Attached files

file filename
EX-32.2 - EX-32.2 - UNIFI INCufi-ex322_9.htm
EX-32.1 - EX-32.1 - UNIFI INCufi-ex321_8.htm
EX-31.2 - EX-31.2 - UNIFI INCufi-ex312_7.htm
EX-31.1 - EX-31.1 - UNIFI INCufi-ex311_6.htm
EX-10.1 - EX-10.1 - UNIFI INCufi-ex101_88.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 December 29, 2019

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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.10 per share

UFI

New York Stock Exchange

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

 

As of February 3, 2020, there were 18,505,446 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, strategies, initiatives or earnings, are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on management’s beliefs, assumptions and expectations about our future performance, considering the information currently available to management.  The words “believe,” “may,” “could,” “will,” “should,” “would,” “anticipate,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek,” “strive” and words of similar import, or the negative of such words, identify or signal the presence of forward-looking statements.  These statements are not statements of historical fact, and 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 or brand partner;

 

natural disasters, industrial accidents, power or water shortages, extreme weather conditions and other disruptions at one of our facilities;

 

the success of the Company’s strategic business initiatives;

 

the volatility of financial and credit markets;

 

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

 

the availability of and access to credit on reasonable terms;

 

changes in foreign currency exchange, interest and inflation rates;

 

fluctuations in production costs;

 

the ability to protect intellectual property;

 

the strength and reputation of our brands;

 

employee relations;

 

the ability to attract, retain and motivate key employees;

 

the impact of environmental, health and safety regulations;

 

the impact of tax laws, the judicial or administrative interpretations of tax laws and/or changes in such laws or interpretations;

 

the operating performance of joint ventures and other equity method 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 30, 2019 or in the Company’s other periodic reports and information filed with the Securities and Exchange Commission.

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

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

 


UNIFI, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 29, 2019

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Page

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of December 29, 2019 and June 30, 2019

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the Three Months and Six Months Ended December 29, 2019 and December 30, 2018

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended December 29, 2019 and December 30, 2018

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 29, 2019 and December 30, 2018

 

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

 

35

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

36

 

PART II—OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

37

 

 

 

 

 

Item 6.

 

Exhibits

 

38

 

 

 

 

 

 

 

Signatures

 

39

 

 

 

 

 

 

 

 

 


PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

December 29, 2019

 

 

June 30, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

37,210

 

 

$

22,228

 

Receivables, net

 

 

78,132

 

 

 

88,884

 

Inventories

 

 

133,893

 

 

 

133,781

 

Income taxes receivable

 

 

4,595

 

 

 

4,373

 

Other current assets

 

 

18,311

 

 

 

16,356

 

Total current assets

 

 

272,141

 

 

 

265,622

 

Property, plant and equipment, net

 

 

209,250

 

 

 

206,787

 

Operating lease assets

 

 

6,606

 

 

 

 

Deferred income taxes

 

 

2,529

 

 

 

2,581

 

Investments in unconsolidated affiliates

 

 

102,261

 

 

 

114,320

 

Other non-current assets

 

 

2,420

 

 

 

2,841

 

Total assets

 

$

595,207

 

 

$

592,151

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

36,055

 

 

$

41,796

 

Accrued expenses

 

 

15,801

 

 

 

16,849

 

Income taxes payable

 

 

571

 

 

 

569

 

Current operating lease liabilities

 

 

1,734

 

 

 

 

Current portion of long-term debt

 

 

14,760

 

 

 

15,519

 

Total current liabilities

 

 

68,921

 

 

 

74,733

 

Long-term debt

 

 

113,738

 

 

 

111,541

 

Non-current operating lease liabilities

 

 

4,980

 

 

 

 

Other long-term liabilities

 

 

6,122

 

 

 

6,185

 

Deferred income taxes

 

 

5,967

 

 

 

6,847

 

Total liabilities

 

 

199,728

 

 

 

199,306

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.10 par value (500,000,000 shares authorized; 18,505,446 and 18,462,296

   shares issued and outstanding as of December 29, 2019 and June 30, 2019, respectively)

 

 

1,851

 

 

 

1,846

 

Capital in excess of par value

 

 

61,187

 

 

 

59,560

 

Retained earnings

 

 

378,789

 

 

 

374,668

 

Accumulated other comprehensive loss

 

 

(46,348

)

 

 

(43,229

)

Total shareholders’ equity

 

 

395,479

 

 

 

392,845

 

Total liabilities and shareholders’ equity

 

$

595,207

 

 

$

592,151

 

 

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 29, 2019

 

 

December 30, 2018

 

 

December 29, 2019

 

 

December 30, 2018

 

Net sales

 

$

169,511

 

 

$

167,711

 

 

$

349,460

 

 

$

349,322

 

Cost of sales

 

 

153,846

 

 

 

153,555

 

 

 

316,352

 

 

 

315,147

 

Gross profit

 

 

15,665

 

 

 

14,156

 

 

 

33,108

 

 

 

34,175

 

Selling, general and administrative

  expenses

 

 

12,508

 

 

 

14,822

 

 

 

23,488

 

 

 

29,233

 

(Benefit) provision for bad debts

 

 

(258

)

 

 

32

 

 

 

(249

)

 

 

163

 

Other operating expense (income), net

 

 

854

 

 

 

99

 

 

 

962

 

 

 

(141

)

Operating income (loss)

 

 

2,561

 

 

 

(797

)

 

 

8,907

 

 

 

4,920

 

Interest income

 

 

(212

)

 

 

(152

)

 

 

(422

)

 

 

(299

)

Interest expense

 

 

1,101

 

 

 

1,355

 

 

 

2,358

 

 

 

2,822

 

Loss on extinguishment of debt

 

 

 

 

 

131

 

 

 

 

 

 

131

 

Equity in loss (earnings) of unconsolidated

  affiliates

 

 

756

 

 

 

(1,014

)

 

 

1,622

 

 

 

(1,253

)

Income (loss) before income taxes

 

 

916

 

 

 

(1,117

)

 

 

5,349

 

 

 

3,519

 

Provision (benefit) for income taxes

 

 

507

 

 

 

(2,288

)

 

 

1,228

 

 

 

536

 

Net income

 

$

409

 

 

$

1,171

 

 

$

4,121

 

 

$

2,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

Basic

 

$

0.02

 

 

$

0.06

 

 

$

0.22

 

 

$

0.16

 

Diluted

 

$

0.02

 

 

$

0.06

 

 

$

0.22

 

 

$

0.16

 

 

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 29, 2019

 

 

December 30, 2018

 

 

December 29, 2019

 

 

December 30, 2018

 

Net income

 

$

409

 

 

$

1,171

 

 

$

4,121

 

 

$

2,983

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

2,942

 

 

 

1,986

 

 

 

(3,216

)

 

 

(1,509

)

Foreign currency translation adjustments for an

   unconsolidated affiliate

 

 

306

 

 

 

(303

)

 

 

136

 

 

 

42

 

Changes in interest rate swaps, net of tax of $0,

   $219, $0 and $219, respectively

 

 

289

 

 

 

(953

)

 

 

(39

)

 

 

(725

)

Other comprehensive income (loss), net

 

 

3,537

 

 

 

730

 

 

 

(3,119

)

 

 

(2,192

)

Comprehensive income

 

$

3,946

 

 

$

1,901

 

 

$

1,002

 

 

$

791

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

For the Six Months Ended

 

 

 

December 29, 2019

 

 

December 30, 2018

 

Cash and cash equivalents at beginning of period

 

$

22,228

 

 

$

44,890

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

 

4,121

 

 

 

2,983

 

Adjustments to reconcile net income to net cash

   provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Equity in loss (earnings) of unconsolidated affiliates

 

 

1,622

 

 

 

(1,253

)

Distributions received from unconsolidated affiliates

 

 

10,437

 

 

 

630

 

Depreciation and amortization expense

 

 

11,610

 

 

 

11,652

 

Non-cash compensation expense

 

 

1,837

 

 

 

3,039

 

Deferred income taxes

 

 

(878

)

 

 

(332

)

Other, net

 

 

(64

)

 

 

(269

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables, net

 

 

9,873

 

 

 

6,504

 

Inventories

 

 

(1,330

)

 

 

(17,139

)

Other current assets

 

 

(2,159

)

 

 

(3,163

)

Income taxes

 

 

(249

)

 

 

1,088

 

Accounts payable and accrued expenses

 

 

(6,298

)

 

 

(8,263

)

Other, net

 

 

113

 

 

 

548

 

Net cash provided by (used in) operating activities

 

 

28,635

 

 

 

(3,975

)

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(8,335

)

 

 

(12,342

)

Other, net

 

 

60

 

 

 

(20

)

Net cash used in investing activities

 

 

(8,275

)

 

 

(12,362

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from ABL Revolver

 

 

41,100

 

 

 

53,500

 

Payments on ABL Revolver

 

 

(38,000

)

 

 

(65,100

)

Proceeds from ABL Term Loan

 

 

 

 

 

20,000

 

Payments on ABL Term Loan

 

 

(5,000

)

 

 

(5,000

)

Payments on finance lease obligations

 

 

(3,085

)

 

 

(3,583

)

Proceeds from stock option exercises

 

 

29

 

 

 

244

 

Payments of debt financing fees

 

 

 

 

 

(665

)

Other

 

 

(99

)

 

 

(690

)

Net cash used in financing activities

 

 

(5,055

)

 

 

(1,294

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(323

)

 

 

(606

)

Net increase (decrease) in cash and cash equivalents

 

 

14,982

 

 

 

(18,237

)

Cash and cash equivalents at end of period

 

$

37,210

 

 

$

26,653

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

4


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

1.  Background

Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, “UNIFI,” the “Company,” “we,” “us” or “our”), is a multi-national company that manufactures and sells innovative recycled and synthetic products made from polyester and nylon primarily to other yarn manufacturers and knitters and weavers (UNIFI’s direct customers) that produce yarn and/or fabric for the apparel, hosiery, home furnishings, automotive, industrial and other end-use markets (UNIFI’s indirect customers).  We refer to these indirect customers as “brand partners.” Polyester filament yarns include partially oriented yarn (“POY”), textured, solution and package dyed, twisted, beamed and draw wound yarns, and each is available in virgin or recycled varieties. Recycled solutions, made from both pre-consumer and post-consumer waste, include plastic bottle flake (“Flake”), polyester polymer beads (“Chip”) and staple fiber.  Nylon yarns include virgin or recycled textured, solution dyed and spandex covered yarns.

UNIFI maintains one of the textile industry’s most comprehensive product offerings that include a range of specialized, premium value-added (“PVA”) and commodity solutions, with principal geographic markets in the Americas, Asia and Europe.

UNIFI has direct manufacturing operations in four countries and participates in joint ventures with operations in Israel, Mexico and the United States (“U.S.”), the most significant of which is a 34% non-controlling partnership interest in Parkdale America, LLC (“PAL”), a significant unconsolidated affiliate that produces cotton and synthetic yarns for sale to the global textile industry and apparel market.  

 

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 U.S. (“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 UNIFI’s year-end audited consolidated financial statements and related notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended June 30, 2019 (the “2019 Form 10-K”).

The financial information included in this report has been prepared by UNIFI, without audit.  In the opinion of management, all adjustments, which consist of normal, recurring adjustments, considered necessary for a fair statement of the results for interim periods have been included.  Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year.  The preparation of financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the amounts reported and certain financial statement disclosures.  Actual results may vary from these estimates.

All amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted.

The fiscal quarter for each of Unifi, Inc., its primary domestic operating subsidiaries and its subsidiary in El Salvador ended on December 29, 2019, the Sunday nearest to December 31, 2019. Unifi, Inc.’s remaining material operating subsidiaries’ fiscal quarter ended on December 31, 2019. There were no significant transactions or events that occurred between Unifi, Inc.’s fiscal quarter end and such wholly owned subsidiaries’ subsequent fiscal quarter end. The three-month periods ended December 29, 2019 and December 30, 2018 consisted of 13 weeks.  For the primary subsidiaries in the U.S. and Central America, the six-month period ended December 29, 2019 consisted of 26 weeks and the six-month period ended December 30, 2018 consisted of 27 weeks.   

 

 

3.  Recent Accounting Pronouncements

Issued and Pending Adoption

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses. The new guidance requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will begin to use forward-looking information to better inform their credit loss estimates. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and for interim periods therein, thus beginning with UNIFI’s fiscal 2021 and associated first fiscal quarter. UNIFI has not and does not expect to early adopt this standard. UNIFI does not expect this standard will have a material impact on its consolidated financial position, results of operations or cash flows.

Recently Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). 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. The new lease guidance was adopted in the first quarter of fiscal 2020, and adoption is described in more detail in Note 4, “Leases.”

Relating to the transition to ASU No. 2016-02, PAL expects to adopt the new lease guidance in its fiscal year 2021 ending on January 1, 2022. PAL is currently evaluating the impact of the new lease guidance.

In fiscal 2019, UNIFI adopted the new revenue recognition guidance prescribed by ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 5, Revenue Recognition,” for further detail regarding adoption and additional disclosures.

Under the guidance in the SEC Staff Announcement on July 20, 2017 relating to the transition to ASU No. 2014-09, due to its status as a significant subsidiary of Unifi, Inc., PAL adopted the new revenue recognition guidance as of December 28, 2019, with no material impact on its consolidated financial position, results of operations or cash flows in connection with the adoption.

5


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

Based on UNIFI’s review of ASUs issued since the filing of the 2019 Form 10-K, there have been no other newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a significant impact on UNIFI’s consolidated financial statements.

 

4.  Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).  UNIFI adopted the new lease guidance utilizing the modified retrospective transition method, applied at the date of adoption, recording existing leases as of the effective date, July 1, 2019. Under this method, no adjustment to comparative prior periods is required and, accordingly, financial statement information and disclosures required under Topic 842 will not be provided for dates and periods prior to July 1, 2019.  UNIFI made no adjustment to the July 1, 2019 opening retained earnings balance for fiscal 2020.

 

UNIFI adopted the following practical expedients and elected the following accounting policies related to this standard update:

 

carry forward of historical lease classifications and accounting treatment for existing land easements;

 

not to reassess whether any expired or existing contracts are or contain leases;

 

not to reassess initial direct costs for any existing leases;

 

the use of hindsight;

 

short-term lease accounting policy election allowing lessees to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less and to recognize lease payments on a straight-line basis over the lease term and variable payments in the period the obligation is incurred; and

 

the option to not separate lease and non-lease components for the transportation equipment asset class.

UNIFI routinely leases sales and administrative office space, warehousing and distribution centers, manufacturing space, transportation equipment, manufacturing equipment, and other information technology and office equipment from third parties.  The lease terms range from 1 to 15 years with various options for renewal. There are no residual value guarantees, restrictions, covenants or sub-leases related to these leases.  Variable lease payments are determined as the amounts included in the lease payment that are based on the change in index or usage.  The adoption of this standard resulted in the recognition of operating lease right-of-use assets of $9,802 and corresponding lease liabilities of $10,105 with the difference adjusting prepayments and accruals on the consolidated balance sheet as of July 1, 2019. UNIFI’s accounting for finance leases remained substantially unchanged. The standard did not materially impact operating results or liquidity. Disclosures related to the amount, timing and uncertainty of cash flows arising from leases are included below.

The following table sets forth the balance sheet location and values of the Company’s lease assets and lease liabilities at December 29, 2019:

Classification

 

Balance Sheet Location

 

December 29, 2019

 

Lease Assets

 

 

 

 

 

 

Operating lease assets

 

Operating lease assets

 

$

6,606

 

Finance lease assets

 

Property, plant & equipment, net

 

 

25,733

 

Total lease assets

 

 

 

$

32,339

 

 

 

 

 

 

 

 

Lease Liabilities

 

 

 

 

 

 

Current operating lease liabilities

 

Current operating lease liabilities

 

$

1,734

 

Current finance lease liabilities

 

Current portion of long-term debt

 

 

4,760

 

Total current lease liabilities

 

 

 

$

6,494

 

 

 

 

 

 

 

 

Non-current operating lease liabilities

 

Non-current operating lease liabilities

 

$

4,980

 

Non-current finance lease liabilities

 

Long-term debt

 

 

9,572

 

Total non-current lease liabilities

 

 

 

$

14,552

 

 

 

 

 

 

 

 

Total lease liabilities

 

 

 

$

21,046

 

The following table sets forth the components of UNIFI’s total lease cost for the three months and six months ended December 29, 2019:

 

 

For the Three

 

 

For the Six

 

 

 

Months Ended

 

 

Months Ended

 

Lease Cost

 

December 29, 2019

 

 

December 29, 2019

 

Operating lease cost

 

$

741

 

 

$

1,594

 

Variable lease cost

 

 

107

 

 

 

197

 

Finance lease cost:

 

 

 

 

 

 

 

 

   Amortization of lease assets

 

 

678

 

 

 

1,205

 

   Interest on lease liabilities

 

 

101

 

 

 

201

 

Short-term lease cost

 

 

206

 

 

 

547

 

Total lease cost

 

$

1,833

 

 

$

3,744

 

6


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

The following table presents supplemental information related to leases at December 29, 2019:

 

 

For the Six

 

 

 

Months Ended

 

Other Information

 

December 29, 2019

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

   Operating cash flows used by operating leases

 

$

1,594

 

   Financing cash flows used by finance leases

 

$

3,085

 

Non-cash activities:

 

 

 

 

Leased assets obtained in exchange for new operating lease liabilities

 

$

85

 

Leased assets obtained in exchange for new finance lease liabilities

 

$

6,301

 

UNIFI calculates its operating lease liabilities and finance lease liabilities entered into after the adoption of the new lease standard based upon UNIFI’s incremental borrowing rate (the “IBR”). When determining the IBR, we consider our centralized treasury function and our current credit profile. We then make adjustments to this rate for securitization, the length of the lease term, and leases denominated in foreign currencies. Generally, the IBR for each jurisdiction is the specific risk-free rate for the respective jurisdiction incremented for UNIFI’s corporate credit risk.

The following table sets forth UNIFI's weighted average remaining lease term in years and discount rate percentage used in the calculation of its outstanding lease liabilities as of December 29, 2019:

Weighted Average Remaining Lease Term and Discount Rate

 

December 29, 2019

 

Weighted average remaining lease term (years):

 

 

 

 

  Operating leases

 

 

4.5

 

  Finance leases

 

 

4.3

 

Weighted average discount rate (percentage):

 

 

 

 

  Operating leases

 

 

3.9

%

  Finance leases

 

 

3.6

%

Lease Maturity Analysis

Future minimum finance lease payments and future minimum payments under non-cancelable operating leases with initial lease terms in excess of one year under Topic 842 as of December 29, 2019 by fiscal year were:

Maturity of Lease Liabilities

 

Finance Leases

 

 

Operating Leases

 

Fiscal 2020

 

$

3,226

 

 

$

1,016

 

Fiscal 2021

 

 

3,989

 

 

 

1,870

 

Fiscal 2022

 

 

3,684

 

 

 

1,418

 

Fiscal 2023

 

 

1,260

 

 

 

1,252

 

Fiscal 2024

 

 

1,307

 

 

 

1,115

 

Fiscal years thereafter

 

 

2,625

 

 

 

688

 

Total minimum lease payments

 

$

16,091

 

 

$

7,359

 

Less estimated executory costs

 

 

(607

)

 

 

 

Less imputed interest

 

 

(1,152

)

 

 

(645

)

Present value of net minimum lease payments

 

 

14,332

 

 

 

6,714

 

Less current portion of lease obligations

 

 

(4,760

)

 

 

(1,734

)

Long-term portion of lease obligations

 

$

9,572

 

 

$

4,980

 

Prior Year Disclosure

As reported in the 2019 Form 10-K under the previous accounting guidance, future minimum capital lease payments and future minimum lease payments under non-cancelable operating leases with initial lease terms in excess of one year as of June 30, 2019 by fiscal year were:

 

 

Capital Leases

 

 

Operating Leases

 

Fiscal 2020

 

$

5,917

 

 

$

3,164

 

Fiscal 2021

 

 

2,870

 

 

 

2,731

 

Fiscal 2022

 

 

2,565

 

 

 

1,492

 

Fiscal 2023

 

 

189

 

 

 

878

 

Fiscal 2024

 

 

189

 

 

 

755

 

Fiscal years thereafter

 

 

675

 

 

 

309

 

Total minimum lease payments

 

$

12,405

 

 

$

9,329

 

Less estimated executory costs

 

 

(644

)

 

 

 

 

Less interest

 

 

(643

)

 

 

 

 

Present value of net minimum capital lease payments

 

 

11,118

 

 

 

 

 

Less current portion of capital lease obligations

 

 

(5,519

)

 

 

 

 

Long-term portion of capital lease obligations

 

$

5,599

 

 

 

 

 

 

7


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

Rental expenses incurred under the operating leases and included in operating income consist of the following:

 

 

For the Fiscal Year Ended

 

 

 

June 30, 2019

 

 

June 24, 2018

 

 

June 25, 2017

 

Rental expenses

 

$

4,915

 

 

$

4,835

 

 

$

4,357

 

 

5.  Revenue Recognition

The following table presents disaggregated revenues for UNIFI:

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 29, 2019

 

 

December 30, 2018

 

 

December 29, 2019

 

 

December 30, 2018

 

Third-party manufacturer

 

$

167,537

 

 

$

165,338

 

 

$

345,557

 

 

$

344,659

 

Service

 

 

1,974

 

 

 

2,373

 

 

 

3,903

 

 

 

4,663

 

Net sales

 

$

169,511

 

 

$

167,711

 

 

$

349,460

 

 

$

349,322

 

Third-Party Manufacturer

Third-party manufacturer revenue is primarily generated through sales to direct customers. Such sales represent satisfaction of UNIFI’s performance obligations required by the associated revenue contracts. Each of UNIFI’s reportable segments derives revenue from sales to third-party manufacturers.

Service Revenue

Service revenue is primarily generated, as services are rendered, through fulfillment of toll manufacturing of textile products or transportation services governed by written agreements. Such toll manufacturing and transportation services represent satisfaction of UNIFI’s performance obligations required by the associated revenue contracts. The Polyester Segment derives service revenue for toll manufacturing, and the All Other category derives service revenue for transportation services.

Variable Consideration

Volume-based incentives

Volume-based incentives involve rebates or refunds of cash that are redeemable if the customer satisfies certain order volume thresholds during a defined time period. Under these incentive programs, UNIFI estimates the anticipated rebate to be paid and allocates a portion of the estimated cost of the rebate to each underlying sales transaction with the customer.

Product claims

UNIFI generally offers customers claims support or remuneration for defective products. UNIFI estimates the amount of its product sales that may be claimed as defective by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized.

For all variable consideration, where appropriate, UNIFI estimates the amount using the expected value method, which takes into consideration historical experience, current contractual requirements, specific known market events and forecasted customer buying and payment patterns. Overall, these reserves reflect UNIFI’s best estimates of the amount of consideration to which the customer is entitled based on the terms of the contracts.

 

6.  Receivables, Net

Receivables, net consists of the following:

 

 

 

December 29, 2019

 

 

June 30, 2019

 

Customer receivables

 

$

78,786

 

 

$

89,495

 

Allowance for uncollectible accounts

 

 

(1,965

)

 

 

(2,338

)

Reserves for quality claims

 

 

(1,161

)

 

 

(961

)

Net customer receivables

 

 

75,660

 

 

 

86,196

 

Other receivables

 

 

2,472

 

 

 

2,688

 

Total receivables, net

 

$

78,132

 

 

$

88,884

 

 

There have been no material changes in UNIFI’s allowance for uncollectible accounts or reserves for yarn quality claims since June 30, 2019. 

 

8


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

7.  Inventories

Inventories consists of the following:

 

 

 

December 29, 2019

 

 

June 30, 2019

 

Raw materials

 

$

53,448

 

 

$

55,531

 

Supplies

 

 

9,550

 

 

 

9,020

 

Work in process

 

 

7,358

 

 

 

8,510

 

Finished goods

 

 

66,001

 

 

 

63,111

 

Gross inventories

 

 

136,357

 

 

 

136,172

 

Inventory reserves

 

 

(2,464

)

 

 

(2,391

)

Total inventories

 

$

133,893

 

 

$

133,781

 

 

8.  Other Current Assets

 

Other current assets consists of the following:

 

 

 

December 29, 2019

 

 

June 30, 2019

 

Contract assets

 

$

8,505

 

 

$

7,794

 

Vendor deposits

 

 

3,573

 

 

 

4,187

 

Value-added taxes receivable

 

 

3,735

 

 

 

2,519

 

Prepaid expenses

 

 

2,498

 

 

 

1,856

 

Total other current assets

 

$

18,311

 

 

$

16,356

 

 

9.  Property, Plant and Equipment, Net

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

 

 

 

December 29, 2019

 

 

June 30, 2019

 

Land

 

$

3,273

 

 

$

3,138

 

Land improvements

 

 

15,511

 

 

 

15,249

 

Buildings and improvements

 

 

161,388

 

 

 

161,566

 

Assets under finance leases

 

 

33,025

 

 

 

31,897

 

Machinery and equipment

 

 

607,166

 

 

 

603,950

 

Computers, software and office equipment

 

 

22,602

 

 

 

23,011

 

Transportation equipment

 

 

5,927

 

 

 

5,809

 

Construction in progress

 

 

4,560

 

 

 

6,483

 

Gross PP&E

 

 

853,452

 

 

 

851,103

 

Less: accumulated depreciation

 

 

(636,910

)

 

 

(636,135

)

Less: accumulated amortization – finance leases

 

 

(7,292

)

 

 

(8,181

)

Total PP&E, net

 

$

209,250

 

 

$

206,787

 

 

Depreciation expense and repair and maintenance expenses were as follows:

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

December 29, 2019

 

 

December 30, 2018

 

 

December 29, 2019

 

 

December 30, 2018

 

Depreciation expense

 

$

5,649

 

 

$

5,261

 

 

$

11,059

 

 

$

10,924

 

Repair and maintenance expenses

 

 

4,848

 

 

 

4,987

 

 

 

9,322

 

 

 

10,847

 

 

10.  Accrued Expenses

Accrued expenses consists of the following:

 

 

 

December 29, 2019

 

 

June 30, 2019

 

Payroll and fringe benefits

 

$

8,044

 

 

$

9,775

 

Deferred revenue

 

 

3,518

 

 

 

516

 

Severance

 

 

1,015

 

 

 

2,058

 

Other

 

 

3,224

 

 

 

4,500

 

Total accrued expenses

 

$

15,801

 

 

$

16,849

 

 

9


Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

11.  Long-Term Debt

Debt Obligations

The following table presents the total balances outstanding for UNIFI’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 29, 2019

 

 

December 29, 2019

 

 

June 30, 2019

 

ABL Revolver

 

December 2023

 

3.0%

 

 

$

22,500

 

 

$

19,400

 

ABL Term Loan (1)

 

December 2023

 

3.1%

 

 

 

92,500

 

 

 

97,500

 

Finance lease obligations

 

(2)

 

3.6%

 

 

 

14,332

 

 

 

11,118

 

Total debt

 

 

 

 

 

 

 

 

129,332

 

 

 

128,018

 

Current ABL Term Loan