
|
|
|
7,026 |
|
Non-cash compensation expense |
|
|
435 |
|
|
|
212 |
|
Deferred income taxes |
|
|
344 |
|
|
|
(679 |
) |
Subtotal |
|
|
(317 |
) |
|
|
(6,911 |
) |
|
|
|
|
|
|
|
||
Receivables, net |
|
|
2,221 |
|
|
|
4,111 |
|
Inventories |
|
|
(12,851 |
) |
|
|
12,608 |
|
Accounts payable and other current liabilities |
|
|
(460 |
) |
|
|
(3,432 |
) |
Other changes |
|
|
(1,427 |
) |
|
|
743 |
|
Net cash (used) provided by operating activities |
|
$ |
(12,834 |
) |
|
$ |
7,119 |
|
The decrease in operating cash flows was due to increased working capital primarily from an increase in inventories (as described above), partially offset by an improvement in earnings in the current period compared to the prior period.
Investing Cash Flows
Investing activities primarily include $2,018 for capital expenditures. UNIFI expects recent and future capital projects to provide benefits to future profitability. The additional assets from these capital projects consist primarily of machinery and equipment. In March 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. In December 2023, UNIFI extended this delay by an additional 12 months at no cost to the Company.
Financing Cash Flows
Financing activities primarily include net proceeds from the ABL Revolver and payments on the ABL Term Loan.
Share Repurchase Program
As described in Note 7, “Shareholders’ Equity,” no share repurchases have been completed in fiscal 2025.
Contractual Obligations
UNIFI incurs various financial obligations and commitments in the ordinary course of business. Financial obligations are considered to represent known future cash payments that UNIFI is required to make under existing contractual arrangements, such as debt and lease agreements.
There have been no material changes in the scheduled maturities of UNIFI’s contractual obligations as disclosed under the heading “Contractual Obligations” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2024 Form 10-K.
Off-Balance Sheet Arrangements
UNIFI is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on UNIFI’s financial condition, results of operations, liquidity, or capital expenditures.
Critical Accounting Policies
UNIFI’s critical accounting policies are discussed in the 2024 Form 10-K. There have been no changes to UNIFI’s critical accounting policies in fiscal 2025.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
UNIFI is exposed to market risks associated with changes in interest rates, fluctuations in foreign currency exchange rates, and raw material and commodity costs, which may adversely affect its financial position, results of operations, or cash flows. UNIFI does not enter into derivative financial instruments for trading purposes, nor is it a party to any leveraged financial instruments.
Interest Rate Risk
UNIFI is exposed to interest rate risk through its borrowing activities. As of September 29, 2024, UNIFI had borrowings under its ABL Facility that totaled $123,100. UNIFI’s sensitivity analysis indicates that a 50-basis point interest rate increase as of September 29, 2024 would result in an increase in annual interest expense of approximately $700.
Foreign Currency Exchange Rate Risk
A complete discussion of foreign currency exchange rate risk is included in the 2024 Form 10-K and is supplemented by the following disclosures.
21
As of September 29, 2024, UNIFI had no outstanding foreign currency forward contracts. As of September 29, 2024, foreign currency exchange rate risk positions included the following:
|
|
Approximate |
|
|
Percentage of total consolidated assets held by UNIFI's subsidiaries outside the U.S. whose functional currency |
|
|
29.5 |
% |
|
|
|
|
|
Cash and cash equivalents held outside the U.S.: |
|
|
|
|
Denominated in USD |
|
$ |
9,794 |
|
Denominated in RMB |
|
|
732 |
|
Denominated in BRL |
|
|
1,768 |
|
Denominated in other foreign currencies |
|
|
220 |
|
Total cash and cash equivalents held outside the U.S. |
|
$ |
12,514 |
|
Percentage of total cash and cash equivalents held outside the U.S. |
|
|
91.3 |
% |
|
|
|
|
|
Cash and cash equivalents held inside the U.S. in USD by foreign subsidiaries |
|
$ |
710 |
|
Raw Material and Commodity Cost Risks
A complete discussion of raw material and commodity cost risks is included in the 2024 Form 10-K.
Other Risks
UNIFI is also exposed to geopolitical risk, including changing laws and regulations governing international trade, such as quotas, tariffs, and tax laws. The degree of impact and the frequency of these events cannot be predicted.
Item 4. Controls and Procedures
As of September 29, 2024, an evaluation of the effectiveness of UNIFI’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was performed under the supervision and with the participation of UNIFI’s management, including the principal executive officer and the 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 its principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in UNIFI’s internal control over financial reporting during the three months ended September 29, 2024 that have materially affected, or are reasonably likely to materially affect, UNIFI’s internal control over financial reporting.
22
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We are from time to time a party to various lawsuits, claims, and other legal proceedings that arise in the ordinary course of business. With respect to all such lawsuits, claims, and proceedings, we record reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. We do not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on our results of operations, financial position, or cash flows. We maintain liability insurance for certain risks that is subject to certain self-insurance limits.
23
Item 1A. Risk Factors
There have been no material changes in UNIFI’s risk factors from those included in “Item 1A. Risk Factors” in the 2024 Form 10-K.
Item 5. Other Information
Insider Trading Arrangements
During the quarter ended September 29, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act)
Item 6. Exhibits
Exhibit No. |
|
Description |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
3.3 |
|
|
|
|
|
4.1 |
|
|
|
|
|
4.2 |
|
|
|
|
|
10.1+ |
|
|
|
|
|
10.2+ |
|
|
|
|
|
10.3+ |
|
|
|
|
|
10.4+ |
|
|
|
|
|
31.1+ |
|
|
|
|
|
31.2+ |
|
|
|
|
|
32++ |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document. |
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document). |
|
|
|
+ Filed herewith.
++ Furnished herewith.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
UNIFI, INC. |
|
|
|
(Registrant) |
|
|
|
|
|
Date: November 6, 2024 |
|
By: |
/s/ ANDREW J. EAKER |
|
|
|
Andrew J. Eaker |
|
|
|
Executive Vice President & Chief Financial Officer Treasurer |
|
|
|
(Principal Financial Officer and Principal Accounting Officer) |
25