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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 December 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 January 26, 2017, there were 18,200,018 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 AND SIX MONTHS ENDED DECEMBER 25, 2016

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Page

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

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

 

1

 

 

 

 

 

 

 

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

 

2

 

 

 

 

 

 

 

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

 

3

 

 

 

 

 

 

 

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

 

4

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

5

 

 

 

 

 

Item 2.

 

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

 

21

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

40

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

41

 

PART II—OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

42

 

 

 

 

 

Item 1A.

 

Risk Factors

 

42

 

 

 

 

 

Item 6.

 

Exhibits

 

43

 

 

 

 

 

 

 

Signatures

 

44

 

 

 

 

 

 

 

Exhibit Index

 

45

 

 

 

 


PART IFINANCIAL INFORMATION

Item 1.

Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

December 25, 2016

 

 

June 26, 2016

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,490

 

 

$

16,646

 

Receivables, net

 

 

76,854

 

 

 

83,422

 

Inventories

 

 

109,772

 

 

 

103,532

 

Income taxes receivable

 

 

11,643

 

 

 

3,502

 

Other current assets

 

 

4,931

 

 

 

4,790

 

Total current assets

 

 

231,690

 

 

 

211,892

 

Property, plant and equipment, net

 

 

197,528

 

 

 

185,101

 

Deferred income taxes

 

 

2,387

 

 

 

2,387

 

Intangible assets, net

 

 

2,793

 

 

 

3,741

 

Investments in unconsolidated affiliates

 

 

115,841

 

 

 

117,412

 

Other non-current assets

 

 

605

 

 

 

4,909

 

Total assets

 

$

550,844

 

 

$

525,442

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

38,820

 

 

$

41,593

 

Accrued expenses

 

 

11,876

 

 

 

18,474

 

Income taxes payable

 

 

2,716

 

 

 

1,455

 

Current portion of long-term debt

 

 

14,153

 

 

 

13,786

 

Total current liabilities

 

 

67,565

 

 

 

75,308

 

Long-term debt

 

 

119,843

 

 

 

107,805

 

Other long-term liabilities

 

 

10,929

 

 

 

10,393

 

Deferred income taxes

 

 

10,332

 

 

 

4,991

 

Total liabilities

 

 

208,669

 

 

 

198,497

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.10 par value (500,000,000 shares authorized; 18,200,018

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

 

 

1,820

 

 

 

1,785

 

Capital in excess of par value

 

 

50,891

 

 

 

45,932

 

Retained earnings

 

 

321,059

 

 

 

307,065

 

Accumulated other comprehensive loss

 

 

(31,595

)

 

 

(29,751

)

Total Unifi, Inc. shareholders’ equity

 

 

342,175

 

 

 

325,031

 

Non-controlling interest

 

 

 

 

 

1,914

 

Total shareholders’ equity

 

 

342,175

 

 

 

326,945

 

Total liabilities and shareholders’ equity

 

$

550,844

 

 

$

525,442

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

1


CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 25, 2016

 

 

December 27, 2015

 

 

December 25, 2016

 

 

December 27, 2015

 

Net sales

 

$

155,155

 

 

$

156,336

 

 

$

315,124

 

 

$

318,501

 

Cost of sales

 

 

133,025

 

 

 

134,523

 

 

 

269,447

 

 

 

275,704

 

Gross profit

 

 

22,130

 

 

 

21,813

 

 

 

45,677

 

 

 

42,797

 

Selling, general and administrative expenses

 

 

12,868

 

 

 

12,419

 

 

 

24,278

 

 

 

23,249

 

(Benefit) provision for bad debts

 

 

(95

)

 

 

559

 

 

 

(462

)

 

 

1,172

 

Other operating expense, net

 

 

319

 

 

 

206

 

 

 

249

 

 

 

60

 

Operating income

 

 

9,038

 

 

 

8,629

 

 

 

21,612

 

 

 

18,316

 

Interest income

 

 

(183

)

 

 

(166

)

 

 

(329

)

 

 

(329

)

Interest expense

 

 

914

 

 

 

816

 

 

 

1,606

 

 

 

1,800

 

Loss on sale of business

 

 

1,662

 

 

 

 

 

 

1,662

 

 

 

 

Equity in loss (earnings) of unconsolidated affiliates

 

 

367

 

 

 

(303

)

 

 

(473

)

 

 

(3,163

)

Income before income taxes

 

 

6,278

 

 

 

8,282

 

 

 

19,146

 

 

 

20,008

 

Provision for income taxes

 

 

1,924

 

 

 

2,088

 

 

 

5,650

 

 

 

6,028

 

Net income including non-controlling interest

 

 

4,354

 

 

 

6,194

 

 

 

13,496

 

 

 

13,980

 

Less: net loss attributable to non-controlling interest

 

 

(237

)

 

 

(270

)

 

 

(498

)

 

 

(509

)

Net income attributable to Unifi, Inc.

 

$

4,591

 

 

$

6,464

 

 

$

13,994

 

 

$

14,489

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Basic

 

$

0.25

 

 

$

0.36

 

 

$

0.78

 

 

$

0.81

 

Diluted

 

$

0.25

 

 

$

0.35

 

 

$

0.76

 

 

$

0.78

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

2


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 25, 2016

 

 

December 27, 2015

 

 

December 25, 2016

 

 

December 27, 2015

 

Net income including non-controlling interest

 

$

4,354

 

 

$

6,194

 

 

$

13,496

 

 

$

13,980

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(780

)

 

 

515

 

 

 

(1,359

)

 

 

(10,523

)

Foreign currency translation adjustments for an unconsolidated affiliate

 

 

(280

)

 

 

(97

)

 

 

(523

)

 

 

(496

)

Reclassification adjustments on interest rate swap

 

 

19

 

 

 

19

 

 

 

38

 

 

 

38

 

Other comprehensive (loss) income, net

 

 

(1,041

)

 

 

437

 

 

 

(1,844

)

 

 

(10,981

)

Comprehensive income including non-controlling interest

 

 

3,313

 

 

 

6,631

 

 

 

11,652

 

 

 

2,999

 

Less: comprehensive loss attributable to non-controlling interest

 

 

(237

)

 

 

(270

)

 

 

(498

)

 

 

(509

)

Comprehensive income attributable to Unifi, Inc.

 

$

3,550

 

 

$

6,901

 

 

$

12,150

 

 

$

3,508

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

3


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

For the Six Months Ended

 

 

 

December 25, 2016

 

 

December 27, 2015

 

Cash and cash equivalents at beginning of year

 

$

16,646

 

 

$

10,013

 

Operating activities:

 

 

 

 

 

 

 

 

Net income including non-controlling interest

 

 

13,496

 

 

 

13,980

 

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

   provided by operating activities:

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated affiliates

 

 

(473

)

 

 

(3,163

)

Distributions received from unconsolidated affiliates

 

 

1,500

 

 

 

2,947

 

Depreciation and amortization expense

 

 

9,731

 

 

 

8,676

 

Loss on sale of business

 

 

1,662

 

 

 

 

Excess tax benefit on stock-based compensation plans

 

 

(1,111

)

 

 

(80

)

Deferred income taxes

 

 

5,335

 

 

 

5,266

 

Other, net

 

 

1,896

 

 

 

1,267

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables, net

 

 

6,043

 

 

 

2,673

 

Inventories

 

 

(6,751

)

 

 

(2,302

)

Other current assets and income taxes receivable

 

 

(7,305

)

 

 

(1,646

)

Accounts payable and accrued expenses

 

 

(8,160

)

 

 

(12,420

)

Income taxes payable

 

 

1,301

 

 

 

(350

)

Other, net

 

 

132

 

 

 

544

 

Net cash provided by operating activities

 

 

17,296

 

 

 

15,392

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(19,343

)

 

 

(27,419

)

Proceeds from sale of assets

 

 

45

 

 

 

2,103

 

Other, net

 

 

(225

)

 

 

(707

)

Net cash used in investing activities

 

 

(19,523

)

 

 

(26,023

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from ABL Revolver

 

 

65,200

 

 

 

87,800

 

Payments on ABL Revolver

 

 

(61,600

)

 

 

(76,600

)

Proceeds from ABL Term Loan

 

 

14,500

 

 

 

17,375

 

Payments on ABL Term Loan

 

 

(4,750

)

 

 

(4,500

)

Proceeds from a term loan supplement

 

 

 

 

 

4,000

 

Proceeds from construction financing

 

 

 

 

 

790

 

Payments on capital lease obligations

 

 

(2,154

)

 

 

(1,971

)

Common stock repurchased and retired under publicly announced programs

 

 

 

 

 

(6,211

)

Proceeds from stock option exercises

 

 

2,481

 

 

 

60

 

Excess tax benefit on stock-based compensation plans

 

 

1,111

 

 

 

80

 

Contributions from non-controlling interest

 

 

 

 

 

880

 

Other

 

 

(368

)

 

 

(484

)

Net cash provided by financing activities

 

 

14,420

 

 

 

21,219

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(349

)

 

 

(1,184

)

Net increase in cash and cash equivalents

 

 

11,844

 

 

 

9,404

 

Cash and cash equivalents at end of period

 

$

28,490

 

 

$

19,417

 

 

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, “Unifi,”  the “Company,” “we,” “us” or “our”), 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 innovative synthetic and recycled 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 the Americas and Asia.

In addition to the Company’s operations described above, the Company owns 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 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 subsidiary in El Salvador ended on December 25, 2016, the last Sunday in December. The fiscal quarter for the Company’s Brazilian, Chinese, Sri Lankan and Colombian subsidiaries ended on December 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-month and six-month periods ended December 25, 2016 and December 27, 2015 each consisted of thirteen and twenty-six fiscal weeks, respectively.

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 and six months ended December 27, 2015, the Company has reclassified net sales and cost of sales amounts for the respective segments, as reflected in Note 21, “Business Segment Information.”

 

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

5


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

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 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 May 2014, the Financial Accounting Standards Board (the “FASB”) issued new accounting guidance for the recognition of revenue from contracts with customers. Subsequent ASUs have been issued to provide clarity and defer the effective date. The new revenue recognition standard eliminates the transaction- and industry-specific revenue recognition guidance under current GAAP and replaces it with a principles-based approach. While the Company has not yet determined the effect of the new guidance on its ongoing financial reporting, the Company notes the following considerations: (i) the Company is primarily engaged in the business of manufacturing and delivering tangible products utilizing relatively straightforward contract terms without multiple performance obligations and (ii) transaction prices for the Company’s primary and material revenue activities are determinable and lack significant timing considerations. The Company is currently performing the following activities regarding implementation: (a) reviewing material contracts and (b) assessing accounting policy elections under the new guidance with current practice. In addition, implementation matters remaining include (x) evaluating the systems and processes to support revenue recognition and (y) selecting the method of adoption. The new revenue recognition guidance is effective for the Company’s fiscal 2019.

In February 2016, the FASB issued new accounting guidance for leases. The new guidance 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. While the Company has not yet determined the full effect of the new guidance on its ongoing financial reporting, as of December 25, 2016, the Company had approximately $9,000 of future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year). The ASU is effective for the Company’s fiscal 2020, and early adoption is permitted.

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.

Based on the Company’s review of ASUs issued since the filing of the 2016 Form 10-K, 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 condition, results of operations and cash flows.

 


6


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

4. Sale of Renewables

On December 23, 2016, the Company, through a wholly owned foreign subsidiary, entered into a Membership Interest Purchase Agreement (the “RR Agreement”) to sell its 60% equity ownership interest in Repreve Renewables, LLC (“Renewables”) to the existing third-party joint venture partner for $500 in cash (the “RR Sale”). The Company has no continuing involvement in the operations of Renewables subsequent to December 23, 2016.

In connection with the RR Sale, the Company recognized a loss on sale of business, reflecting the difference between the consideration received and the Company’s portion of Renewables’ net assets on the date of the RR Agreement. The operations of Renewables during the three-month and six-month periods ended December 25, 2016 are not reflected as discontinued operations as (i) the enterprise does not have a major effect on the Company’s consolidated operations and financial results, (ii) the disposal does not represent a strategic shift and (iii) the enterprise is not an individually significant component. The operations of Renewables up to the date of the RR Sale are reflected in continuing operations within the accompanying condensed consolidated statements of income, with presentation consistent with that provided in the 2016 Form 10-K.

The loss on the sale of the business is not relevant to the Company’s core operations and is not reflective of the primary revenue or expense activity of the Company. Therefore, the Company has recorded the loss on the sale of Renewables below operating income within the accompanying condensed consolidated statements of income.

Deconsolidation of Renewables resulted in the removal of all corresponding assets (the most significant of which was $4,472 of miscanthus grass, net of depreciation, historically reflected in other non-current assets) and liabilities and the elimination of the non-controlling interest in Renewables from the Company’s condensed consolidated balance sheet as of December 25, 2016, as summarized in the table below. 

 

Purchase price

 

$

500

 

Net assets and liabilities of Renewables

 

 

(3,540

)

Derecognition of non-controlling interest

 

 

1,416

 

Transaction-related costs

 

 

(38

)

Loss on sale of business

 

$

(1,662

)

 

The condensed consolidated balance sheet as of June 26, 2016 includes the consolidated accounts and operations of Renewables, along with a non-controlling interest adjustment; while the condensed consolidated balance sheet as of December 25, 2016 does not reflect any assets, liabilities or non-controlling interest of Renewables.

 

 

5.  Receivables, Net

Receivables, net consists of the following:

 

 

 

December 25, 2016

 

 

June 26, 2016

 

Customer receivables

 

$

79,060

 

 

$

86,361

 

Allowance for uncollectible accounts

 

 

(1,984

)

 

 

(2,839

)

Reserves for yarn quality claims

 

 

(1,199

)

 

 

(795

)

Net customer receivables

 

 

75,877

 

 

 

82,727

 

Related party receivables

 

 

8

 

 

 

7

 

Other receivables

 

 

969

 

 

 

688

 

Total receivables, net

 

$

76,854

 

 

$

83,422

 

 

7


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

 

 

462

 

Translation activity

 

 

20

 

Deductions

 

 

373

 

Balance at December 25, 2016

 

$

(1,984

)

 

 

6.  Inventories

Inventories consists of the following:

 

 

 

December 25, 2016

 

 

June 26, 2016

 

Raw materials

 

$

36,798

 

 

$

37,162

 

Supplies

 

 

6,112

 

 

 

5,387

 

Work in process

 

 

5,290

 

 

 

6,595

 

Finished goods

 

 

63,240

 

 

 

55,771

 

Gross inventories

 

 

111,440

 

 

 

104,915

 

Inventory reserves

 

 

(1,668

)

 

 

(1,383

)

Total inventories

 

$

109,772

 

 

$

103,532

 

 

 

7.  Property, Plant and Equipment, Net

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

 

 

 

December 25, 2016

 

 

June 26, 2016

 

Land

 

$

2,940

 

 

$

3,154

 

Land improvements

 

 

14,390

 

 

 

13,734

 

Buildings and improvements

 

 

147,420

 

 

 

145,633

 

Assets under capital leases

 

 

21,525

 

 

 

21,525

 

Machinery and equipment

 

 

569,402

 

 

 

544,369

 

Computers, software and office equipment

 

 

18,171

 

 

 

17,823

 

Transportation equipment

 

 

4,739

 

 

 

4,713

 

Construction in progress

 

 

29,213

 

 

 

39,695

 

Gross property, plant and equipment

 

 

807,800

 

 

 

790,646

 

Less: accumulated depreciation

 

 

(606,650

)

 

 

(602,839

)

Less: accumulated amortization – capital leases

 

 

(3,622

)

 

 

(2,706

)

Total PP&E

 

$

197,528

 

 

$

185,101

 

 

Assets under capital leases consists of the following:

 

 

 

December 25, 2016

 

 

June 26, 2016

 

Machinery and equipment

 

$

14,745

 

 

$

14,745

 

Transportation equipment

 

 

5,927

 

 

 

5,927

 

Building improvements

 

 

853

 

 

 

853

 

Gross assets under capital leases

 

$

21,525

 

 

$

21,525

 

 

8


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

Depreciation expense and repairs and maintenance expenses were as follows:

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 25, 2016

 

 

December 27, 2015

 

 

December 25, 2016

 

 

December 27, 2015

 

Depreciation expense

 

$

4,486

 

 

$

3,756

 

 

$

8,700

 

 

$

7,598

 

Repairs and maintenance expenses

 

 

4,514

 

 

 

4,005

 

 

 

8,754

 

 

 

8,501

 

 

 

8.  Intangible Assets, Net

Intangible assets, net consists of the following:

 

 

 

December 25, 2016

 

 

June 26, 2016

 

Customer lists

 

$

23,615

 

 

$

23,615

 

Other

 

 

4,516

 

 

 

5,184

 

Total intangible assets, gross

 

 

28,131

 

 

 

28,799

 

Accumulated amortization – customer lists

 

 

(21,175

)

 

 

(20,665

)

Accumulated amortization – other

 

 

(4,163

)

 

 

(4,393

)

Total accumulated amortization

 

 

(25,338

)

 

 

(25,058

)

Total intangible assets, net

 

$

2,793

 

 

$

3,741

 

 

Total amortization expense for intangible assets was as follows:

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 25, 2016

 

 

December 27, 2015

 

 

December 25, 2016

 

 

December 27, 2015

 

Total amortization expense

 

$

346

 

 

$

429

 

 

$

707

 

 

$

861

 

 

 

9.  Accrued Expenses

Accrued expenses consists of the following:

 

 

 

December 25, 2016

 

 

June 26, 2016

 

Payroll and fringe benefits

 

$

6,198

 

 

$

10,370

 

Other

 

 

5,678

 

 

 

8,104

 

Total accrued expenses

 

$

11,876

 

 

$

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.

 

 

9


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

 

10.  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

 

 

December 25, 2016

 

 

December 25, 2016

 

 

June 26, 2016

 

ABL Revolver

 

March 2020

 

 

 

2.9%

 

 

$

9,800

 

 

$

6,200

 

ABL Term Loan

 

March 2020

 

 

2.4%  (1)

 

 

 

100,000

 

 

 

90,250

 

Capital lease obligations

 

(2)

 

 

(3)

 

 

 

13,643

 

 

 

15,798

 

Construction financing

 

(4)

 

 

(4)

 

 

 

11,768

 

 

 

6,629

 

Renewables’ term loan

 

 

 

 

 

 

 

 

 

 

 

4,000

 

Renewables’ promissory note

 

 

 

 

 

 

 

 

 

 

 

135

 

Total debt

 

 

 

 

 

 

 

 

 

 

135,211

 

 

 

123,012

 

Current portion of capital lease obligations

 

 

 

 

 

 

 

 

 

 

(4,153

)

 

 

(4,261

)

Current portion of other long-term debt

 

 

 

 

 

 

 

 

 

 

(10,000

)

 

 

(9,525

)

Unamortized debt issuance costs

 

 

 

 

 

 

 

 

 

 

(1,215

)

 

 

(1,421

)

Total long-term debt

 

 

 

 

 

 

 

 

 

$

119,843

 

 

$

107,805

 

 

(1)

The weighted average interest rate as of December 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”). The ABL Facility has a maturity date of March 26, 2020.

 

On November 18, 2016, pursuant to the principal reset conditions of the Amended Credit Agreement, the Company, at its discretion, reset the ABL Term Loan principal balance to $100,000. In connection with the principal reset, the ABL Term Loan is subject to quarterly amortizing payments of $2,500.

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%.

Renewables

As described in Note 4, “Sale of Renewables,” the Company’s sale of its 60% equity ownership interest in Renewables required deconsolidation of the corresponding assets and liabilities, and, accordingly, the respective debt principal balances are appropriately excluded from the Company’s total long-term debt as of December 25, 2016.  The Company has no joint and several liability for such debt.

10


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

 

$

 

 

$

 

 

$

 

 

$

9,800

 

 

$

 

 

$

 

ABL Term Loan

 

 

5,000

 

 

 

10,000

 

 

 

10,000

 

 

 

75,000

 

 

 

 

 

 

 

Capital lease obligations

 

 

2,106

 

 

 

4,128

 

 

 

4,058

 

 

 

2,542

 

 

 

171

 

 

 

638

 

Total (1)

 

$

7,106

 

 

$

14,128

 

 

$

14,058

 

 

$

87,342

 

 

$

171