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EX-31.1 - EXHIBIT 31.1 - UNIFI INCex31-1.htm


 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 27, 2015

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from            to        

 

Commission File Number: 1-10542

 

UNIFI, INC.

(Exact name of registrant as specified in its charter)

 

 

New York

 

11-2165495

 

 

(State or other jurisdiction of 

 

(I.R.S. Employer

 

 

incorporation or organization)

 

Identification No.)

 

 

 

 

 

 

 

7201 West Friendly Avenue

 

27419-9109

 

 

Greensboro, NC

 

(Zip Code)

 

 

(Address of principal executive offices)

 

 

 

              

Registrant’s telephone number, including area code: (336) 294-4410

  

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 [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ X ] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer [  ]

Accelerated filer [X] 

Non-accelerated filer [  ]

Smaller reporting company   [  ]

 

(Do not check if a smaller reporting company)

 

  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

The number of shares outstanding of the issuer’s common stock, par value $.10 per share, as of January 25, 2016 was 17,839,916.

 



 

 
 

 

 

UNIFI, INC.

FORM 10-Q FOR THE QUARTER ENDED DECEMBER 27, 2015

 

TABLE OF CONTENTS

 


 

Part I. FINANCIAL INFORMATION

       

Page   

         

Item 1.

 

Financial Statements:

  3
         
   

Condensed Consolidated Balance Sheets as of December 27, 2015 and June 28, 2015

  3
         
   

Condensed Consolidated Statements of Income for the Three Months and Six Months Ended December 27, 2015 and December 28, 2014

  4
         
   

Condensed Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended December 27, 2015 and December 28, 2014

  5
         
   

Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 27, 2015 and December 28, 2014

  6
         
   

Notes to Condensed Consolidated Financial Statements

  7
         

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  25
         

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  44
         

Item 4.

 

Controls and Procedures

  45
         
 

Part II. OTHER INFORMATION

         
         

Item 1.

 

Legal Proceedings

  46
         

Item 1A.

 

Risk Factors

  46
         

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  46
         

Item 3.

 

Defaults Upon Senior Securities

  46
         

Item 4.

 

Mine Safety Disclosures

  46
         

Item 5.

 

Other Information

  46
         

Item 6.

 

Exhibits

  47
         
   

Signatures

  48
         
   

Exhibit Index

  49

  

 
2

 

 

Part I.      FINANCIAL INFORMATION

 

Item 1.      FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(amounts in thousands, except share and per share amounts)

 

   

December 27, 2015

   

June 28, 2015

 

ASSETS

               

Cash and cash equivalents

  $ 19,417     $ 10,013  

Receivables, net

    78,149       83,863  

Inventories

    108,975       111,615  

Income taxes receivable

    4,190       1,451  

Other current assets

    3,572       6,022  

Total current assets

    214,303       212,964  
                 

Property, plant and equipment, net

    159,210       136,222  

Deferred income taxes

    1,467       3,922  

Intangible assets, net

    4,554       5,388  

Investments in unconsolidated affiliates

    113,710       113,901  

Other non-current assets

    4,497       3,975  

Total assets

  $ 497,741     $ 476,372  
                 

LIABILITIES AND SHAREHOLDERS’ EQUITY

               

Accounts payable

  $ 36,455     $ 45,023  

Accrued expenses

    11,254       16,640  

Income taxes payable

    655       676  

Current portion of long-term debt

    15,050       12,385  

Total current liabilities

    63,414       74,724  

Long-term debt

    121,837       91,725  

Other long-term liabilities

    10,867       10,740  

Deferred income taxes

    3,241       90  

Total liabilities

    199,359       177,279  

Commitments and contingencies

               
                 

Common stock, $0.10 par value (500,000,000 shares authorized, 17,822,065 and 18,007,749 shares outstanding)

    1,782       1,801  

Capital in excess of par value

    45,371       44,261  

Retained earnings

    287,139       278,331  

Accumulated other comprehensive loss

    (37,880 )     (26,899 )

Total Unifi, Inc. shareholders’ equity

    296,412       297,494  

Non-controlling interest

    1,970       1,599  

Total shareholders’ equity

    298,382       299,093  

Total liabilities and shareholders’ equity

  $ 497,741     $ 476,372  

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 
3

 

  

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(amounts in thousands, except per share amounts)

 

   

For the Three Months Ended

   

For the Six Months Ended

 
   

December 27, 2015

   

December 28, 2014

   

December 27, 2015

   

December 28, 2014

 

Net sales

  $ 156,336     $ 164,422     $ 318,501     $ 339,983  

Cost of sales

    134,523       141,493       275,704       296,604  

Gross profit

    21,813       22,929       42,797       43,379  

Selling, general and administrative expenses

    12,419       12,971       23,249       24,620  

Provision for bad debts

    559       62       1,172       646  

Other operating expense (income), net

    206       (38 )     60       562  

Operating income

    8,629       9,934       18,316       17,551  

Interest income

    (166 )     (309 )     (329 )     (626 )

Interest expense

    816       1,209       1,800       2,028  

Equity in earnings of unconsolidated affiliates

    (303 )     (3,281 )     (3,163 )     (7,002 )

Income before income taxes

    8,282       12,315       20,008       23,151  

Provision for income taxes

    2,088       3,193       6,028       7,354  

Net income including non-controlling interest

    6,194       9,122       13,980       15,797  

Less: net (loss) attributable to non-controlling interest

    (270 )     (296 )     (509 )     (698 )

Net income attributable to Unifi, Inc.

  $ 6,464     $ 9,418     $ 14,489     $ 16,495  
                                 

Net income attributable to Unifi, Inc. per common share:

                               

Basic

  $ 0.36     $ 0.52     $ 0.81     $ 0.90  

Diluted

  $ 0.35     $ 0.50     $ 0.78     $ 0.88  

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 
4

 

  

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(amounts in thousands)

 

   

For the Three Months Ended

   

For the Six Months Ended

 
   

December 27, 2015

   

December 28, 2014

   

December 27, 2015

   

December 28, 2014

 

Net income including non-controlling interest

  $ 6,194     $ 9,122     $ 13,980     $ 15,797  

Other comprehensive income (loss):

                               

Foreign currency translation adjustments

    515       (5,483 )     (10,523 )     (12,524 )

Foreign currency translation adjustments for an unconsolidated affiliate

    (97 )     (371 )     (496 )     (371 )

Reclassification adjustments on interest rate swap

    19       89       38       193  

Other comprehensive income (loss), net

    437       (5,765 )     (10,981 )     (12,702 )
                                 

Comprehensive income including non-controlling interest

    6,631       3,357       2,999       3,095  

Less: comprehensive (loss) attributable to non-controlling interest

    (270 )     (296 )     (509 )     (698 )

Comprehensive income attributable to Unifi, Inc.

  $ 6,901     $ 3,653     $ 3,508     $ 3,793  

 

 

See accompanying Notes to Condensed Consolidated Financial Statements. 

 

 
5

 

  

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(amounts in thousands)

 

   

For The Six Months Ended

 
   

December 27, 2015

   

December 28, 2014

 

Cash and cash equivalents at beginning of year

  $ 10,013     $ 15,907  

Operating activities:

               

Net income including non-controlling interest

    13,980       15,797  

Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities:

               

Equity in earnings of unconsolidated affiliates

    (3,163 )     (7,002 )

Distributions received from unconsolidated affiliates

    2,947        

Depreciation and amortization expense

    8,676       8,986  

Non-cash compensation expense

    1,552       1,897  

Excess tax benefit on stock-based compensation plans

    (80 )     (100 )

Deferred income taxes

    5,266       1,620  

Other, net

    (285 )     48  

Changes in assets and liabilities:

               

Receivables, net

    2,673       14,239  

Inventories

    (2,302 )     (7,005 )

Other current assets and income taxes receivable

    (1,646 )     (4,330 )

Accounts payable and accrued expenses

    (12,420 )     (11,741 )

Income taxes payable

    (350 )     (2,897 )

Other non-current assets

    (9 )     53  

Other non-current liabilities

    553        

Net cash provided by operating activities

    15,392       9,565  
                 

Investing activities:

               

Capital expenditures

    (27,419 )     (13,442 )

Proceeds from sale of assets

    2,103       101  

Other, net

    (707 )     (91 )

Net cash used in investing activities

    (26,023 )     (13,432 )
                 

Financing activities:

               

Proceeds from ABL Revolver

    87,800       79,400  

Payments on ABL Revolver

    (76,600 )     (86,400 )

Proceeds from ABL Term Loan

    17,375       22,000  

Payments on ABL Term Loan

    (4,500 )     (2,813 )

Proceeds from a term loan supplement

    4,000        

Proceeds from construction financing

    790        

Payments on capital lease obligations

    (1,971 )     (417 )

Common stock repurchased and retired under publicly announced programs

    (6,211 )     (4,160 )

Proceeds from stock option exercises

    60       36  

Excess tax benefit on stock-based compensation plans

    80       100  

Contributions from non-controlling interest

    880       720  

Other

    (484 )     (542 )

Net cash provided by financing activities

    21,219       7,924  
                 

Effect of exchange rate changes on cash and cash equivalents

    (1,184 )     (2,067 )

Net increase in cash and cash equivalents

    9,404       1,990  

Cash and cash equivalents at end of period

  $ 19,417     $ 17,897  

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 
6

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements

 

1. Background

 

Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, “we”, the “Company” or “Unifi”), is a multi-national manufacturing company that processes and sells high-volume commodity yarns, specialized yarns designed to meet certain customer specifications, and premier value-added (“PVA”) yarns with enhanced performance characteristics. The Company sells yarns made from polyester and nylon to other yarn manufacturers and knitters and weavers that produce fabric for the apparel, hosiery, home furnishings, automotive upholstery, industrial and other end-use markets. The Company’s polyester products include polyester polymer beads (“Chip”), partially oriented yarn (“POY”), textured, solution and package dyed, twisted, beamed and draw wound yarns; each is available in virgin or recycled varieties (the latter made from both pre-consumer yarn waste and post-consumer waste, including plastic bottles). The Company’s nylon products include textured, solution dyed and spandex covered products.

 

The Company maintains one of the textile industry’s most comprehensive yarn product offerings, and has ten manufacturing operations in four countries and participates in joint ventures in Israel and the United States (“U.S.”). The Company’s principal geographic markets for its products are located in the U.S., Canada, Mexico, Central America and South America. In addition, the Company has a wholly-owned subsidiary in the People’s Republic of China (“China”) focused on the sale and promotion of the Company’s PVA and other specialty products in the Asian textile market, primarily in China, as well as in the European market.

 

In addition to the Company’s operations described above, the Company’s investments include, but are not limited to, (i) a 60% controlling membership interest in Repreve Renewables, LLC (“Renewables”), an agricultural company focused on the development, production and commercialization of dedicated biomass feedstock for use in the animal bedding, bio-energy and other bio-based products markets; and (ii) a 34% non-controlling partnership interest in Parkdale America, LLC (“PAL”), a producer of cotton and synthetic yarns for sale to the textile industry and apparel market, both foreign and domestic.

 

2. Basis of Presentation; Condensed Notes

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. As contemplated by the instructions of the Securities and Exchange Commission 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 the Company’s year-end audited consolidated financial statements and notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended June 28, 2015 (the “2015 Form 10-K”).

 

The financial information included in this report has been prepared by the Company, without audit. In the opinion of management, all 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 dollar and other currency amounts and share amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted. 

 

Fiscal Year

The Company’s current fiscal quarter ended on December 27, 2015, the last Sunday in December. The Company’s Brazilian, Colombian and Chinese subsidiaries’ fiscal quarter ended on December 31, 2015. There were no significant transactions or events that occurred between the Company’s fiscal quarter end and its subsidiaries’ fiscal quarter end. The three months ended December 27, 2015 and December 28, 2014 each consisted of thirteen fiscal weeks. The six months ended December 27, 2015 and December 28, 2014 each consisted of twenty-six fiscal weeks.

 

Reclassifications

Certain reclassifications of prior years’ data have been made to conform to the current year presentation. Also see note 3.

 

Net sales, cost of sales, selling, general and administrative (“SG&A”) expenses, and other operating expense (income), net for the three months and six months ended December 28, 2014 have been revised herein, where applicable, to correspond to the presentation for the three and six months ended December 27, 2015, consistent with note 27 in the 2015 Form 10-K.

 

 
7

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

3. Recent Accounting Pronouncements

 

During the current fiscal quarter, the Company early adopted Accounting Standards Update (“ASU”) 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The ASU eliminates the existing requirement for entities to present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet. Instead, upon adoption, entities are required to classify all deferred tax assets and liabilities as noncurrent. Adopting this ASU provides simplification in the presentation of deferred tax assets and liabilities and alignment with International Financial Reporting Standards.

 

The Condensed Consolidated Balance Sheets as of December 27, 2015 and June 28, 2015 presented within this Quarterly Report on Form 10-Q reflect the revised presentation requirements of ASU 2015-17, as outlined in the table below.

 

   

June 28, 2015

As Previously

Reported

   

Adjustments Due

to Adoption of

ASU 2015-17

   

June 28, 2015

As Adjusted

 
                         

Deferred income taxes (within total current assets)

  $ 2,383     $ (2,383 )   $  

Total current assets

    215,347       (2,383 )     212,964  
                         

Deferred income taxes (within non-current assets)

    1,539       2,383       3,922  

Total assets

    476,372             476,372  
                         

Deferred income taxes (within non-current liabilities)

    90             90  

Total liabilities

    177,279             177,279  

 

There have been no other newly issued or newly applicable accounting pronouncements that have, or are expected to have, a significant impact on the Company's financial statements.

 

4. Receivables, Net

 

Receivables, net consists of the following:

 

   

December 27, 2015

   

June 28, 2015

 

Customer receivables

  $ 80,847     $ 85,731  

Allowance for uncollectible accounts

    (2,363 )     (1,596 )

Reserves for yarn quality claims

    (719 )     (581 )

Net customer receivables

    77,765       83,554  

Related party receivables

    79       75  

Other receivables

    305       234  

Total receivables, net

  $ 78,149     $ 83,863  

 

Other receivables consist primarily of receivables for duty drawback and refunds due from vendors.

 

The changes in the Company’s allowance for uncollectible accounts were as follows:

 

   

Allowance for

Uncollectible

Accounts

 

Balance at June 28, 2015

  $ (1,596 )

Charged to costs and expenses

    (1,172 )

Charged to other accounts

    159  

Deductions

    246  

Balance at December 27, 2015

  $ (2,363 )

 

 

 

 
8

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

5. Inventories

 

Inventories consists of the following:

 

   

December 27, 2015

   

June 28, 2015

 

Raw materials

  $ 38,819     $ 42,526  

Supplies

    5,120       5,404  

Work in process

    5,685       7,546  

Finished goods

    60,265       56,844  

Gross inventories

    109,889       112,320  

Inventory reserves

    (914 )     (705 )

Total inventories

  $ 108,975     $ 111,615  

 

The cost for the majority of the Company’s inventories is determined using the first-in, first-out method. Certain foreign inventories and limited categories of supplies of $25,210 and $28,426 as of December 27, 2015 and June 28, 2015, respectively, were valued under the average cost method.

 

6. Property, Plant and Equipment, Net

 

Property, plant and equipment, net (“PP&E”) consists of the following:

 

   

December 27, 2015

   

June 28, 2015

 

Land

  $ 3,055     $ 2,413  

Land improvements

    12,017       11,709  

Buildings and improvements

    142,443       141,259  

Assets under capital leases

    21,525       17,371  

Machinery and equipment

    527,439       531,225  

Computers, software and office equipment

    16,871       16,782  

Transportation equipment

    4,529       4,736  

Construction in progress

    25,454       6,710  

Gross property, plant and equipment

    753,333       732,205  

Less: accumulated depreciation

    (592,336 )     (595,094 )

Less: accumulated amortization – capital leases

    (1,787 )     (889 )

Total property, plant and equipment, net

  $ 159,210     $ 136,222  

 

Assets under capital leases consists of the following:

 

   

December 27, 2015

   

June 28, 2015

 

Machinery and equipment

  $ 14,745     $ 12,804  

Transportation equipment

    5,927       3,714  

Building improvements

    853       853  

Gross assets under capital leases

  $ 21,525     $ 17,371  

 

During the six months ended December 27, 2015, the Company entered into capital leases for machinery and transportation equipment with an aggregate present value of $4,154.

 

Depreciation expense and repairs and maintenance expenses were as follows:

 

   

For the Three Months Ended

   

For the Six Months Ended

 
   

December 27, 2015

   

December 28, 2014

   

December 27, 2015

   

December 28, 2014

 

Depreciation expense

  $ 3,756     $ 3,829     $ 7,598     $ 7,691  

Repairs and maintenance expenses

    4,005       4,290       8,501       8,948  

  

 
9

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

7. Intangible Assets, Net

 

Intangible assets, net consists of the following:

 

   

December 27, 2015

   

June 28, 2015

 

Customer lists

  $ 23,615     $ 23,615  

Non-compete agreements

    4,293       4,293  

Licenses, trademarks and other

    864       837  

Total intangible assets, gross

    28,772       28,745  
                 

Accumulated amortization - customer lists

    (20,049 )     (19,432 )

Accumulated amortization - non-compete agreements

    (3,698 )     (3,537 )

Accumulated amortization – licenses, trademarks and other

    (471 )     (388 )

Total accumulated amortization

    (24,218 )     (23,357 )

Total intangible assets, net

  $ 4,554     $ 5,388  

 

Amortization expense for intangible assets consists of the following:

 

   

For the Three Months Ended

   

For the Six Months Ended

 
   

December 27, 2015

   

December 28, 2014

   

December 27, 2015

   

December 28, 2014

 

Total amortization expense

  $ 429     $ 519     $ 861     $ 1,037  

 

8. Accrued Expenses

 

Accrued expenses consists of the following:

 

   

December 27, 2015

   

June 28, 2015

 

Payroll and fringe benefits

  $ 6,038     $ 11,258  

Utilities

    1,986       2,823  

Property taxes

    1,563       790  

Contingent consideration

    394       634  

Other

    1,273       1,135  

Total accrued expenses

  $ 11,254     $ 16,640  

 

See note 14 for further information regarding the contingent consideration. Other consists primarily of employee-related claims and payments, interest, marketing expenses, freight expenses, rent, deferred incentives and other non-income related taxes.

 

9. Long-Term Debt

 

Debt Obligations

The following table presents the total balances outstanding for the Company’s debt obligations, their scheduled maturity dates and the weighted average interest rates for borrowings as well as the applicable current portion of long-term debt:

 

           

 

   

Principal Amounts as of

 
   

Scheduled

Maturity Date

   

Weighted Average

Interest Rate as of

December 27, 2015 (1)

   

December 27, 2015

   

June 28, 2015

 

ABL Revolver

 

March 2020

    2.3%     $ 16,200     $ 5,000  

ABL Term Loan

 

March 2020

    2.2%       95,000       82,125  

Renewables’ promissory note

 

September 2020

    3.0%       135        

Renewables’ term loan

 

August 2022

    3.5%       4,000        

Term loan from unconsolidated affiliate

 

August 2016

    3.0%       1,250       1,250  

Capital lease obligations

  (2)     (3)       17,917       15,735  

Construction financing

  (4)     (4)       2,385        

Total debt

                    136,887       104,110  

Current portion of capital lease obligations

                    (4,274 )     (3,385 )

Current portion of long-term debt

                    (10,776 )     (9,000 )

Total long-term debt

                  $ 121,837     $ 91,725  
 

(1)

The weighted average interest rate as of December 27, 2015 for the ABL Term Loan includes the effects of the interest rate swap with a notional balance of $50,000.

 

(2)

Scheduled maturity dates for capital lease obligations range from January 2017 to November 2027.

 

(3)

Interest rates for capital lease obligations range from 2.3% to 4.6%.

 

(4)

Refer to the discussion under the subheading “—Construction Financing” for further information.

  

 
10

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

On March 26, 2015, the Company and its subsidiary, Unifi Manufacturing, Inc., entered into an Amended and Restated Credit Agreement (as subsequently amended, the “Amended Credit Agreement”) for a $200,000 senior secured credit facility (the “ABL Facility”) with a syndicate of lenders. The ABL Facility consists of a $100,000 revolving credit facility (the “ABL Revolver”) and a term loan that can be reset up to a maximum amount of $100,000, once per fiscal year, if certain conditions are met (the “ABL Term Loan”). Such a principal increase occurred during the quarter ended December 27, 2015, as described below under the subheading “—Second Amendment”. The ABL Facility has a maturity date of March 26, 2020.

 

The Amended Credit Agreement replaced a previous senior secured credit facility dated May 24, 2012 with a similar syndicate of lenders, which, after multiple amendments, would have matured on March 28, 2019 and consisted of a $100,000 revolving credit facility and a $90,000 term loan. As used herein, the terms “ABL Facility,” “ABL Revolver” and “ABL Term Loan” shall mean the senior secured credit facility, the revolving credit facility or the term loan, respectively, under the Amended Credit Agreement or the previous senior secured credit facility, as applicable.

 

ABL Facility

The ABL Facility is secured by a first-priority perfected security interest in substantially all owned property and assets (together with proceeds and products) of Unifi, Inc., Unifi Manufacturing, Inc. and certain subsidiary guarantors (the “Loan Parties”). It is also secured by a first-priority security interest in all (or 65% in the case of certain first-tier controlled foreign corporations, as required by the lenders) of the stock of (or other ownership interests in) each of the Loan Parties (other than the Company) and certain subsidiaries of the Loan Parties, together with all proceeds and products thereof.

 

If excess availability under the ABL Revolver falls below the defined Trigger Level, a financial covenant requiring the Loan Parties to maintain a fixed charge coverage ratio on a monthly basis of at least 1.05 to 1.0 becomes effective. The Trigger Level as of December 27, 2015 was $24,375. In addition, the ABL Facility contains restrictions on certain payments and investments, including restrictions on the payment of dividends and share repurchases. Subject to certain provisions, the ABL Term Loan may be prepaid at par, in whole or in part, at any time before the maturity date, at the Company’s discretion.

 

As of December 27, 2015, the Company was in compliance with all financial covenants and the excess availability under the ABL Revolver was $65,125. At December 27, 2015 the fixed charge coverage ratio was 2.8 to 1.0 and the Company had $210 of standby letters of credit, none of which have been drawn upon.

 

Second Amendment

On November 19, 2015, the Company entered into the Second Amendment to Amended and Restated Credit Agreement dated March 26, 2015 (“Second Amendment”). The Second Amendment increased the percentage applied to real estate valuations, on a one-time basis, from 60% to 75%, for purposes of calculating the Term Loan collateral. Simultaneous to entering into the Second Amendment, the Company entered into the Fourth Amended and Restated Term Note, thereby resetting the ABL Term Loan balance to $95,000. Pursuant to the Second Amendment, the ABL Term Loan is subject to quarterly amortizing payments of $2,375.

 

Renewables’ Promissory Note

In September 2015, Renewables delivered a promissory note in the amount of $135, and cash, to an unrelated third party for the purchase of certain land, consisting of thirty-seven acres located in Seven Springs, North Carolina, valued at $191. Such promissory note bears fixed interest at 3.0%, with principal and interest payable annually over a five-year period. Recourse does not extend beyond the assets of Renewables.

 

Renewables’ Term Loan

In September 2015, Renewables entered into a secured debt financing arrangement consisting of a master loan agreement and corresponding term loan supplement, with unrelated parties, with a borrowing capacity of up to $4,000. In October 2015, Renewables borrowed $4,000. The agreements include representations and warranties made by Renewables, financial covenants, affirmative and negative covenants and events of default that are usual and customary for financings of this type. Borrowings bear interest at LIBOR plus an applicable margin of 3.25%, payable monthly in arrears. Lender recourse does not extend beyond the assets of Renewables.

 

Capital Lease Obligations

During the six months ended December 27, 2015, the Company entered into capital leases with an aggregate present value of $4,154. Fixed interest rates for these capital leases range from 3.4% to 3.8%, with maturity dates in August 2020.

 

 
11

 

 

Unifi, Inc.

Notes to Condensed Conslidated Financial Statements (Continued)

 

Construction Financing

In December 2015, the Company entered into an agreement with a third party lender that provides for construction-period financing for certain build-to-suit assets. The Company will record 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 3.5%, and contains terms customary for a financing of this type.

 

The agreement provides for 60 monthly payments, which will commence at the earlier of the completion of the construction period or July 1, 2017, with an interest rate of 3.2%.

 

In connection with this construction financing arrangement, during the quarter ended December 27, 2015, the Company (i) recorded $210 of deferred financing fees and (ii) recorded long-term debt of $2,385 (to reflect $790 of proceeds for construction financing and $1,595 for construction in progress paid by the third party lender).

 

Scheduled Debt Maturities

The following table presents the scheduled maturities of the Company’s outstanding debt obligations for the remainder of fiscal year 2016 and the fiscal years thereafter:

   

Scheduled Maturities on a Fiscal Year Basis

 
   

2016

   

2017

   

2018

   

2019

   

2020

   

Thereafter

 

ABL Revolver

  $     $     $     $     $ 16,200     $  

ABL Term Loan

    4,750       9,500       9,500       9,500       61,750        

Renewables’ promissory note

          25       26       27       28       29  

Renewables’ term loan

                            1,111       2,889  

Term loan from unconsolidated affiliate

          1,250                          

Capital lease obligations

    2,120       4,261       4,128       4,058       2,542       808  

Total (1)

  $ 6,870     $ 15,036     $ 13,654     $ 13,585     $ 81,631     $ 3,726  

 

 

(1)

Total reported here excludes $2,385 for construction financing, described above.

 

10. Other Long-Term Liabilities

 

Other long-term liabilities consists of the following:

 

   

December 27, 2015

   

June 28, 2015

 

Uncertain tax positions

  $ 3,737     $ 3,980  

Supplemental post-employment plan

    3,677       3,690  

Contingent consideration

    1,180       1,573  

Deferred rent

    800        

Interest rate swap

    197       280  

Other

    1,276       1,217  

Total other long-term liabilities

  $ 10,867     $ 10,740  

 

See note 14 for further information regarding the contingent consideration. Other primarily includes certain retiree and post-employment medical and disability liabilities, and deferred energy incentive credits.

 

11. Income Taxes

 

The provision for income taxes was as follows:

 

   

For the Three Months Ended

   

For the Six Months Ended

 
   

December 27, 2015

   

December 28, 2014

   

December 27, 2015

   

December 28, 2014

 

Provision for income taxes

  $ 2,088     $ 3,193     $ 6,028     $ 7,354  

Effective tax rate

    25.2 %     25.9 %     30.1 %     31.8 %

  

 
12

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

The effective tax rate for the periods presented above is lower than the U.S. statutory rate due to (i) a decrease in the valuation allowance reflecting the recognition of lower taxable income versus book income for the Company’s investment in Parkdale America, LLC (for which the Company maintains a full valuation allowance), which was partially offset by an increase in the valuation allowance for net operating losses, including Renewables (for which no tax benefit could be recognized); (ii) a lower overall effective tax rate for the Company’s foreign earnings (reflecting free-trade zone sales in El Salvador and lower statutory tax rates in both Brazil and China) and (iii) the domestic production activities deduction. These items were partially offset by (a) state and local taxes net of the assumed federal benefit and (b) losses in tax jurisdictions for which no tax benefit could be recognized.

 

The audit of the 2013 tax year by the Internal Revenue Service was closed in December 2015 and did not generate a significant change in uncertain tax positions for the six months ended December 27, 2015. The Company regularly assesses the outcomes of both completed and ongoing examinations to ensure that the Company’s 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.

 

During the three months ended December 27, 2015, the Company utilized a foreign tax credit as a deduction by amending its 2011 federal return. Components of the Company’s deferred tax valuation allowance are as follows:

 

   

December 27, 2015

   

June 28, 2015

 

Investment in a former domestic unconsolidated affiliate

  $ (6,399 )   $ (6,503 )

Equity-method investment in Parkdale America, LLC

    (2,666 )     (3,261 )

Foreign tax credits

          (1,680 )

Book versus tax basis difference in Renewables

    (1,210 )     (1,359 )

Net Operating Losses related to Renewables

    (3,313 )     (2,803 )

Total deferred tax valuation allowance

  $ (13,588 )   $ (15,606 )

 

12. Shareholders’ Equity

 

The following table summarizes the Company’s repurchases and retirements of its common stock under Board-approved stock repurchase programs for the fiscal periods noted.

 

   

Total Number of Shares Repurchased as Part of

Publicly Announced Plans or Programs

   

Average Price Paid

per Share

   

Maximum Approximate

Dollar Value that May

Yet Be Repurchased

Under Publicly

Announced Plans or

Programs

 

Fiscal year 2013

    1,068     $ 18.08          

Fiscal year 2014

    1,524     $ 23.96          

Fiscal year 2015

    349     $ 29.72          

Fiscal year 2016 (through December 27, 2015)

    206     $ 30.13          

Total

    3,147     $ 23.01     $ 27,603  

 

No dividends were paid during the six months ended December 27, 2015 or in the two most recent fiscal years.

 

13. Stock-based Compensation

 

On October 23, 2013, the Company’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 (“2008 LTIP”). No additional awards can be granted under the 2008 LTIP; however, prior awards outstanding under the 2008 LTIP remain subject to that plan’s provisions. The 2013 Plan authorized the issuance of 1,000 shares of common stock, subject to certain increases in the event outstanding awards under the 2008 LTIP expire, are forfeited or otherwise terminate unexercised.

 

As of December 27, 2015, a summary of the number of securities remaining available for future issuance under equity compensation plans is as follows:

 

Authorized under the 2013 Plan

    1,000  

Plus: Awards expired, forfeited or otherwise terminated unexercised from the 2008 LTIP or 2013 Plan

    22  

Less: Service-condition options granted

    (237 )

Less: RSUs granted to non-employee directors

    (63 )

Available for issuance under the 2013 Plan

    722  

  

 
13

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

Stock options

During the six months ended December 27, 2015 and December 28, 2014, the Company granted stock options to purchase 82 and 150 shares of common stock, respectively, to certain key employees. The stock options vest ratably over the required three-year service period and have ten-year contractual terms. For the six months ended December 27, 2015 and December 28, 2014, the weighted average exercise price of the options was $32.36 and $27.38 per share, respectively. The Company used the Black-Scholes model to estimate the weighted average grant date fair value of $20.27 and $17.31 per share, respectively.

 

Restricted stock units

During the six months ended December 27, 2015 and December 28, 2014, the Company granted 21 and 17 restricted stock units (“RSUs”), respectively, to the Company’s non-employee directors. The director RSUs became fully vested on the grant date. The director RSUs convey no rights of ownership in shares of Company stock until such director RSUs have been distributed to the grantee in the form of Company stock. The vested director RSUs will be converted into an equivalent number of shares of Company common stock and distributed to the grantee following the grantee’s termination of service as a member of the Board. The grantee may elect to defer receipt of the shares of stock in accordance with the deferral options provided under the Unifi, Inc. Director Deferred Compensation Plan. The Company estimated the weighted average fair value of such awards granted during the six months ended December 27, 2015 and December 28, 2014 to be $29.12 and $28.58 per director RSU, respectively.

 

The Company also may issue, from time to time, RSUs to certain key employees. The Company estimates the fair value of RSUs based on the market price of the Company’s common stock at the award grant date. See note 16 included in the 2015 Form 10-K for further information regarding the Company’s RSUs.

 

14. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities

 

The Company may use derivative financial instruments such as foreign currency forward contracts or interest rate swaps to reduce its ongoing business exposures to fluctuations in foreign currency exchange rates or interest rates. The Company does not enter into derivative contracts for speculative purposes.

 

Foreign currency forward contracts

The Company may enter into foreign currency forward contracts as economic hedges for exposures related to certain sales, inventory purchases and equipment purchases which are denominated in currencies that are not its functional currency. Foreign currency forward contracts are not designated as hedges by the Company and are marked to market each period and offset by the foreign exchange (gains) losses included in other operating expense (income), net resulting from the underlying exposures of the foreign currency denominated assets and liabilities. As of December 27, 2015, there were no outstanding foreign currency forward contracts.

 

Interest rate swap

On May 18, 2012, the Company entered into a five year, $50,000 interest rate swap with Wells Fargo to provide a hedge against the variability of cash flows related to LIBOR-based variable rate borrowings under the Company’s ABL Facility. It increased to $85,000 in May 2013 (when certain other interest rate swaps terminated) and has decreased $5,000 per quarter since August 2013 to the current notional balance of $50,000, where it will remain through the life of the instrument. This interest rate swap allows the Company to fix LIBOR at 1.06% and terminates on May 24, 2017.

 

On November 26, 2012, the Company de-designated the interest rate swap as a cash flow hedge. See note 15 for information regarding the reclassifications of amounts from accumulated other comprehensive loss related to the interest rate swap.

 

Contingent consideration

On December 2, 2013, the Company acquired certain draw-winding assets in a business combination and recorded a contingent consideration liability. The fair value of the contingent consideration is measured at each reporting period using a discounted cash flow methodology, based on inputs not observable in the market (Level 3 classification in the fair value hierarchy). The inputs to the discounted cash flow model include the estimated payments through the term of the agreement, based on an agreed-upon definition and schedule, adjusted to risk-neutral estimates using a market price of risk factor that considers relevant metrics of comparable entities, discounted using an observable cost of debt over the term of the estimated payments. Any change in the fair value from either the passage of time or events occurring after the acquisition date is recorded in other operating expense (income), net. While adjustments have been made to reflect lower-than-expected results for draw-winding operations during fiscal year 2016, there have been no significant changes to the other inputs or assumptions used to develop the fair value measurement since the acquisition date.

 

 
14

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

A reconciliation of the changes in the fair value follows:

 

Contingent consideration as of June 28, 2015

  $ 2,207  

Changes in fair value

    (157 )

Payments

    (476 )

Contingent consideration as of December 27, 2015

  $ 1,574  

 

The Company’s financial assets and liabilities accounted for at fair value on a recurring basis and the level within the fair value hierarchy used to measure these items are as follows:

 

As of December 27, 2015

 

 

  Notional Amount

 

USD

Equivalent

 

 Balance Sheet

Location

 

Fair Value

Hierarchy

 

Fair

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap

 

USD

 

 $

 50,000

 

 $

 50,000

 

Other long-term liabilities

 

 Level 2

 

 $

 (197

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

 

 

 

 —

 

 

 —

 

Accrued expenses and other long-term liabilities

 

 Level 3

 

 $

 (1,574

 

As of June 28, 2015       Notional Amount    

USD

Equivalent

 

Balance Sheet

Location

 

Fair Value

Hierarchy

 

Fair

Value

 
                                 
Interest rate swap   USD   $ 50,000   $ 50,000   Other long-term liabilities   Level 2   $ (280 )
                                 
Contingent consideration               Accrued expenses and other long-term liabilities   Level 3   $ (2,207 )

 

 

Estimates for the fair value of the interest rate swap are obtained from month-end market quotes for contracts with similar terms.

 

By entering into derivative instrument contracts, the Company exposes itself to counterparty credit risk. The Company attempts to minimize this risk by selecting counterparties with investment grade credit ratings, limiting the amount of exposure to any single counterparty and regularly monitoring its market position with each counterparty. The Company’s derivative instruments do not contain any credit-risk-related contingent features.

 

The Company believes that there have been no significant changes to its credit risk profile or the interest rates available to the Company for debt issuances with similar terms and average maturities, and the Company estimates that the fair values of its debt obligations approximate the carrying amounts. Other financial instruments include cash and cash equivalents, receivables, accounts payable and accrued expenses. The financial statement carrying amounts of these items approximate the fair value due to their short-term nature.

 

There were no transfers into or out of the levels of the fair value hierarchy for the six months ended December 27, 2015 and December 28, 2014.

 

15. Accumulated Other Comprehensive Loss

 

The components and the changes in accumulated other comprehensive loss, net of tax, as applicable, consist of the following:

 

   

Foreign

Currency

Translation

Adjustments

   

Unrealized (Loss)

Gain On Interest

Rate Swap

   

Accumulated

Other

Comprehensive

Loss

 

Balance at June 28, 2015

  $ (26,752 )   $ (147 )   $ (26,899 )

Other comprehensive (loss) income, net of tax

    (11,019 )     38       (10,981 )

Balance at December 27, 2015

  $ (37,771 )   $ (109 )   $ (37,880 )

  

 
15

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

A summary of the after-tax effects of the components of other comprehensive loss for the three months and six months ended December 27, 2015 and December 28, 2014 follows. The summary below excludes pre-tax and tax amounts, as there are no tax components for the activity reflected.

 

   

For the Three Months Ended

   

For the Six Months Ended

 
   

December 27, 2015

   

December 28, 2014

   

December 27, 2015

   

December 28, 2014

 

Other comprehensive income (loss):

                               

Foreign currency translation adjustments

  $ 515     $ (5,483 )   $ (10,523 )   $ (12,524 )

Foreign currency translation adjustments for an unconsolidated affiliate

    (97 )     (371 )     (496 )     (371 )

Reclassification adjustment on interest rate swap

    19       89       38       193  

Other comprehensive income (loss), net

  $ 437     $ (5,765 )   $ (10,981 )   $ (12,702 )

 

16. Earnings Per Share

 

The components of the calculation of earnings per share (“EPS”) are as follows:

 

   

For the Three Months Ended

   

For the Six Months Ended

 
   

December 27, 2015

   

December 28, 2014

   

December 27, 2015

   

December 28, 2014

 
                                 

Net income attributable to Unifi, Inc.

  $ 6,464     $ 9,418     $ 14,489     $ 16,495  
                                 

Basic weighted average shares

    17,823       18,180       17,872       18,235  

Net potential common share equivalents – stock options and RSUs

    634       602       631       600  

Diluted weighted average shares

    18,457       18,782       18,503       18,835  
                                 

Excluded from diluted weighted average shares:

                               

Anti-dilutive common share equivalents

    143       177       143       177  

Unvested market condition stock options

          10             10  

 

The calculation of earnings per share is based on the weighted average number of the Company’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.

 

17. Investments in Unconsolidated Affiliates and Variable Interest Entities

 

The Company currently maintains investments in three entities classified as unconsolidated affiliates: Parkdale America, LLC (“PAL”); U.N.F. Industries Ltd. (“UNF”); and UNF America LLC (“UNFA”). As of December 27, 2015, the Company’s investment in PAL was $110,059 and the Company’s combined investments in UNF and UNFA were $3,651, reflected within investments in unconsolidated affiliates in the consolidated balance sheets.

 

Parkdale America, LLC

PAL is a limited liability company treated as a partnership for income tax reporting purposes. The Company has a 34% ownership interest in PAL, which is accounted for using the equity method of accounting. PAL is a producer of cotton and synthetic yarns for sale to the textile industry and apparel market, both foreign and domestic. PAL is subject to price risk related to anticipated fixed-price yarn sales. To protect the gross margin of these sales, PAL may enter into cotton futures to manage changes in raw material prices. The derivative instruments used are listed and traded on an exchange and are thus valued using quoted prices classified within Level 1 of the fair value hierarchy. As of December 2015, PAL had no futures contracts designated as cash flow hedges.

 

 
16

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

As PAL’s fiscal year end is the Saturday nearest to December 31 and its results are considered significant (in accordance with Regulation S-X Rule 3-09), the Company files an amendment to each Annual Report on Form 10-K on or before 90 days subsequent to PAL’s fiscal year end to provide PAL’s audited financial statements for PAL’s most recent fiscal year. The Company filed an amendment to its 2014 Annual Report on Form 10-K for the fiscal year ended June 29, 2014 on April 2, 2015 to provide PAL’s audited financial statements for PAL’s fiscal year ended January 3, 2015. The Company expects to file an amendment to the 2015 Form 10-K on or before April 1, 2016 to provide PAL’s audited financial statements for PAL’s fiscal year ended January 2, 2016.

 

On February 27, 2015, PAL purchased two manufacturing facilities, plus inventory, for approximately $13,000 cash, and entered into a yarn supply agreement with the seller. PAL has accounted for the transaction as a business combination under the acquisition method, recognizing the assets acquired and liabilities assumed at their respective provisional fair values as of the acquisition date. The Company and PAL concluded that the acquisition did not represent a material business combination. PAL has recognized a provisional bargain purchase gain of approximately $9,381 in its initial accounting for the acquisition for all identified assets and liabilities. The Company and PAL will continue to review the acquisition accounting during the measurement period, and if new information obtained about facts and circumstances that existed at the acquisition date identifies adjustments to the assets or liabilities initially recognized, as well as any additional assets or liabilities that existed at the acquisition date, the acquisition accounting will be revised to reflect the resulting adjustments to the provisional amounts. The acquisition accounting is incomplete, primarily pending final asset valuations.

 

The reconciliation between the Company’s share of the underlying equity of PAL and its investment is as follows:

Underlying equity as of December 27, 2015

  $ 128,364  

Initial excess capital contributions

    53,363  

Impairment charge recorded by the Company in 2007

    (74,106 )

Anti-trust lawsuit against PAL in which the Company did not participate

    2,652  

Cotton rebate program adjustments

    (214 )

Investment as of December 27, 2015

  $ 110,059  

 

U.N.F. Industries Ltd.

Raw material and production services for UNF are provided by the Company’s 50% joint venture partner 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

Raw material and production services for UNFA are provided by the Company’s 50% joint venture partner under separate supply and services agreements. UNFA’s fiscal year end is December 31 and it is a limited liability company treated as a partnership for income tax reporting purposes located in Ridgeway, Virginia.

 

In conjunction with the formation of UNFA, the Company entered into a supply agreement with UNF and UNFA whereby the Company 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 December 27, 2015, the Company’s open purchase orders related to this agreement were $3,192.

 

The Company’s raw material purchases under this supply agreement consist of the following:

   

For the Six Months Ended

 
   

December 27, 2015

   

December 28, 2014

 

UNF

  $ 1,356     $ 1,817  

UNFA

    13,441       14,274  

Total

  $ 14,797     $ 16,091  

 

As of December 27, 2015 and June 28, 2015, the Company had combined accounts payable due to UNF and UNFA of $2,565 and $4,038, respectively.

 

 
17

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

The Company has determined that UNF and UNFA are variable interest entities (“VIEs”) and has also determined that the Company is the primary beneficiary of these entities, based on the terms of the supply agreement. As a result, these entities should be consolidated in the Company’s financial results. As the Company purchases substantially all of the output from the two entities, the two entities’ balance sheets constitute 3% or less of the Company’s current assets, total assets and total liabilities (when excluding reciprocal balances), and because such balances are not expected to comprise a larger portion in the future, the Company has not included the accounts of UNF and UNFA in its consolidated financial statements. The financial results of UNF and UNFA are included in the Company’s financial statements with a one-month lag, using the equity method of accounting and with intercompany profits eliminated in accordance with the Company’s accounting policy. Other than the supply agreement discussed above, the Company does not provide any other commitments or guarantees related to either UNF or UNFA.

 

Condensed balance sheet and income statement information for the Company’s unconsolidated affiliates (including reciprocal balances) is presented in the following tables. As PAL is defined as significant, its information is separately disclosed.

 

   

As of December 27, 2015

 
   

PAL

   

Other

   

Total

 

Current assets

  $ 218,948     $ 10,070     $ 229,018  

Noncurrent assets

    211,053       1,110       212,163  

Current liabilities

    43,751       3,937       47,688  

Noncurrent liabilities

    8,708             8,708  

Shareholders’ equity and capital accounts

    377,542       7,243       384,785  
                         

The Company’s portion of undistributed earnings

    40,741       1,335       42,076  

 

   

As of June 28, 2015

 
   

PAL

   

Other

   

Total

 

Current assets

  $ 250,699     $ 9,273     $ 259,972  

Noncurrent assets

    216,708       3,676       220,384  

Current liabilities

    61,243       4,985       66,228  

Noncurrent liabilities

    28,935             28,935  

Shareholders’ equity and capital accounts

    377,229       7,964       385,193  

 

   

For the Three Months Ended December 27, 2015

 
   

PAL

   

Other

   

Total

 

Net sales

  $ 183,426     $ 7,264     $ 190,690  

Gross profit

    2,917       1,852       4,769  

(Loss) income from operations

    (1,437 )     1,389       (48 )

Net (loss) income

    (1,170 )     1,420       250  

Depreciation and amortization

    11,169       37       11,206  
                         

Cash received by PAL under cotton rebate program

    5,676             5,676  

Earnings recognized by PAL for cotton rebate program

    3,574             3,574  
                         

Distributions received

          1,000       1,000  

 

As of the end of PAL’s fiscal December 2015 period, PAL’s amount of deferred revenues related to the cotton rebate program was $0.

 

   

For the Three Months Ended December 28, 2014

 
   

PAL

   

Other

   

Total

 

Net sales

  $ 192,243     $ 8,955     $ 201,198  

Gross profit

    12,063       1,007       13,070  

Income from operations

    6,909       655       7,564  

Net income

    9,039       685       9,724  

Depreciation and amortization

    8,161       25       8,186  
                         

Cash received by PAL under cotton rebate program

    4,153             4,153  

Earnings recognized by PAL for cotton rebate program

    3,854             3,854  
                         

Distributions received

                 

 

As of the end of PAL’s fiscal December 2014 period, PAL’s amount of deferred revenues related to the cotton rebate program was $0.

 

 
18

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

   

For the Six Months Ended December 27, 2015

 
   

PAL

   

Other

   

Total

 

Net sales

  $ 407,491     $ 16,613     $ 424,104  

Gross profit

    10,304       4,182       14,486  

Income from operations

    2,124       3,238       5,362  

Net income

    4,559       3,278       7,837  

Depreciation and amortization

    20,863       74       20,937  
                         

Cash received by PAL under cotton rebate program

    8,860             8,860  

Earnings recognized by PAL for cotton rebate program

    7,928             7,928  
                         

Distributions received

    947       2,000       2,947  

 

   

For the Six Months Ended December 28, 2014

 
   

PAL

   

Other

   

Total

 

Net sales

  $ 398,479     $ 16,315     $ 414,794  

Gross profit

    23,032       1,662       24,694  

Income from operations

    13,723       948       14,671  

Net income

    19,003       1,024       20,027  

Depreciation and amortization

    15,369       50       15,419  
                         

Cash received by PAL under cotton rebate program

    8,454             8,454  

Earnings recognized by PAL for cotton rebate program

    8,755             8,755  
                         

Distributions received

                 

 

18. Commitments and Contingencies

 

Collective Bargaining Agreements

While employees of the Company’s Brazilian operations are unionized, none of the labor force employed by the Company’s domestic or other foreign subsidiaries is currently covered by a collective bargaining agreement.

 

Environmental

On September 30, 2004, the Company completed its acquisition of the polyester filament manufacturing assets located in Kinston, North Carolina from INVISTA S.a.r.l (“Invista”). The land for the Kinston site was leased pursuant to a 99 year ground lease (“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 (“EPA”) and the North Carolina Department of Environment and Natural Resources (“DENR”) pursuant to the Resource Conservation and Recovery Act Corrective Action program. The Corrective Action program requires DuPont to identify all potential areas of environmental concern (“AOCs”), assess the extent of containment at the identified AOCs and to clean it up to comply with applicable regulatory standards. Effective March 20, 2008, the Company entered into a Lease Termination Agreement associated with conveyance of certain assets at Kinston to DuPont. This agreement terminated the Ground Lease and relieved the Company of any future responsibility for environmental remediation, other than participation with DuPont, if so called upon, with regard to the Company’s period of operation of the Kinston site which was from 2004 to 2008. However, the Company continues to own a satellite service facility acquired in the INVISTA transaction that has contamination from DuPont’s operations and is monitored by DENR. This site has been remediated by DuPont, and DuPont has received authority from DENR to discontinue remediation, other than natural attenuation. DuPont’s duty to monitor and report to DENR will be transferred to the Company in the future, at which time DuPont must pay the Company for seven years of monitoring and reporting costs and the Company will assume responsibility for any future remediation and monitoring of the site. At this time, the Company 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.

 

 
19

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued) 

 

Operating Leases

The Company routinely leases sales and administrative office space, warehousing and distribution centers, manufacturing space, transportation equipment, manufacturing equipment, and other information technology and office equipment from third parties. In addition, Renewables leases farm land for use in growing giant miscanthus. In connection with the expansion of growing crop fields, Renewables has entered into multiple operating leases for land during the six months ended December 27, 2015, many of which have lease terms of ten years with cancellation terms of one year. Currently, the Company does not sub-lease any of its leased property.

  

Other Commitments

The Company has assumed various financial obligations and commitments in the normal course of its operations and financing activities. Financial obligations are considered to represent known future cash payments that the Company is required to make under existing contractual arrangements. During the six months ended December 27, 2015, the Company entered into certain agreements to purchase assets in connection with the construction of a plastic bottle processing plant for the Polyester Segment. Unpaid amounts relating to these agreements total approximately $7,150, and relate to equipment not yet received by the Company.

 

In October 2015, the Company entered into a commitment to construct assets for future use in conversion of third party product. While the subject assets are being financed by a construction financing arrangement (described in note 9), in the course of facilitating construction, the Company will incur commitments to equipment vendors and contractors. As of December 27, 2015, such commitments total approximately $6,600.

 

19. Related Party Transactions

 

For details regarding the nature of certain related party relationships, see note 25 included in the 2015 Form 10-K.

 

Related party receivables consist of the following:

 

   

December 27, 2015

   

June 28, 2015

 

Cupron, Inc.

  $ 71     $ 72  

Salem Global Logistics, Inc.

    8       3  

Total related party receivables (included within receivables, net)

  $ 79     $ 75  

 

Related party payables consist of the following:

 

   

December 27, 2015

   

June 28, 2015

 

Cupron, Inc.

  $ 520     $ 506  

Salem Leasing Corporation

    367       277  

Total related party payables (included within accounts payable)

  $ 887     $ 783  

 

Related party transactions consist of the following:

 

     

For the Three Months Ended

 

Affiliated Entity

Transaction Type

 

December 27, 2015

   

December 28, 2014

 

Salem Leasing Corporation

Transportation equipment costs

  $ 931     $ 947  

Salem Global Logistics, Inc.

Freight service income

    81       63  
                   

Cupron, Inc.

Sales

    147