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EX-32.2 - EX-32.2 - UNIFI INCufi-ex322_9.htm
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EX-31.1 - EX-31.1 - UNIFI INCufi-ex311_7.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 25, 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

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

7201 West Friendly Avenue

Greensboro, North Carolina  27410

(Address of principal executive offices) (Zip Code)

(336) 294-4410

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically 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      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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

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  

As of October 27, 2016, there were 18,046,043 shares of the registrant’s common stock, par value $0.10 per share, outstanding.

 

 

 

 


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that relate to our plans, objectives, estimates and goals. Statements expressing expectations regarding our future, or projections or estimates relating to products, sales, revenues, expenditures, costs or earnings, are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs, assumptions and expectations about our future economic performance, considering the information currently available to management. The words “believe,” “may,” “could,” “will,” “should,” “would,” “anticipate,” “estimate,” “project,” “expect,” “intend,” “seek,” “strive” and words of similar import, or the negative of such words, identify or signal the presence of forward-looking statements. These statements are not statements of historical fact; they involve risks and uncertainties that may cause our actual results, performance or financial condition to differ materially from the expectations of future results, performance or financial condition that we express or imply in any forward-looking statement. Factors that could contribute to such differences include, but are not limited to:

 

the competitive nature of the textile industry and the impact of global competition;

 

changes in the trade regulatory environment and governmental policies and legislation;

 

the availability, sourcing and pricing of raw materials;

 

general domestic and international economic and industry conditions in markets where the Company competes, including economic and political factors over which the Company has no control;

 

changes in consumer spending, customer preferences, fashion trends and end-uses for products;

 

the financial condition of the Company’s customers;

 

the loss of a significant customer;

 

the success of the Company’s strategic business initiatives;

 

volatility of financial and credit markets;

 

the ability to service indebtedness and fund capital expenditures and strategic initiatives;

 

availability of and access to credit on reasonable terms;

 

changes in currency exchange, interest and inflation rates;

 

fluctuations in production costs;

 

the ability to protect intellectual property;

 

employee relations;

 

the impact of environmental, health and safety regulations;

 

the operating performance of joint ventures and other equity investments;

 

the accurate financial reporting of information from equity method investees; and

 

other factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 26, 2016 or elsewhere in this report.

All such factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for management to predict all such factors or to assess the impact of each such factor on the Company. Any forward-looking statement speaks only as of the date on which such statement is made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, except as may be required by federal securities law.

In light of all the above considerations, we reiterate that forward-looking statements are not guarantees of future performance, and we caution you not to rely on them as such.

 


UNIFI, INC.

FORM 10-Q

FOR THE THREE MONTHS ENDED SEPTEMBER 25, 2016

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Page

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 25, 2016 and June 26, 2016

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the Three Months Ended September 25, 2016 and September 27, 2015

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended September 25, 2016 and September 27, 2015

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 25, 2016 and September 27, 2015

 

4

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

5

 

 

 

 

 

Item 2.

 

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

 

19

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

33

 

PART II—OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

34

 

 

 

 

 

Item 1A.

 

Risk Factors

 

34

 

 

 

 

 

Item 6.

 

Exhibits

 

35

 

 

 

 

 

 

 

Signatures

 

36

 

 

 

 

 

 

 

Exhibit Index

 

37

 

 

 

 


PART IFINANCIAL INFORMATION

Item 1.

Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

 

 

 

September 25, 2016

 

 

June 26, 2016

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,921

 

 

$

16,646

 

Receivables, net

 

 

82,912

 

 

 

83,422

 

Inventories

 

 

110,002

 

 

 

103,532

 

Income taxes receivable

 

 

6,312

 

 

 

3,502

 

Other current assets

 

 

5,632

 

 

 

4,790

 

Total current assets

 

 

225,779

 

 

 

211,892

 

Property, plant and equipment, net

 

 

194,261

 

 

 

185,101

 

Deferred income taxes

 

 

2,362

 

 

 

2,387

 

Intangible assets, net

 

 

3,385

 

 

 

3,741

 

Investments in unconsolidated affiliates

 

 

117,239

 

 

 

117,412

 

Other non-current assets

 

 

4,947

 

 

 

4,909

 

Total assets

 

$

547,973

 

 

$

525,442

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

44,177

 

 

$

41,593

 

Accrued expenses

 

 

17,250

 

 

 

18,474

 

Income taxes payable

 

 

2,032

 

 

 

1,455

 

Current portion of long-term debt

 

 

13,733

 

 

 

13,786

 

Total current liabilities

 

 

77,192

 

 

 

75,308

 

Long-term debt

 

 

115,821

 

 

 

107,805

 

Other long-term liabilities

 

 

10,515

 

 

 

10,393

 

Deferred income taxes

 

 

7,446

 

 

 

4,991

 

Total liabilities

 

 

210,974

 

 

 

198,497

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.10 par value (500,000,000 shares authorized; 18,018,445

   and 17,847,416 shares outstanding as of September 25, 2016 and June 26, 2016, respectively)

 

 

1,802

 

 

 

1,785

 

Capital in excess of par value

 

 

47,630

 

 

 

45,932

 

Retained earnings

 

 

316,468

 

 

 

307,065

 

Accumulated other comprehensive loss

 

 

(30,554

)

 

 

(29,751

)

Total Unifi, Inc. shareholders’ equity

 

 

335,346

 

 

 

325,031

 

Non-controlling interest

 

 

1,653

 

 

 

1,914

 

Total shareholders’ equity

 

 

336,999

 

 

 

326,945

 

Total liabilities and shareholders’ equity

 

$

547,973

 

 

$

525,442

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

1


CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(amounts in thousands, except per share amounts)

 

 

 

For the Three Months Ended

 

 

 

September 25, 2016

 

 

September 27, 2015

 

Net sales

 

$

159,969

 

 

$

162,165

 

Cost of sales

 

 

136,422

 

 

 

141,181

 

Gross profit

 

 

23,547

 

 

 

20,984

 

Selling, general and administrative expenses

 

 

11,410

 

 

 

10,830

 

(Benefit) provision for bad debts

 

 

(367

)

 

 

613

 

Other operating income, net

 

 

(70

)

 

 

(146

)

Operating income

 

 

12,574

 

 

 

9,687

 

Interest income

 

 

(146

)

 

 

(163

)

Interest expense

 

 

692

 

 

 

984

 

Equity in earnings of unconsolidated affiliates

 

 

(840

)

 

 

(2,860

)

Income before income taxes

 

 

12,868

 

 

 

11,726

 

Provision for income taxes

 

 

3,726

 

 

 

3,940

 

Net income including non-controlling interest

 

 

9,142

 

 

 

7,786

 

Less: net loss attributable to non-controlling interest

 

 

(261

)

 

 

(239

)

Net income attributable to Unifi, Inc.

 

$

9,403

 

 

$

8,025

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Basic

 

$

0.52

 

 

$

0.45

 

Diluted

 

$

0.51

 

 

$

0.43

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

2


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(amounts in thousands)

 

 

 

For the Three Months Ended

 

 

 

September 25, 2016

 

 

September 27, 2015

 

Net income including non-controlling interest

 

$

9,142

 

 

$

7,786

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(579

)

 

 

(11,038

)

Foreign currency translation adjustments for an unconsolidated affiliate

 

 

(243

)

 

 

(399

)

Reclassification adjustments on interest rate swap

 

 

19

 

 

 

19

 

Other comprehensive loss, net

 

 

(803

)

 

 

(11,418

)

Comprehensive income (loss) including non-controlling interest

 

 

8,339

 

 

 

(3,632

)

Less: comprehensive loss attributable to non-controlling interest

 

 

(261

)

 

 

(239

)

Comprehensive income (loss) attributable to Unifi, Inc.

 

$

8,600

 

 

$

(3,393

)

 

See accompanying notes to condensed consolidated financial statements.

 

 

3


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(amounts in thousands)

 

 

 

For the Three Months Ended

 

 

 

September 25, 2016

 

 

September 27, 2015

 

Cash and cash equivalents at beginning of year

 

$

16,646

 

 

$

10,013

 

Operating activities:

 

 

 

 

 

 

 

 

Net income including non-controlling interest

 

 

9,142

 

 

 

7,786

 

Adjustments to reconcile net income including non-controlling interest to net cash

   provided by operating activities:

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated affiliates

 

 

(840

)

 

 

(2,860

)

Distributions received from unconsolidated affiliates

 

 

750

 

 

 

1,947

 

Depreciation and amortization expense

 

 

4,737

 

 

 

4,383

 

Excess tax benefit on stock-based compensation plans

 

 

(447

)

 

 

 

Deferred income taxes

 

 

2,471

 

 

 

498

 

Other, net

 

 

281

 

 

 

381

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables, net

 

 

783

 

 

 

(4,276

)

Inventories

 

 

(6,720

)

 

 

(6,298

)

Other current assets and income taxes receivable

 

 

(3,267

)

 

 

1,788

 

Accounts payable and accrued expenses

 

 

509

 

 

 

(3,474

)

Income taxes payable

 

 

588

 

 

 

839

 

Other, net

 

 

162

 

 

 

73

 

Net cash provided by operating activities

 

 

8,149

 

 

 

787

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(10,135

)

 

 

(15,875

)

Proceeds from sale of assets

 

 

28

 

 

 

2,088

 

Other, net

 

 

(77

)

 

 

(347

)

Net cash used in investing activities

 

 

(10,184

)

 

 

(14,134

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from ABL Revolver

 

 

40,200

 

 

 

53,200

 

Payments on ABL Revolver

 

 

(31,700

)

 

 

(30,200

)

Payments on ABL Term Loan

 

 

(2,375

)

 

 

(2,250

)

Payments on capital lease obligations

 

 

(1,073

)

 

 

(924

)

Common stock repurchased and retired under publicly announced programs

 

 

 

 

 

(5,439

)

Proceeds from stock option exercises

 

 

1,200

 

 

 

60

 

Excess tax benefit on stock-based compensation plans

 

 

447

 

 

 

 

Contributions from non-controlling interest

 

 

 

 

 

480

 

Other

 

 

(341

)

 

 

(471

)

Net cash provided by financing activities

 

 

6,358

 

 

 

14,456

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(48

)

 

 

(1,168

)

Net increase (decrease) in cash and cash equivalents

 

 

4,275

 

 

 

(59

)

Cash and cash equivalents at end of period

 

$

20,921

 

 

$

9,954

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

4


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 premium 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 plastic bottle flake, polyester polymer beads (“Chip”), partially oriented yarn (“POY”), and textured, solution and package dyed, twisted, beamed and draw wound yarns. Each yarn product is available in virgin or recycled varieties, where the recycled is 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 manufacturing operations in four countries and participates in joint ventures in Israel and the United States.  The Company’s principal geographic markets for its products are in North America, Central America, South America and Asia.

In addition to the Company’s operations described above, the Company’s investments include, but are not limited to, (i) 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; and (ii) a 60% controlling membership interest in Repreve Renewables, LLC (“Renewables”), an agricultural company focused on the development, production and commercialization of dedicated miscanthus grass for use in the animal bedding, bio-energy and other bio-based product markets. 

 

 

2.  Basis of Presentation; Condensed Notes

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information. As contemplated by the instructions of the Securities and Exchange Commission (the “SEC”) to Form 10-Q, the following notes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements.  Reference should be made to the Company’s year-end audited consolidated financial statements and related notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended June 26, 2016 (the “2016 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.

The fiscal quarter for the Company and its Chinese subsidiary ended on September 25, 2016, the last Sunday in September. The fiscal quarter for the Company’s Brazilian and Colombian subsidiaries ended on September 30, 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 September 25, 2016 and September 27, 2015 each consisted of thirteen fiscal weeks.

Reclassifications

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

As of the fourth quarter of fiscal 2016, the Company updated the composition of its Polyester and Nylon Segments, intending to better reflect downstream sales for the respective product lines. In connection with such update, for the three months ended September 27, 2015, the Company has reclassified net sales and cost of sales amounts for the respective segments, as reflected in Note 20, “Business Segment Information.”

 

5


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

The Company adopted Accounting Standards Update (“ASU”) 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”) during the first quarter of fiscal 2017, along with the clarifying guidance in ASU 2015-15, Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements—Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting.

As shown in the table below, unamortized debt issuance costs associated with outstanding debt have been reclassified to conform to the new presentation requirements as of September 25, 2016 as follows:

 

 

 

June 26, 2016

As Previously Reported

 

 

Adjustments Due

to Adoption of

ASU 2015-03

 

 

June 26, 2016

As Adjusted

 

Debt issuance costs (within other non-current assets)

 

$

1,421

 

 

$

(1,421

)

 

$

 

Total assets

 

 

526,863

 

 

 

(1,421

)

 

 

525,442

 

Long-term debt

 

 

109,226

 

 

 

(1,421

)

 

 

107,805

 

Total liabilities

 

 

199,918

 

 

 

(1,421

)

 

 

198,497

 

 

 

3.  Recent Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to reduce the diversity in practice arising from inconsistent presentation of certain components of the statement of cash flows. The guidance will be effective for the Company’s fiscal 2019.

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

In the first quarter of fiscal 2017, the Company adopted ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, that eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The Company has no measurement period adjustments in the current or comparative periods.

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:

 

 

 

September 25, 2016

 

 

June 26, 2016

 

Customer receivables

 

$

84,757

 

 

$

86,361

 

Allowance for uncollectible accounts

 

 

(2,124

)

 

 

(2,839

)

Reserves for yarn quality claims

 

 

(982

)

 

 

(795

)

Net customer receivables

 

 

81,651

 

 

 

82,727

 

Related party receivables

 

 

5

 

 

 

7

 

Other receivables

 

 

1,256

 

 

 

688

 

Total receivables, net

 

$

82,912

 

 

$

83,422

 

 

6


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

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

 

 

 

Allowance for

Uncollectible

Accounts

 

Balance at June 26, 2016

 

$

(2,839

)

Benefit to costs and expenses

 

 

367

 

Translation activity

 

 

11

 

Deductions

 

 

337

 

Balance at September 25, 2016

 

$

(2,124

)

 

 

5.  Inventories

Inventories consists of the following:

 

 

 

September 25, 2016

 

 

June 26, 2016

 

Raw materials

 

$

39,538

 

 

$

37,162

 

Supplies

 

 

6,004

 

 

 

5,387

 

Work in process

 

 

7,217

 

 

 

6,595

 

Finished goods

 

 

58,831

 

 

 

55,771

 

Gross inventories

 

 

111,590

 

 

 

104,915

 

Inventory reserves

 

 

(1,588

)

 

 

(1,383

)

Total inventories

 

$

110,002

 

 

$

103,532

 

 

 

6.  Property, Plant and Equipment, Net

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

 

 

 

September 25, 2016

 

 

June 26, 2016

 

Land

 

$

3,148

 

 

$

3,154

 

Land improvements

 

 

14,679

 

 

 

13,734

 

Buildings and improvements

 

 

147,929

 

 

 

145,633

 

Assets under capital leases

 

 

21,495

 

 

 

21,525

 

Machinery and equipment

 

 

568,495

 

 

 

544,369

 

Computers, software and office equipment

 

 

17,915

 

 

 

17,823

 

Transportation equipment

 

 

4,742

 

 

 

4,713

 

Construction in progress

 

 

23,322

 

 

 

39,695

 

Gross property, plant and equipment

 

 

801,725

 

 

 

790,646

 

Less: accumulated depreciation

 

 

(604,301

)

 

 

(602,839

)

Less: accumulated amortization – capital leases

 

 

(3,163

)

 

 

(2,706

)

Total property, plant and equipment, net

 

$

194,261

 

 

$

185,101

 

 

Assets under capital leases consists of the following:

 

 

 

September 25, 2016

 

 

June 26, 2016

 

Machinery and equipment

 

$

14,745

 

 

$

14,745

 

Transportation equipment

 

 

5,897

 

 

 

5,927

 

Building improvements

 

 

853

 

 

 

853

 

Gross assets under capital leases

 

$

21,495

 

 

$

21,525

 

 

7


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

Depreciation expense and repairs and maintenance expenses were as follows:

 

 

 

For the Three Months Ended

 

 

 

September 25, 2016

 

 

September 27, 2015

 

Depreciation expense

 

$

4,214

 

 

$

3,842

 

Repairs and maintenance expenses

 

 

4,240

 

 

 

4,496

 

 

 

7.  Intangible Assets, Net

Intangible assets, net consists of the following:

 

 

 

September 25, 2016

 

 

June 26, 2016

 

Customer lists

 

$

23,615

 

 

$

23,615

 

Non-compete agreements, license, trademarks and other

 

 

5,189

 

 

 

5,184

 

Total intangible assets, gross

 

 

28,804

 

 

 

28,799

 

Accumulated amortization – customer lists

 

 

(20,920

)

 

 

(20,665

)

Accumulated amortization – non-compete agreements, license, trademarks and other

 

 

(4,499

)

 

 

(4,393

)

Total accumulated amortization

 

 

(25,419

)

 

 

(25,058

)

Total intangible assets, net

 

$

3,385

 

 

$

3,741

 

 

Total amortization expense for intangible assets was as follows:

 

 

 

For the Three Months Ended

 

 

 

September 25, 2016

 

 

September 27, 2015

 

Total amortization expense

 

$

361

 

 

$

432

 

 

 

8.  Accrued Expenses

Accrued expenses consists of the following:

 

 

 

September 25, 2016

 

 

June 26, 2016

 

Payroll and fringe benefits

 

$

8,986

 

 

$

10,370

 

Other

 

 

8,264

 

 

 

8,104

 

Total accrued expenses

 

$

17,250

 

 

$

18,474

 

 

Other consists primarily of accruals for utilities, property taxes, employee-related claims and payments, interest, marketing expenses, freight expenses, rent, deferred incentives and other non-income related taxes.

 

 

8


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

 

 

 

 

 

 

Scheduled

 

Interest Rate as of

 

 

Principal Amounts as of

 

 

 

Maturity Date

 

September 25, 2016

 

 

September 25, 2016

 

 

June 26, 2016

 

ABL Revolver

 

March 2020

 

 

2.4%

 

 

$

14,700

 

 

$

6,200

 

ABL Term Loan

 

March 2020

 

2.3%  (1)

 

 

 

87,875

 

 

 

90,250

 

Capital lease obligations

 

(2)

 

(3)

 

 

 

14,725

 

 

 

15,798

 

Construction financing

 

(4)

 

(4)

 

 

 

9,464

 

 

 

6,629

 

Renewables’ term loan

 

August 2022

 

 

3.8%

 

 

 

4,000

 

 

 

4,000

 

Renewables’ promissory note

 

September 2020

 

 

3.0%

 

 

 

110

 

 

 

135

 

Total debt

 

 

 

 

 

 

 

 

130,874

 

 

 

123,012

 

Current portion of capital lease obligations

 

 

 

 

 

 

 

 

(4,207

)

 

 

(4,261

)

Current portion of other long-term debt

 

 

 

 

 

 

 

 

(9,526

)

 

 

(9,525

)

Unamortized debt issuance costs

 

 

 

 

 

 

 

 

(1,320

)

 

 

(1,421

)

Total long-term debt

 

 

 

 

 

 

 

$

115,821

 

 

$

107,805

 

 

(1)

The weighted average interest rate as of September 25, 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 under the heading “—Construction Financing” below for further information.

ABL Revolver and ABL Term Loan

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 in fiscal 2016. The ABL Facility has a maturity date of March 26, 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 principal balance of this construction financing arrangement reflects cash paid by the third-party lender for (i) construction in progress and (ii) advances to the Company.

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%.

9


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

Scheduled Debt Maturities

The following table presents the scheduled maturities of the Company’s outstanding debt obligations for the remainder of fiscal 2017 and the fiscal years thereafter:

 

 

 

Scheduled Maturities on a Fiscal Year Basis

 

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

Thereafter

 

ABL Revolver

 

$

 

 

$

 

 

$

 

 

$

14,700

 

 

$

 

 

$

 

ABL Term Loan

 

 

7,125

 

 

 

9,500

 

 

 

9,500

 

 

 

61,750

 

 

 

 

 

 

 

Renewables’ promissory note

 

 

 

 

 

26

 

 

 

27

 

 

 

28

 

 

 

29

 

 

 

 

Renewables’ term loan

 

 

 

 

 

 

 

 

 

 

 

1,111

 

 

 

1,333

 

 

 

1,556

 

Capital lease obligations

 

 

3,188

 

 

 

4,128

 

 

 

4,058

 

 

 

2,542

 

 

 

171

 

 

 

638

 

Total (1)

 

$

10,313

 

 

$

13,654

 

 

$

13,585

 

 

$

80,131

 

 

$

1,533

 

 

$

2,194

 

 

(1)

Total excludes $9,464 for the construction financing described above.

 

 

10.  Other Long-Term Liabilities

Other long-term liabilities consists of the following:

 

 

 

September 25, 2016

 

 

June 26, 2016

 

Uncertain tax positions

 

$

4,603

 

 

$

4,463

 

Other

 

 

5,912

 

 

 

5,930

 

Total other long-term liabilities

 

$

10,515

 

 

$

10,393

 

 

Other primarily includes the Company’s unfunded supplemental post-employment plan, certain retiree and post-employment medical and disability liabilities, and deferred rent.

 

 

11.  Income Taxes

The provision for income taxes was as follows:

 

 

 

For the Three Months Ended

 

 

 

September 25, 2016

 

 

September 27, 2015

 

Provision for income taxes

 

$

3,726

 

 

$

3,940

 

Effective tax rate

 

 

29.0

%

 

 

33.6

%

 

The effective tax rates for the periods presented above are lower than the U.S. statutory rate of 35% primarily due to foreign income being taxed at lower rates and a decrease in the valuation allowance for the Company’s investment in PAL. These items were partially offset by losses in tax jurisdictions for which no tax benefit could be recognized and state and local income taxes net of federal benefits.

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.

Components of the Company’s deferred tax valuation allowance are as follows: 

 

 

 

September 25, 2016

 

 

June 26, 2016

 

Investment in a former domestic unconsolidated affiliate

 

$

(6,320

)

 

$

(6,418

)

Equity-method investment in PAL

 

 

(1,650

)

 

 

(2,102

)

Other (1)

 

 

(5,030

)

 

 

(5,030

)

Total deferred tax valuation allowance

 

$

(13,000

)

 

$

(13,550

)

 

(1)

Other relates primarily to Renewables. 

10


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

 

 

12.  Shareholders’ Equity

There were no material changes to the composition of shareholders’ equity since June 26, 2016 that are not described in this report.

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 2013

 

 

1,068

 

 

$

18.08

 

 

 

 

 

Fiscal 2014

 

 

1,524

 

 

$

23.96

 

 

 

 

 

Fiscal 2015

 

 

349

 

 

$

29.72

 

 

 

 

 

Fiscal 2016

 

 

206

 

 

$

30.13

 

 

 

 

 

Fiscal 2017 (through September 25, 2016)

 

 

 

 

$

 

 

 

 

 

Total

 

 

3,147

 

 

 

 

 

 

$

27,603

 

 

No dividends were paid during the three months ended September 25, 2016 or in the two most recently completed 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 (the “2008 LTIP”). No additional awards can be granted under the 2008 LTIP; however, prior awards outstanding under the 2008 LTIP remain subject to that plan’s provisions. The 2013 Plan authorized the issuance of 1,000 shares of common stock, subject to certain increases in the event outstanding awards under the 2008 LTIP expire, are forfeited or otherwise terminate unexercised.

The following table provides information as of September 25, 2016 with respect to the number of securities remaining available for future issuance under the 2013 Plan:

 

Authorized under the 2013 Plan

 

 

1,000

 

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

 

 

304

 

Less: Awards granted to employees

 

 

(258

)

Less: Awards granted to non-employee directors

 

 

(70

)

Available for issuance under the 2013 Plan

 

 

976

 

 

Stock options

No stock options were granted by the Company during the three months ended September 25, 2016. During the three months ended September 27, 2015, the Company granted stock options to purchase 82 shares of common stock to certain key employees, utilizing terms, vesting provisions and valuation methods consistent with those described in Note 16, “Stock-Based Compensation,” to the consolidated financial statements in the 2016 Form 10-K.

During the three months ended September 25, 2016, 171 stock options were exercised.

Restricted stock units

The Company may issue, from time to time, restricted stock units (“RSUs”) to the Company’s non-employee directors or certain key employees. No RSUs were granted by the Company during the three months ended September 25, 2016 and September 27, 2015. See Note 16, “Stock-Based Compensation,” to the consolidated financial statements in the 2016 Form 10-K for further information regarding the Company’s RSUs.

11


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

 

 

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.

 

For the three months ended September 25, 2016 and September 27, 2015, there were no significant changes to the Company’s assets and liabilities measured at fair value, and there were no transfers into or out of the levels of the fair value hierarchy.

 

 

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

 

 

Reclassification

Adjustments on

Interest Rate Swap

 

 

Accumulated

Other

Comprehensive

Loss

 

Balance at June 26, 2016

 

$

(29,681

)

 

$

(70

)

 

$

(29,751

)

Other comprehensive (loss) income, net of tax

 

 

(822

)

 

 

19

 

 

 

(803

)

Balance at September 25, 2016

 

$

(30,503

)

 

$

(51

)

 

$

(30,554

)

 

A summary of the after-tax effects of the components of other comprehensive loss for the three months ended September 25, 2016 and September 27, 2015 is included in the accompanying condensed consolidated statements of comprehensive income (loss). The summary excludes pre-tax and tax amounts, as there are no tax components for the relevant activity.

 

 

16.  Earnings Per Share

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

 

 

 

For the Three Months Ended

 

 

 

September 25, 2016

 

 

September 27, 2015