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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 March 27, 2016

 

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  incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

7201 West Friendly Avenue 

Greensboro, NC

  27419-9109
(Address of principal executive offices)   (Zip Code)

                

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 April 27, 2016 was 17,839,916.

 



 

 
 

 

  

UNIFI, INC.

FORM 10-Q FOR THE QUARTER ENDED MARCH 27, 2016

 

TABLE OF CONTENTS

  


 

Part I. FINANCIAL INFORMATION

       

Page

         

Item 1.

 

Financial Statements:

    3
         
   

Condensed Consolidated Balance Sheets as of March 27, 2016 and June 28, 2015

    3
         
   

Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended March 27, 2016 and March 29, 2015

    4
         
   

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Nine Months Ended March 27, 2016 and March 29, 2015

    5
         
   

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 27, 2016 and March 29, 2015

    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)

 

   

March 27, 2016

   

June 28, 2015

 

ASSETS

               

Cash and cash equivalents

  $ 15,287     $ 10,013  

Receivables, net

    82,454       83,863  

Inventories

    105,944       111,615  

Income taxes receivable

    2,848       1,451  

Other current assets

    4,016       6,022  

Total current assets

    210,549       212,964  
                 

Property, plant and equipment, net

    168,975       136,222  

Deferred income taxes

    1,588       3,922  

Intangible assets, net

    4,144       5,388  

Investments in unconsolidated affiliates

    117,952       113,901  

Other non-current assets

    5,748       3,975  

Total assets

  $ 508,956     $ 476,372  
                 

LIABILITIES AND SHAREHOLDERS’ EQUITY

               

Accounts payable

  $ 42,143     $ 45,023  

Accrued expenses

    15,053       16,640  

Income taxes payable

    1,404       676  

Current portion of long-term debt

    15,058       12,385  

Total current liabilities

    73,658       74,724  

Long-term debt

    106,703       91,725  

Other long-term liabilities

    11,476       10,740  

Deferred income taxes

    4,990       90  

Total liabilities

    196,827       177,279  

Commitments and contingencies

               
                 

Common stock, $0.10 par value (500,000,000 shares authorized, 17,839,916 and 18,007,749 shares outstanding)

    1,784       1,801  

Capital in excess of par value

    46,056       44,261  

Retained earnings

    296,828       278,331  

Accumulated other comprehensive loss

    (34,096 )     (26,899 )

Total Unifi, Inc. shareholders’ equity

    310,572       297,494  

Non-controlling interest

    1,557       1,599  

Total shareholders’ equity

    312,129       299,093  

Total liabilities and shareholders’ equity

  $ 508,956     $ 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 Nine Months Ended

 
   

March 27, 2016

   

March 29, 2015

   

March 27, 2016

   

March 29, 2015

 

Net sales

  $ 161,278     $ 172,187     $ 479,779     $ 512,170  

Cost of sales

    137,914       150,180       413,618       446,784  

Gross profit

    23,364       22,007       66,161       65,386  

Selling, general and administrative expenses

    12,142       12,647       35,391       37,266  

Provision for bad debts

    411             1,583       647  

Other operating expense, net

    819       329       879       891  

Operating income

    9,992       9,031       28,308       26,582  

Interest income

    (190 )     (247 )     (519 )     (873 )

Interest expense

    908       1,209       2,708       3,237  

Loss on extinguishment of debt

          1,040             1,040  

Equity in earnings of unconsolidated affiliates

    (4,167 )     (5,459 )     (7,330 )     (12,461 )

Income before income taxes

    13,441       12,488       33,449       35,639  

Provision for income taxes

    4,166       2,729       10,194       10,083  

Net income including non-controlling interest

    9,275       9,759       23,255       25,556  

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

    (414 )     (257 )     (923 )     (955 )

Net income attributable to Unifi, Inc.

  $ 9,689     $ 10,016     $ 24,178     $ 26,511  
                                 

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

                               

Basic

  $ 0.54     $ 0.55     $ 1.35     $ 1.46  

Diluted

  $ 0.53     $ 0.53     $ 1.31     $ 1.41  

  

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 
4

 

  

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(amounts in thousands)

   

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

March 27, 2016

   

March 29, 2015

   

March 27, 2016

   

March 29, 2015

 

Net income including non-controlling interest

  $ 9,275     $ 9,759     $ 23,255     $ 25,556  

Other comprehensive income (loss):

                               

Foreign currency translation adjustments

    3,723       (10,368 )     (6,800 )     (22,892 )

Foreign currency translation adjustments for an unconsolidated affiliate

    42       (414 )     (454 )     (785 )

Reclassification adjustments on interest rate swap

    19       19       57       212  

Other comprehensive income (loss), net

    3,784       (10,763 )     (7,197 )     (23,465 )
                                 

Comprehensive income (loss) including non-controlling interest

    13,059       (1,004 )     16,058       2,091  

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

    (414 )     (257 )     (923 )     (955 )

Comprehensive income (loss) attributable to Unifi, Inc.

  $ 13,473     $ (747 )   $ 16,981     $ 3,046  

  

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 
5

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(amounts in thousands)

  

   

For The Nine Months Ended

 
   

March 27, 2016

   

March 29, 2015

 

Cash and cash equivalents at beginning of year

  $ 10,013     $ 15,907  

Operating activities:

               

Net income including non-controlling interest

    23,255       25,556  

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

               

Equity in earnings of unconsolidated affiliates

    (7,330 )     (12,461 )

Distributions received from unconsolidated affiliates

    2,947       598  

Depreciation and amortization expense

    13,040       13,324  

Loss on extinguishment of debt

          1,040  

Non-cash compensation expense

    2,189       2,462  

Excess tax benefit on stock-based compensation plans

    (120 )     (102 )

Deferred income taxes

    7,015       (74 )

Other, net

    (170 )     700  

Changes in assets and liabilities:

               

Receivables, net

    (571 )     (546 )

Inventories

    2,359       (709 )

Other current assets and income taxes receivable

    (988 )     (2,745 )

Accounts payable and accrued expenses

    (5,280 )     (6,157 )

Income taxes payable

    786       (1,265 )

Other non-current assets

    (32 )     76  

Other non-current liabilities

    1,143        

Net cash provided by operating activities

    38,243       19,697  
                 

Investing activities:

               

Capital expenditures

    (36,769 )     (19,393 )

Proceeds from sale of assets

    2,103       130  

Other, net

    (2,010 )     (85 )

Net cash used in investing activities

    (36,676 )     (19,348 )
                 

Financing activities:

               

Proceeds from ABL Revolver

    116,100       113,900  

Payments on ABL Revolver

    (118,100 )     (122,800 )

Proceeds from ABL Term Loan

    17,375       22,000  

Payments on ABL Term Loan

    (6,875 )     (5,625 )

Proceeds from a term loan supplement

    4,000        

Proceeds from construction financing

    790        

Payments on capital lease obligations

    (3,026 )     (761 )

Payments of debt financing fees

    (217 )     (934 )

Common stock repurchased and retired under publicly announced programs

    (6,211 )     (4,160 )

Proceeds from stock option exercises

    114       41  

Excess tax benefit on stock-based compensation plans

    120       102  

Contributions from non-controlling interest

    880       1,119  

Other

    (506 )     (406 )

Net cash provided by financing activities

    4,444       2,476  
                 

Effect of exchange rate changes on cash and cash equivalents

    (737 )     (3,980 )

Net increase (decrease) in cash and cash equivalents

    5,274       (1,155 )

Cash and cash equivalents at end of period

  $ 15,287     $ 14,752  

   

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, 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 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 March 27, 2016, the last Sunday in March. The Company’s Chinese subsidiary’s fiscal quarter ended on March 28, 2016. The Company’s Brazilian and Colombian subsidiaries’ fiscal quarter ended on March 31, 2016. 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 March 27, 2016 and March 29, 2015 each consisted of thirteen fiscal weeks. The nine months ended March 27, 2016 and March 29, 2015 each consisted of thirty-nine 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, net for the three months and nine months ended March 29, 2015 have been revised herein, where applicable, to correspond to the presentation for the three and nine months ended March 27, 2016, 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 second quarter of fiscal 2016, 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.

 

Retrospective application of June 28, 2015 balances 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  

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The ASU is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU is effective for the Company’s fiscal year 2020, and early adoption is permitted.

 

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The ASU is intended to clarify implementation guidance on principal versus agent considerations while reducing the potential for diversity in practice arising from inconsistent application. The effective date and transition requirements for ASU 2016-08 are the same as the effective date and transition requirements of ASU 2014-09 and 2015-14. The guidance is effective for the Company’s fiscal year 2019.

 

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments, while reducing cost and complexity. The ASU is effective for the Company’s fiscal year 2018, and early adoption is permitted.

 

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The ASU is intended to clarify implementation guidance on performance obligations and licensing while reducing the potential for diversity in practice arising from inconsistent application. The effective date and transition requirements for ASU 2016-10 are the same as the effective date and transition requirements of ASU 2014-09 and 2015-14. The guidance is effective for the Company’s fiscal year 2019.

 

The Company is evaluating the effect the new guidance will have on its consolidated financial statements and related disclosures.

 

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.

 

 
8

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued) 

 

4. Receivables, Net

 

Receivables, net consists of the following:

 

   

March 27, 2016

   

June 28, 2015

 

Customer receivables

  $ 85,354     $ 85,731  

Allowance for uncollectible accounts

    (2,800 )     (1,596 )

Reserves for yarn quality claims

    (654 )     (581 )

Net customer receivables

    81,900       83,554  

Related party receivables

    87       75  

Other receivables

    467       234  

Total receivables, net

  $ 82,454     $ 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 are as follows:

 

   

Allowance for

Uncollectible

Accounts

 

Balance at June 28, 2015

  $ (1,596 )

Charged to costs and expenses

    (1,583 )

Charged to other accounts

    70  

Deductions

    309  

Balance at March 27, 2016

  $ (2,800 )

 

5. Inventories

 

Inventories consists of the following:

 

   

March 27, 2016

   

June 28, 2015

 

Raw materials

  $ 38,128     $ 42,526  

Supplies

    5,240       5,404  

Work in process

    6,531       7,546  

Finished goods

    57,206       56,844  

Gross inventories

    107,105       112,320  

Inventory reserves

    (1,161 )     (705 )

Total inventories

  $ 105,944     $ 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 $25,613 and $28,426 as of March 27, 2016 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:

 

   

March 27, 2016

   

June 28, 2015

 

Land

  $ 3,100     $ 2,413  

Land improvements

    12,019       11,709  

Buildings and improvements

    143,742       141,259  

Assets under capital leases

    21,525       17,371  

Machinery and equipment

    534,462       531,225  

Computers, software and office equipment

    17,372       16,782  

Transportation equipment

    4,651       4,736  

Construction in progress

    31,787       6,710  

Gross property, plant and equipment

    768,658       732,205  

Less: accumulated depreciation

    (597,437 )     (595,094 )

Less: accumulated amortization – capital leases

    (2,246 )     (889 )

Total property, plant and equipment, net

  $ 168,975     $ 136,222  

 

 
9

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued) 

 

Assets under capital leases consists of the following:

 

   

March 27, 2016

   

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 nine months ended March 27, 2016, 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 Nine Months Ended

 
   

March 27, 2016

   

March 29, 2015

   

March 27, 2016

   

March 29, 2015

 

Depreciation expense

  $ 3,781     $ 3,672     $ 11,379     $ 11,363  

Repairs and maintenance expenses

    4,074       4,473       12,575       13,421  

 

7. Intangible Assets, Net

 

Intangible assets, net consists of the following:

 

   

March 27, 2016

   

June 28, 2015

 

Customer lists

  $ 23,615     $ 23,615  

Non-compete agreements

    4,293       4,293  

Licenses, trademarks and other

    877       837  

Total intangible assets, gross

    28,785       28,745  
                 

Accumulated amortization - customer lists

    (20,357 )     (19,432 )

Accumulated amortization - non-compete agreements

    (3,779 )     (3,537 )

Accumulated amortization – licenses, trademarks and other

    (505 )     (388 )

Total accumulated amortization

    (24,641 )     (23,357 )

Total intangible assets, net

  $ 4,144     $ 5,388  

 

Amortization expense for intangible assets consists of the following:

 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

March 27, 2016

   

March 29, 2015

   

March 27, 2016

   

March 29, 2015

 

Total amortization expense

  $ 423     $ 520     $ 1,284     $ 1,557  

 

8. Accrued Expenses

 

Accrued expenses consists of the following:

 

   

March 27, 2016

   

June 28, 2015

 

Payroll and fringe benefits

  $ 10,389     $ 11,258  

Utilities

    2,077       2,823  

Contingent consideration

    463       634  

Property taxes

    442       790  

Other

    1,682       1,135  

Total accrued expenses

  $ 15,053     $ 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.

 

 
10

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued) 

 

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:

 

         

Weighted Average

   

Principal Amounts as of

 
   

Scheduled Maturity Date

   

Interest Rate as of

March 27, 2016 (1)

   

March 27, 2016

   

June 28, 2015

 

ABL Revolver

 

March 2020

      2.2%     $ 3,000     $ 5,000  

ABL Term Loan

 

March 2020

      2.5%       92,625       82,125  

Renewables’ promissory note

 

September 2020

      3.0%       135        

Renewables’ term loan

 

August 2022

      3.7%       4,000        

Term loan from unconsolidated affiliate

 

August 2016

      3.0%       1,250       1,250  

Capital lease obligations

  (2)       (3)       16,862       15,735  

Construction financing

  (4)       (4)       3,889        

Total debt

                  121,761       104,110  

Current portion of capital lease obligations

                  (4,282 )     (3,385 )

Current portion of long-term debt

                  (10,776 )     (9,000 )

Total long-term debt

                $ 106,703     $ 91,725  
 

(1)

The weighted average interest rate as of March 27, 2016 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 below under the subheading “—Construction Financing” for further information.

 

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 March 27, 2016 was $24,078. In addition, the ABL Facility contains restrictions on particular payments and investments, including certain restrictions on the payment of dividends and share repurchases. Subject to specific provisions, the ABL Term Loan may be prepaid at par, in whole or in part, at any time before the maturity date, at the Company’s discretion.

 

As of March 27, 2016, the Company was in compliance with all financial covenants and the excess availability under the ABL Revolver was $78,049. At March 27, 2016, the fixed charge coverage ratio was 2.8 to 1.0 and the Company had $200 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 (“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.

 

 
11

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued) 

 

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.

 

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, having 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. Principal payments of $111 per month begin in September 2019 and are payable through July 2022, followed by a final payment equal to the remaining unpaid principal balance in August 2022.

 

Term Loan from Unconsolidated Affiliate

On August 30, 2012, a foreign subsidiary of the Company entered into an unsecured loan agreement under which it borrowed $1,250 from the Company’s unconsolidated affiliate, U.N.F. Industries Ltd. The entire principal balance was repaid in April 2016.

 

Capital Lease Obligations

During the nine months ended March 27, 2016, 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.

 

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, the Company has recorded (i) $210 of deferred financing fees and (ii) long-term debt of $3,889 (to reflect $790 of proceeds for construction financing and $3,099 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

  $     $     $     $     $ 3,000     $  

ABL Term Loan

    2,375       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)

          1,250                          

Capital lease obligations

    1,064       4,261       4,128       4,058       2,542       809  

Total (2)

  $ 3,439     $ 15,036     $ 13,654     $ 13,585     $ 68,431     $ 3,727  

 

 

(1)

Repaid in full in April 2016.

 

(2)

Total reported here excludes $3,889 for construction financing, described above.

 

 
12

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued) 

 

10. Other Long-Term Liabilities

 

Other long-term liabilities consists of the following:

 

   

March 27, 2016

   

June 28, 2015

 

Uncertain tax positions

  $ 3,874     $ 3,980  

Supplemental post-employment plan

    3,722       3,690  

Contingent consideration

    1,137       1,573  

Deferred rent

    1,000        

Interest rate swap

    225       280  

Other

    1,518       1,217  

Total other long-term liabilities

  $ 11,476     $ 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 Nine Months Ended

 
   

March 27, 2016

   

March 29, 2015

   

March 27, 2016

   

March 29, 2015

 

Provision for income taxes

  $ 4,166     $ 2,729     $ 10,194     $ 10,083  

Effective tax rate

    31.0 %     21.9 %     30.5 %     28.3 %

 

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 PAL (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.

 

Additionally, the effective tax rate for the periods ended March 29, 2015 included recognition of renewable energy credits.

 

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. 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 nine months ended March 27, 2016, the Company utilized foreign tax credits as a deduction by amending its 2011 federal return. Components of the Company’s deferred tax valuation allowance are as follows:

 

   

March 27, 2016

   

June 28, 2015

 

Investment in a former domestic unconsolidated affiliate

  $ (6,399 )   $ (6,503 )

Equity-method investment in Parkdale America, LLC

    (2,186 )     (3,261 )

Foreign tax credits

          (1,680 )

Other (1)

    (4,865 )     (4,162 )

Total deferred tax valuation allowance

  $ (13,450 )   $ (15,606 )

 

(1) Other relates primarily to Renewables.

 

 
13

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued) 

 

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 March 27, 2016)

    206       $30.13          

Total

    3,147       $23.01       $27,603  

 

No dividends were paid during the nine months ended March 27, 2016 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 March 27, 2016, 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

    (86 )

Available for issuance under the 2013 Plan

    699  

 

Stock options

During the nine months ended March 27, 2016 and March 29, 2015, 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 nine months ended March 27, 2016 and March 29, 2015, 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 nine months ended March 27, 2016 and March 29, 2015, the Company granted 24 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 were granted with the same terms and provisions as described in note 16 of the 2015 Form 10-K.

 

During the nine months ended March 27, 2016, the Company granted 20 RSUs to a key employee. The employee RSUs were granted with the same terms and provisions as described in note 16 of the 2015 Form 10-K, with a three-year vesting period.

 

The Company estimated the weighted average fair value of restricted stock unit awards granted during the nine months ended March 27, 2016 and March 29, 2015 to be $27.95 and $28.58 per RSU, respectively. 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 stock-based compensation.

 

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.

 

 
14

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued) 

 

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, net resulting from the underlying exposures of the foreign currency denominated assets and liabilities. As of March 27, 2016, 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. 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, 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.

 

A reconciliation of the changes in the fair value follows:

 

Contingent consideration as of June 28, 2015

  $ (2,207 )

Changes in fair value

    102  

Payments

    505  

Contingent consideration as of March 27, 2016

  $ (1,600 )

 

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 March 27, 2016

 

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

  $ (225 )
                                       

Contingent consideration

                   

Accrued expenses and other long-term liabilities

 

Level 3

  $ (1,600 )

 

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.

 

 
15

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued) 

 

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 nine months ended March 27, 2016 and March 29, 2015.

 

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

    (7,254 )     57       (7,197 )

Balance at March 27, 2016

  $ (34,006 )   $ (90 )   $ (34,096 )

 

A summary of the after-tax effects of the components of other comprehensive loss for the three months and nine months ended March 27, 2016 and March 29, 2015 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 Nine Months Ended

 
   

March 27, 2016

   

March 29, 2015

   

March 27, 2016

   

March 29, 2015

 

Other comprehensive income (loss):

                               

Foreign currency translation adjustments

  $ 3,723     $ (10,368 )   $ (6,800 )   $ (22,892 )

Foreign currency translation adjustments for an unconsolidated affiliate

    42       (414 )     (454 )     (785 )

Reclassification adjustment on interest rate swap

    19       19       57       212  

Other comprehensive income (loss), net

  $ 3,784     $ (10,763 )   $ (7,197 )   $ (23,465 )

 

 
16

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued) 

 

16. Earnings Per Share

 

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

 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

March 27, 2016

   

March 29, 2015

   

March 27, 2016

   

March 29, 2015

 
                                 

Net income attributable to Unifi, Inc.

  $ 9,689     $ 10,016     $ 24,178     $ 26,511  
                                 

Basic weighted average shares

    17,838       18,186       17,861       18,218  

Net potential common share equivalents – stock options and RSUs

    579       643       621       619  

Diluted weighted average shares

    18,417       18,829       18,482       18,837  
                                 

Excluded from diluted weighted average shares:

                               

Anti-dilutive common share equivalents

    224       150       143       167  

 

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: PAL; U.N.F. Industries Ltd. (“UNF”); and UNF America LLC (“UNFA”). As of March 27, 2016, the Company’s investment in PAL was $113,732 and the Company’s combined investments in UNF and UNFA were $4,220, 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 March 2016, PAL had no futures contracts designated as cash flow hedges.

 

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 2015 Annual Report on Form 10-K for the fiscal year ended June 28, 2015 on March 31, 2016 to provide PAL’s audited financial statements for PAL’s fiscal year ended January 2, 2016. The Company expects to file an amendment to the upcoming 2016 Annual Report on Form 10-K on or before March 31, 2017 to provide PAL’s audited financial statements for PAL’s fiscal year ended December 31, 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 fair values as of the acquisition date. The Company and PAL concluded that the acquisition did not represent a material business combination. PAL recognized a bargain purchase gain of approximately $9,381.

 

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

 

Underlying equity as of March 27, 2016

  $ 132,021  

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

    (198 )

Investment as of March 27, 2016

  $ 113,732  

 

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.

 

 
17

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued) 

 

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 March 27, 2016, the Company’s open purchase orders related to this agreement were $3,364.

 

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

 

   

For the Nine Months Ended

 
   

March 27, 2016

   

March 29, 2015

 

UNF

  $ 2,465     $ 2,578  

UNFA

    19,039       21,798  

Total

  $ 21,504     $ 24,376  

 

As of March 27, 2016 and June 28, 2015, the Company had combined accounts payable due to UNF and UNFA of $2,584 and $4,038, respectively.

 

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 March 27, 2016

 
   

PAL

   

Other

   

Total

 

Current assets

  $ 242,917     $ 10,735     $ 253,652  

Noncurrent assets

    203,640       1,073       204,713  

Current liabilities

    54,908       3,368       58,276  

Noncurrent liabilities

    3,352             3,352  

Shareholders’ equity and capital accounts

    388,297       8,440       396,737  
                         

The Company’s portion of undistributed earnings

    44,355       1,921       46,276  

Deferred revenues related to the cotton rebate program

                 

 

 

   

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  

Deferred revenues related to the cotton rebate program

                 

 

 

   

For the Three Months Ended March 27, 2016

 
   

PAL

   

Other

   

Total

 

Net sales

  $ 219,611     $ 6,493     $ 226,104  

Gross profit

    15,613       1,672       17,285  

Income from operations

    10,809       1,196       12,005  

Net income

    10,631       1,198       11,829  

Depreciation and amortization

    10,194       38       10,232  
                         

Cash received by PAL under cotton rebate program

    2,505             2,505  

Earnings recognized by PAL for cotton rebate program

    4,111             4,111  
                         

Distributions received

                 

 

 
18

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued) 

 

   

For the Three Months Ended March 29, 2015

 
   

PAL

   

Other

   

Total

 

Net sales

  $ 194,328     $ 7,832     $ 202,160  

Gross profit

    18,394       1,246       19,640  

Income from operations

    13,562       825       14,387  

Net income

    14,459       1,017       15,476  

Depreciation and amortization

    8,043       29       8,072  
                         

Cash received by PAL under cotton rebate program

    3,692             3,692  

Earnings recognized by PAL for cotton rebate program

    4,022             4,022  
                         

Distributions received

    598             598  

 

 

   

For the Nine Months Ended March 27, 2016

 
   

PAL

   

Other

   

Total

 

Net sales

  $ 627,102     $ 23,106     $ 650,208  

Gross profit

    25,917       5,854       31,771  

Income from operations

    12,933       4,434       17,367  

Net income

    15,190       4,476       19,666  

Depreciation and amortization

    31,057       112       31,169  
                         

Cash received by PAL under cotton rebate program

    11,365             11,365  

Earnings recognized by PAL for cotton rebate program

    12,039             12,039  
                         

Distributions received

    947       2,000       2,947  

 

   

For the Nine Months Ended March 29, 2015

 
   

PAL

   

Other

   

Total

 

Net sales

  $ 592,807     $ 24,147     $ 616,954  

Gross profit

    41,426       2,908       44,334  

Income from operations

    27,285       1,773       29,058  

Net income

    33,462       2,041       35,503  

Depreciation and amortization

    23,412       79       23,491  
                         

Cash received by PAL under cotton rebate program

    12,146             12,146  

Earnings recognized by PAL for cotton rebate program

    12,777             12,777  
                         

Distributions received

    598             598  

 

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.

 

 
19

 

 

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued) 

 

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