UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberDecember 29, 2013
OR
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-10542
UNIFI, INC.
(Exact name of registrant as specified in its charter)
New York | 11-2165495 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
|
| |
| ||
Greensboro, NC |
| 27419-9109 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:(336) 294-4410
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ X ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer [X] | Non-accelerated filer [ ] | Smaller reporting company [ ] | |
(Do not check if a smaller reporting company) | ||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares outstanding of the issuer’s common stock, par value $.10 per share, as of NovemberFebruary 4, 20132014 was 19,139,087.19,040,083.
UNIFI, INC.
FORM 10-Q FOR THE QUARTERLY PERIODQUARTER ENDED SEPTEMBERDECEMBER 29, 2013
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION | ||||
Page | ||||
Item 1. | Financial Statements: | |||
Condensed Consolidated Balance Sheets as of | 3 | |||
Condensed Consolidated Statements of Income for the Three Months and SixMonths Ended
| 4 | |||
Condensed Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended | 5 | |||
Condensed Consolidated Statements of Shareholders’ Equity for the SixMonths Ended | 6 | |||
Condensed Consolidated Statements of Cash Flows for the
| 7 | |||
Notes to Condensed Consolidated Financial Statements | 8 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |||
Item 4. | Controls and Procedures | |||
Part II. OTHER INFORMATION | ||||
Item 1. | Legal Proceedings | |||
Item 1A. | Risk Factors | |||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||
Item 3. | Defaults Upon Senior Securities | |||
Item 4. | Mine Safety Disclosures | |||
Item 5. | Other Information | |||
Item 6. | Exhibits | |||
Signatures | ||||
Exhibit Index | ||||
| 48 | ||||
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(amounts in thousands, except share and per share amounts)
September 29, 2013 | June 30, 2013 | December 29, 2013 | June 30, 2013 | |||||||||||||
ASSETS | ||||||||||||||||
Cash and cash equivalents | $ | 10,310 | $ | 8,755 | $ | 15,522 | $ | 8,755 | ||||||||
Receivables, net | 90,097 | 98,392 | 77,536 | 98,392 | ||||||||||||
Inventories | 114,432 | 110,667 | 110,765 | 110,667 | ||||||||||||
Income taxes receivable | 396 | 1,388 | 1,374 | 1,388 | ||||||||||||
Deferred income taxes | 1,996 | 1,715 | 1,831 | 1,715 | ||||||||||||
Other current assets | 8,668 | 5,913 | 5,371 | 5,913 | ||||||||||||
Total current assets | 225,899 | 226,830 | 212,399 | 226,830 | ||||||||||||
Property, plant and equipment, net | 115,574 | 115,164 | 116,562 | 115,164 | ||||||||||||
Deferred income taxes | 2,413 | 2,196 | 2,590 | 2,196 | ||||||||||||
Intangible assets, net | 7,340 | 7,772 | 8,549 | 7,772 | ||||||||||||
Investments in unconsolidated affiliates | 96,888 | 93,261 | 101,562 | 93,261 | ||||||||||||
Other non-current assets | 5,149 | 10,243 | 4,510 | 10,243 | ||||||||||||
Total assets | $ | 453,263 | $ | 455,466 | $ | 446,172 | $ | 455,466 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
Accounts payable | $ | 40,275 | $ | 45,544 | $ | 35,740 | $ | 45,544 | ||||||||
Accrued expenses | 13,576 | 18,485 | 12,517 | 18,485 | ||||||||||||
Income taxes payable | 1,879 | 851 | 417 | 851 | ||||||||||||
Current portion of long-term debt | 1,316 | 65 | 1,316 | 65 | ||||||||||||
Total current liabilities | 57,046 | 64,945 | 49,990 | 64,945 | ||||||||||||
Long-term debt | 96,023 | 97,688 | 101,508 | 97,688 | ||||||||||||
Other long-term liabilities | 5,250 | 5,053 | 6,950 | 5,053 | ||||||||||||
Deferred income taxes | 1,831 | 1,300 | 1,991 | 1,300 | ||||||||||||
Total liabilities | 160,150 | 168,986 | 160,439 | 168,986 | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Common stock, $0.10 par (500,000,000 shares authorized, 19,289,087 and 19,205,209 shares outstanding) | 1,929 | 1,921 | ||||||||||||||
Common stock, $0.10 par (500,000,000 shares authorized,19,035,918 and 19,205,209 shares outstanding) | 1,904 | 1,921 | ||||||||||||||
Capital in excess of par value | 39,806 | 36,375 | 42,814 | 36,375 | ||||||||||||
Retained earnings | 255,724 | 252,112 | 248,242 | 252,112 | ||||||||||||
Accumulated other comprehensive loss | (5,667 | ) | (5,500 | ) | (8,662 | ) | (5,500 | ) | ||||||||
Total Unifi, Inc. shareholders’ equity | 291,792 | 284,908 | 284,298 | 284,908 | ||||||||||||
Non-controlling interest | 1,321 | 1,572 | 1,435 | 1,572 | ||||||||||||
Total shareholders’ equity | 293,113 | 286,480 | 285,733 | 286,480 | ||||||||||||
Total liabilities and shareholders’ equity | $ | 453,263 | $ | 455,466 | $ | 446,172 | $ | 455,466 | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(amounts in thousands, except per share amounts)
For The Three Months Ended | For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
September 29, 2013 | September 23, 2012 | December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||||||||
Net sales | $ | 168,669 | $ | 172,900 | $ | 160,617 | $ | 172,071 | $ | 329,286 | $ | 344,971 | ||||||||||||
Cost of sales | 148,684 | 154,880 | 142,120 | 155,380 | 290,804 | 310,260 | ||||||||||||||||||
Gross profit | 19,985 | 18,020 | 18,497 | 16,691 | 38,482 | 34,711 | ||||||||||||||||||
Selling, general and administrative expenses | 10,114 | 11,147 | 11,491 | 11,532 | 21,605 | 22,679 | ||||||||||||||||||
(Benefit) provision for bad debts | (38 | ) | 110 | |||||||||||||||||||||
Provision for bad debts | 87 | 73 | 49 | 183 | ||||||||||||||||||||
Other operating expense, net | 1,624 | 581 | 1,145 | 580 | 2,769 | 1,161 | ||||||||||||||||||
Operating income | 8,285 | 6,182 | 5,774 | 4,506 | 14,059 | 10,688 | ||||||||||||||||||
Interest income | (1,214 | ) | (124 | ) | (142 | ) | (144 | ) | (1,356 | ) | (268 | ) | ||||||||||||
Interest expense | 1,252 | 1,444 | 903 | 1,361 | 2,155 | 2,805 | ||||||||||||||||||
Loss on extinguishment of debt | — | 242 | — | 114 | — | 356 | ||||||||||||||||||
Equity in earnings of unconsolidated affiliates | (6,123 | ) | (671 | ) | (5,122 | ) | (1,258 | ) | (11,245 | ) | (1,929 | ) | ||||||||||||
Income before income taxes | 14,370 | 5,291 | 10,135 | 4,433 | 24,505 | 9,724 | ||||||||||||||||||
Provision for income taxes | 5,751 | 3,233 | 3,924 | 2,216 | 9,675 | 5,449 | ||||||||||||||||||
Net income including non-controlling interest | 8,619 | 2,058 | 6,211 | 2,217 | 14,830 | 4,275 | ||||||||||||||||||
Less: net (loss) attributable to non-controlling interest | (251 | ) | (236 | ) | (232 | ) | (209 | ) | (483 | ) | (445 | ) | ||||||||||||
Net income attributable to Unifi, Inc. | $ | 8,870 | $ | 2,294 | $ | 6,443 | $ | 2,426 | $ | 15,313 | $ | 4,720 | ||||||||||||
Net income attributable to Unifi, Inc. per common share: | ||||||||||||||||||||||||
Basic | $ | 0.46 | $ | 0.11 | $ | 0.34 | $ | 0.12 | $ | 0.80 | $ | 0.23 | ||||||||||||
Diluted | $ | 0.44 | $ | 0.11 | $ | 0.32 | $ | 0.12 | $ | 0.76 | $ | 0.23 | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(amounts in thousands)
For The Three Months Ended September 29, 2013 September 23, 2012 Net income including non-controlling interest Other comprehensive (loss) income: Foreign currency translation adjustments Gain on cash flow hedges for an unconsolidated affiliate Gain (loss) on cash flow hedges, net of reclassification adjustments Other comprehensive (loss) income before income taxes Income tax benefit provided on cash flow hedges Other comprehensive (loss) income, net Comprehensive income including non-controlling interest Less: comprehensive (loss) attributable to non-controlling interest Comprehensive income attributable to Unifi, Inc. $ 8,619 $ 2,058 (322 ) (312 ) — 1,003 155 (452 ) (167 ) 239 — 178 (167 ) 417 8,452 2,475 (251 ) (236 ) $ 8,703 $ 2,711
See accompanying Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
For the Three Months Ended September 29, 2013
(amounts in thousands)
Shares Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Total Unifi, Inc. Shareholders’ Equity Non- controlling Interest Total Shareholders’ Equity Balance at June 30, 2013 Options exercised Stock-based compensation Conversion of restricted stock units Repurchase and retirement of common stock Excess tax benefit on stock-based compensation plans Other comprehensive loss, net Net income (loss) Balance at September 29, 2013 19,205 $ 1,921 $ 36,375 $ 252,112 $ (5,500 ) $ 284,908 $ 1,572 $ 286,480 302 30 2,343 — — 2,373 — 2,373 — — 258 — — 258 — 258 31 3 (3 ) — — — — — (249 ) (25 ) (485 ) (5,258 ) — (5,768 ) — (5,768 ) — — 1,318 — — 1,318 — 1,318 — — — — (167 ) (167 ) — (167 ) — — — 8,870 — 8,870 (251 ) 8,619 19,289 $ 1,929 $ 39,806 $ 255,724 $ (5,667 ) $ 291,792 $ 1,321 $ 293,113
See accompanying Notes to Condensed Consolidated Financial Statements.
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||
Net income including non-controlling interest | $ | 6,211 | $ | 2,217 | $ | 14,830 | $ | 4,275 | ||||||||
Other comprehensive (loss) income: | ||||||||||||||||
Foreign currency translation adjustments | (3,140 | ) | (352 | ) | (3,462 | ) | (664 | ) | ||||||||
Gain on cash flow hedges for an unconsolidated affiliate | — | 225 | — | 1,228 | ||||||||||||
Gain (loss) on cash flow hedges, net of reclassification adjustments | 145 | 159 | 300 | (293 | ) | |||||||||||
Other comprehensive (loss) income before income taxes | (2,995 | ) | 32 | (3,162 | ) | 271 | ||||||||||
Income tax (provision) benefit provided on cash flow hedges | — | (62 | ) | — | 116 | |||||||||||
Other comprehensive (loss) income, net | (2,995 | ) | (30 | ) | (3,162 | ) | 387 | |||||||||
Comprehensive income including non-controlling interest | 3,216 | 2,187 | 11,668 | 4,662 | ||||||||||||
Less: comprehensive (loss) attributable to non-controlling interest | (232 | ) | (209 | ) | (483 | ) | (445 | ) | ||||||||
Comprehensive income attributable to Unifi, Inc. | $ | 3,448 | $ | 2,396 | $ | 12,151 | $ | 5,107 | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(amounts in thousands)
For The Three Months Ended September 29, 2013 September 23, 2012 Cash and cash equivalents at beginning of year Operating activities: Net income including non-controlling interest Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities: Equity in earnings of unconsolidated affiliates Dividends received from unconsolidated affiliates Depreciation and amortization expense Loss on extinguishment of debt Non-cash compensation expense Excess tax benefit on stock-based compensation plans Deferred income taxes Other Changes in assets and liabilities, excluding effects of foreign currency adjustments: Receivables, net Inventories Other current assets and income taxes receivable Accounts payable and accrued expenses Income taxes payable Net cash provided by operating activities Investing activities: Capital expenditures Proceeds from sale of assets Proceeds from other investments Other Net cash used in investing activities Financing activities: Proceeds from revolving credit facilities Payments on revolving credit facilities Proceeds from term loan Payments on term loan Payments of debt financing fees Proceeds from related party term loan Repurchase and retirement of common stock Proceeds from stock option exercises Contributions from non-controlling interest Excess tax benefit on stock-based compensation plans Other Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents at end of period $ 8,755 $ 10,886 8,619 2,058 (6,123 ) (671 ) 2,559 2,224 4,408 6,517 — 242 414 621 (1,318 ) — 17 1,418 3,042 23 8,185 3,602 (3,981 ) (4,003 ) 1,517 600 (10,102 ) (7,204 ) 2,073 (1,046 ) 9,310 4,381 (5,691 ) (1,091 ) 245 36 141 — (36 ) (41 ) (5,341 ) (1,096 ) 32,100 17,500 (39,700 ) (14,000 ) 7,200 — — (6,450 ) (3 ) (46 ) — 1,250 (5,768 ) — 2,373 29 — 200 1,318 — (15 ) (38 ) (2,495 ) (1,555 ) 81 (24 ) 1,555 1,706 $ 10,310 $ 12,592
See accompanying Notes to Condensed Consolidated Financial Statements.
Unifi, Inc.CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
For the Six Months Ended December 29, 2013
(amounts in thousands)
Shares | Common Stock | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Loss | Total Unifi, Inc. Shareholders’ Equity | Non- controlling Interest | Total Shareholders’ Equity | |||||||||||||||||||||||||
Balance at June 30, 2013 | 19,205 | $ | 1,921 | $ | 36,375 | $ | 252,112 | $ | (5,500 | ) | $ | 284,908 | $ | 1,572 | $ | 286,480 | ||||||||||||||||
Options exercised | 767 | 77 | 6,339 | — | — | 6,416 | — | 6,416 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 1,211 | — | — | 1,211 | — | 1,211 | ||||||||||||||||||||||||
Conversion of restricted stock units | 31 | 3 | (3 | ) | — | — | — | — | — | |||||||||||||||||||||||
Common stock repurchased and retired under publicly announced program | (771 | ) | (77 | ) | (1,104 | ) | (17,506 | ) | — | (18,687 | ) | — | (18,687 | ) | ||||||||||||||||||
Common stock tendered to the Company for the exercise of stock options and retired | (134 | ) | (14 | ) | (3,540 | ) | (29 | ) | — | (3,583 | ) | — | (3,583 | ) | ||||||||||||||||||
Common stock tendered to the Company for withholding tax obligations and retired | (62 | ) | (6 | ) | — | (1,648 | ) | — | (1,654 | ) | — | (1,654 | ) | |||||||||||||||||||
Excess tax benefit on stock-based compensation plans | — | — | 3,536 | — | — | 3,536 | — | 3,536 | ||||||||||||||||||||||||
Other comprehensive loss, net | — | — | — | — | (3,162 | ) | (3,162 | ) | — | (3,162 | ) | |||||||||||||||||||||
Contributions from non-controlling interest | — | — | — | — | — | — | 346 | 346 | ||||||||||||||||||||||||
Net income (loss) | — | — | — | 15,313 | — | 15,313 | (483 | ) | 14,830 | |||||||||||||||||||||||
Balance at December 29, 2013 | 19,036 | $ | 1,904 | $ | 42,814 | $ | 248,242 | $ | (8,662 | ) | $ | 284,298 | $ | 1,435 | $ | 285,733 | ||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(amounts in thousands)
For The Six Months Ended | ||||||||
December 29, 2013 | December 23, 2012 | |||||||
Cash and cash equivalents at beginning of year | $ | 8,755 | $ | 10,886 | ||||
Operating activities: | ||||||||
Net income including non-controlling interest | 14,830 | 4,275 | ||||||
Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities: | ||||||||
Equity in earnings of unconsolidated affiliates | (11,245 | ) | (1,929 | ) | ||||
Dividends received from unconsolidated affiliates | 3,059 | 2,724 | ||||||
Depreciation and amortization expense | 8,625 | 12,997 | ||||||
Loss on extinguishment of debt | — | 356 | ||||||
Non-cash compensation expense | 1,611 | 1,326 | ||||||
Excess tax benefit on stock-based compensation plans | (3,536 | ) | — | |||||
Deferred income taxes | 25 | 3,159 | ||||||
Restructuring charges | 1,118 | — | ||||||
Other | 633 | 97 | ||||||
Changes in assets and liabilities, excluding effects of foreign currency adjustments: | ||||||||
Receivables, net | 19,829 | 10,447 | ||||||
Inventories | (1,609 | ) | 5,467 | |||||
Other current assets and income taxes receivable | 684 | (784 | ) | |||||
Accounts payable and accrued expenses | (17,645 | ) | (12,235 | ) | ||||
Income taxes payable | 3,137 | (1,161 | ) | |||||
Other non-current assets | 4,714 | — | ||||||
Net cash provided by operating activities | 24,230 | 24,739 | ||||||
Investing activities: | ||||||||
Capital expenditures | (9,431 | ) | (2,872 | ) | ||||
Other investments | — | (1,901 | ) | |||||
Proceeds from other investments | 392 | 281 | ||||||
Proceeds from sale of assets | 268 | 56 | ||||||
Other | (60 | ) | (55 | ) | ||||
Net cash used in investing activities | (8,831 | ) | (4,491 | ) | ||||
Financing activities: | ||||||||
Proceeds from revolving credit facility | 72,700 | 28,700 | ||||||
Payments on revolving credit facility | (74,800 | ) | (35,700 | ) | ||||
Proceeds from term loan | 7,200 | — | ||||||
Payments on term loans | — | (10,516 | ) | |||||
Payments of debt financing fees | (3 | ) | (63 | ) | ||||
Proceeds from related party term loan | — | 1,250 | ||||||
Common stock repurchased and retired under publicly announced program | (18,687 | ) | — | |||||
Common stock tendered to the Company for withholding tax obligations and retired | (1,654 | ) | — | |||||
Proceeds from stock option exercises | 2,833 | 29 | ||||||
Contributions from non-controlling interest | 346 | 480 | ||||||
Excess tax benefit on stock-based compensation plans | 3,536 | — | ||||||
Other | (28 | ) | (39 | ) | ||||
Net cash used in financing activities | (8,557 | ) | (15,859 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (75 | ) | (29 | ) | ||||
Net increase in cash and cash equivalents | 6,767 | 4,360 | ||||||
Cash and cash equivalents at end of period | $ | 15,522 | $ | 15,246 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements
(amounts in thousands, except per share amounts)
1. Background
Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, “we”, the “Company” or “Unifi”), is a multi-national manufacturing company that processes and sells high-volume commodity yarns, specialized yarns designed to meet certain customer specifications, and premier value-added (“PVA”) yarns with enhanced performance characteristics. The Company sells yarns made from polyester and nylon to other yarn manufacturers and knitters and weavers that produce fabric for the apparel, hosiery, sock, home furnishings, automotive upholstery, industrial and other end-use markets. The Company’s polyester products include polyester polymer beads (“Chip”), partially oriented yarn (“POY”), textured, solution and package dyed, draw wound, twisted and beamed yarns; each is available in virgin or recycled varieties (made from both pre-consumer yarn waste and post-consumer waste, including plastic bottles). The Company’s nylon products include textured, solution dyed and covered spandex products.
The Company maintains one of the industry’s most comprehensive yarn product offerings, and it has ten manufacturing operations in four countries and participates in joint ventures in Israel and the United States (“U.S.”). The Company’s principal markets are located in the U.S., Canada, Mexico, Central America and South America. In addition, the Company has a wholly-owned subsidiary in the People’s Republic of China (“China”) focused on the sale and promotion of the Company’s PVA and other specialty products in the Asian textile market, primarily in China, as well as into the European market.
2. Basis of Presentation; Condensed Notes
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. As contemplated by the instructions of the Securities and Exchange Commission to Form 10-Q, the following notes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to the Company’s year-end audited consolidated financial statements and notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended June 30, 2013 (the "2013“2013 Form 10-K"10-K”).
The financial information included in this report has been prepared by the Company, without audit. In the opinion of management, all adjustments considered necessary for a fair statement of the results for interim periods have been included. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The June 30, 2013 condensed consolidated balance sheet data was derived from the audited financial statements, but does not include all disclosures required by GAAP. 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, except as otherwise noted.
Fiscal Year
The Company’s current fiscal quarter ended on SeptemberDecember 29, 2013. The Company’s Brazilian, Colombian and Chinese subsidiaries report on a calendar period basis, with their fiscal quarter ending on September 30,December 31, 2013. There were no significant transactions or events that occurred between the Company’s fiscal quarter end and its subsidiaries’ fiscal quarter end for this period. The three months ended SeptemberDecember 29, 2013 and the three months ended SeptemberDecember 23, 2012 each consisted of thirteen week periods. The six months ended December 29, 2013 and the six months ended December 23, 2012 each consisted of twenty-six week periods.
Reclassifications
Certain reclassifications of prior years’ data have been made to conform to the current year presentation.
3. Recent Accounting Pronouncements
There have been no newly issued or newly applicable accounting pronouncements that have, or are expected to have, a significant impact on the Company's financial statements.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
4. Acquisition
On December 2, 2013, the Company acquired certain draw wound assets and the associated business from American Drawtech, a division of Dillon Yarn Corporation (“Dillon”), pursuant to the exercise of an option granted to the Company under the terms of a commissioning agreement with Dillon, for $2,934, which amount included accounts payable and an accrued contingent liability. The assets acquired include Dillon’s draw winding inventory and production machinery and equipment. This acquisition will increase the Company’s polyester production capacity and allow the Company to expand its presence in targeted industrial, belting, hose and thread markets by increasing its product offerings to include mid-tenacity flat yarns. Mr. Mitchel Weinberger, a member of the Board of Directors (the “Board”), is Dillon’s president and chief operating officer. Since the acquisition date, the business has generated $344 in net sales for the Company’s Polyester Segment.
The acquisition has been accounted for as a business combination, which requires assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date. The Company concluded that the acquisition did not represent a material business combination. The Company's preliminary estimates of the fair value of the assets acquired, liabilities assumed and consideration transferred are as follows:
Assets: | ||||
Inventory | $ | 434 | ||
Machinery and equipment | 835 | |||
Customer list | 1,615 | |||
Non-compete agreement | 50 | |||
Total assets | $ | 2,934 | ||
Liabilities: | ||||
Accounts payable | $ | 434 | ||
Contingent consideration | 2,500 | |||
Total liabilities | $ | 2,934 |
The preliminary estimate for the contingent consideration liability represents the present value of the expected future payments due to Dillon over the five-year period following the acquisition date. The payments are equal to one-half of the operating profit of the draw wound business, as calculated using an agreed upon definition. The preliminary assumptions for the contingent consideration liability were based on inputs not observable in the market and represent Level 3 fair value measurements. These estimates will be reviewed each quarter and any adjustment will be recorded through operating income. The Company estimates that $500 of contingent consideration will be paid to Dillon over the next twelve months and has recorded this amount in accrued expenses, with the remainder of the contingent consideration liability recorded in other long-term liabilities.
The customer list will be amortized over a nine year estimated useful life. The non-compete agreement will be amortized over the five year term of the agreement.
4.5. Receivables, Net
Receivables, net consist of the following:
September 29, 2013 | June 30, 2013 | December 29, 2013 | June 30, 2013 | |||||||||||||
Customer receivables | $ | 90,686 | $ | 99,324 | $ | 78,695 | $ | 99,324 | ||||||||
Allowance for uncollectible accounts | (933 | ) | (972 | ) | (997 | ) | (972 | ) | ||||||||
Reserves for yarn quality claims | (873 | ) | (893 | ) | (808 | ) | (893 | ) | ||||||||
Net customer receivables | 88,880 | 97,459 | 76,890 | 97,459 | ||||||||||||
Related party receivables | 498 | 204 | 67 | 204 | ||||||||||||
Other receivables | 719 | 729 | 579 | 729 | ||||||||||||
Total receivables, net | $ | 90,097 | $ | 98,392 | $ | 77,536 | $ | 98,392 | ||||||||
Other receivables consist primarily of receivables for duty drawback, amounts due from customers for returnable packaging, interest, value-added tax and refunds from vendors.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
The changes in the Company’s allowance for uncollectible accounts and reserves for yarn quality claims were as follows:
Allowance for Uncollectible Accounts Reserves for Yarn Quality Claims Balance at June 30, 2013 Charged to costs and expenses Charged to other accounts Deductions Balance at September 29, 2013 $ (972 ) $ (893 ) 38 (414 ) 1 (2 ) — 436 $ (933 ) $ (873 )
Allowance for Uncollectible Accounts | Reserves for Yarn Quality Claims | |||||||
Balance at June 30, 2013 | $ | (972 | ) | $ | (893 | ) | ||
Charged to costs and expenses | (49 | ) | (1,034 | ) | ||||
Charged to other accounts | 15 | 7 | ||||||
Deductions | 9 | 1,112 | ||||||
Balance at December 29, 2013 | $ | (997 | ) | $ | (808 | ) | ||
Amounts
For the allowance for uncollectible accounts, amounts charged to costs and expenses for the allowance for uncollectible accounts are reflected in the (Benefit) provision for bad debts. For the allowance for uncollectible accounts,debts, and deductions represent amounts written off which were deemed to not be collectible, net of any recoveries. Amounts charged to costs and expenses for the reserves for yarn quality claims are primarily reflected as a reduction of Net sales. For the reserve for yarn quality claims,net sales, and deductions represent adjustments to either increase or decrease claims based on negotiated amounts or actual versus estimated claim differences. Amounts charged to other accounts primarily include the impact of translating the activity of the Company’s foreign affiliates from their respective local currencies to the U.S. dollar.
6. Inventories
5. Inventories
Inventories consist of the following:
September 29, 2013 | June 30, 2013 | December 29, 2013 | June 30, 2013 | |||||||||||||
Raw materials | $ | 41,515 | $ | 42,001 | $ | 40,090 | $ | 42,001 | ||||||||
Supplies | 5,275 | 5,286 | 5,453 | 5,286 | ||||||||||||
Work in process | 6,960 | 6,237 | 5,990 | 6,237 | ||||||||||||
Finished goods | 61,938 | 58,179 | 60,413 | 58,179 | ||||||||||||
Gross inventories | 115,688 | 111,703 | 111,946 | 111,703 | ||||||||||||
Inventory reserves | (1,256 | ) | (1,036 | ) | (1,181 | ) | (1,036 | ) | ||||||||
Total inventories | $ | 114,432 | $ | 110,667 | $ | 110,765 | $ | 110,667 | ||||||||
The cost for the majority of the Company’s inventories is determined using the first-in, first-out method. Certain foreign inventories of $32,407$32,846 and $31,139 as of SeptemberDecember 29, 2013 and June 30, 2013, respectively, were valued under the average cost method.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)7. Other Current Assets
6. Other Current Assets
Other current assets consist of the following:
December 29, 2013 | June 30, 2013 | |||||||
Vendor deposits | $ | 2,079 | $ | 2,633 | ||||
Value added taxes receivable | 1,055 | 1,729 | ||||||
Prepaid expenses | 1,740 | 1,376 | ||||||
Other investments | 450 | 166 | ||||||
Other | 47 | 9 | ||||||
Total other current assets | $ | 5,371 | $ | 5,913 | ||||
September 29, 2013 June 30, 2013 Vendor deposits Value added taxes receivable Prepaid expenses Other investments Other Total other current assets $ 5,386 $ 2,633 1,695 1,729 1,388 1,376 189 166 10 9 $ 8,668 $ 5,913
Vendor deposits primarily relate to down payments made toward the purchase of raw materials by the Company’s U.S., Brazilian and Chinese operations from Asian vendors and a deposit with a domestic utility company.operations. Value added taxes receivable are recoverable taxes associated with the sales and purchasepurchasing activities of the Company’s foreign operations. Prepaid expenses consist of advance payments for insurance, professional fees, membership dues, subscriptions, non-income related tax payments and information technology services.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
Other investments relate to cash held by the Company’s Colombian subsidiary within an investment fund of a financial institution located in Colombia that is currently being liquidated. The Company was notified of this liquidation in December 2012 and the Company no longer has immediate access to these funds. The Company has recorded a total amounts transferred to Other investments atof $218 in impairment charges in other operating expense, net since the timeCompany received notification of the notification were $1,743. To date, the Company has received payments in accordance with the court mandated scheduleliquidation of $835 plus interest. The total net carrying value of the Company’s investment, net of previously recorded write-downs related to this investment, was $707 at September 29, 2013all of which $189 is expected to be received withinwas recorded in the next twelve months.fiscal year 2013.
7.8. Property, Plant and Equipment, Net
Property, plant and equipment, net consists of the following:
September 29, 2013 June 30, 2013 Land Land improvements Buildings and improvements Assets under capital lease Machinery and equipment Computers, software and office equipment Transportation equipment Construction in progress Gross property, plant and equipment Less: accumulated depreciation Less: accumulated amortization – capital lease Total property, plant and equipment, net $ 2,945 $ 2,949 11,676 11,676 146,194 144,833 1,234 1,234 518,155 526,910 16,697 16,647 4,718 4,866 7,258 5,691 708,877 714,806 (593,232 ) (599,592 ) (71 ) (50 ) $ 115,574 $ 115,164
December 29, 2013 | June 30, 2013 | |||||||
Land | $ | 2,909 | $ | 2,949 | ||||
Land improvements | 11,676 | 11,676 | ||||||
Buildings and improvements | 145,243 | 144,833 | ||||||
Assets under capital lease | 1,234 | 1,234 | ||||||
Machinery and equipment | 521,030 | 526,910 | ||||||
Computers, software and office equipment | 16,657 | 16,647 | ||||||
Transportation equipment | 4,669 | 4,866 | ||||||
Construction in progress | 7,208 | 5,691 | ||||||
Gross property, plant and equipment | 710,626 | 714,806 | ||||||
Less: accumulated depreciation | (594,064 | ) | (599,642 | ) | ||||
Total property, plant and equipment, net | $ | 116,562 | $ | 115,164 | ||||
Depreciation expense, (including amortization of assets under capital lease), repair and maintenance expenses and capitalized interest were as follows:
For the Three Months Ended September 29, 2013 September 23, 2012 Depreciation expense Repair and maintenance expenses Capitalized interest $ 3,821 $ 5,812 4,230 4,364 42 —
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||
Depreciation expense | $ | 3,634 | $ | 5,779 | $ | 7,455 | $ | 11,591 | ||||||||
Repair and maintenance expenses | 4,286 | 4,300 | 8,516 | 8,665 | ||||||||||||
Capitalized interest | 41 | — | 83 | — | ||||||||||||
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)9. Intangible Assets, Net
8. Intangible Assets, Net
Intangible assets, net consist of the following:
September 29, 2013 June 30, 2013 Customer list Non-compete agreements Licenses Trademarks Total intangible assets, gross Accumulated amortization - customer list Accumulated amortization - non-compete agreements Accumulated amortization - licenses Accumulated amortization - trademarks Total accumulated amortization Total intangible assets, net $ 22,000 $ 22,000 4,243 4,243 265 265 294 246 26,802 26,754 (16,363 ) (15,993 ) (2,973 ) (2,895 ) (63 ) (55 ) (63 ) (39 ) (19,462 ) (18,982 ) $ 7,340 $ 7,772
December 29, 2013 | June 30, 2013 | |||||||
Customer lists | $ | 23,615 | $ | 22,000 | ||||
Non-compete agreements | 4,293 | 4,243 | ||||||
Licenses | 265 | 265 | ||||||
Trademarks | 316 | 246 | ||||||
Total intangible assets, gross | 28,489 | 26,754 | ||||||
Accumulated amortization - customer lists | (16,733 | ) | (15,993 | ) | ||||
Accumulated amortization - non-compete agreements | (3,052 | ) | (2,895 | ) | ||||
Accumulated amortization - licenses | (70 | ) | (55 | ) | ||||
Accumulated amortization - trademarks | (85 | ) | (39 | ) | ||||
Total accumulated amortization | (19,940 | ) | (18,982 | ) | ||||
Total intangible assets, net | $ | 8,549 | $ | 7,772 | ||||
In fiscal year 2007, the Company purchased the texturing operations of Dillon, Yarn Corporation (“Dillon”) which are included in the Company’s Polyester Segment. The valuation of the customer list acquired was determined by estimating the discounted net earnings attributable to the customer relationships that were purchased after considering items such as possible customer attrition. Based on the length and trend of the projected cash flows, an estimated useful life of thirteen years was determined. The customer list is being amortized in a manner whichthat reflects the expected economic benefit that will be received over its thirteen year life. The Dillon non-compete agreements are amortized using the straight line method over the periods currently covered by the agreements. The amortization expense is included within the Polyester Segment’s depreciation and amortization expense.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
During the second quarter of fiscal year 2012,On October 6, 2011, the Company acquired a controlling interest in Repreve Renewables, LLC (“Renewables”). The non-compete agreement acquired is being amortized using the straight line method over the five year term of the agreement. The licenses acquired are being amortized using the straight line method over their estimated useful lives of four to eight years.
As part of its efforts to market REPREVE® and other PVA products to consumers worldwide and to raise its visibility among brands, theThe Company capitalizes expenses incurred to register certain trademarks offor its Repreve and other PVA products in various countries. The Company has determined that these trademarks have varying useful lives of up to three years.
Additions to customer lists and non-compete agreements during the current period relate to the December 2013 acquisition of the draw winding business from Dillon. See “Note 4. Acquisition” for further discussion.
Amortization expense for intangible assets consists of the following:
For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
September 29, 2013 | September 23, 2012 | December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||||||||
Customer list | $ | 370 | $ | 450 | ||||||||||||||||||||
Customer lists | $ | 370 | $ | 451 | $ | 740 | $ | 901 | ||||||||||||||||
Non-compete agreements | 78 | 79 | 79 | 78 | 157 | 157 | ||||||||||||||||||
Licenses | 8 | 10 | 7 | 9 | 15 | 19 | ||||||||||||||||||
Trademarks | 24 | — | 22 | — | 46 | — | ||||||||||||||||||
Total amortization expense | $ | 480 | $ | 539 | $ | 478 | $ | 538 | $ | 958 | $ | 1,077 | ||||||||||||
9.10. Other Non-Current Assets
Other non-current assets consist of the following:
September 29, 2013 June 30, 2013 Long-term deposits Debt financing fees Biomass foundation and feedstock Other investments Other Total other non-current assets $ 266 $ 5,050 2,013 2,117 1,840 1,852 518 674 512 550 $ 5,149 $ 10,243
December 29, 2013 | June 30, 2013 | |||||||
Long-term deposits | $ | 266 | $ | 5,050 | ||||
Debt financing fees | 1,908 | 2,117 | ||||||
Biomass foundation and feedstock | 1,841 | 1,852 | ||||||
Other investments | — | 674 | ||||||
Other | 495 | 550 | ||||||
Total other non-current assets | $ | 4,510 | $ | 10,243 | ||||
Long-term deposits consist primarily of vendor deposits. Biomass foundation and feedstock are currently being developed and propagated by Renewables for potential markets in the poultry bedding and bioenergy industry.industries. See “Note 6.7. Other Current Assets” for further discussion of Otherother investments. Other consists primarily of premiums on a split dollar life insurance policy whichthat represents the value of the Company’s right of return on premiums paid for a retiree owned insurance contract whichthat matures in 2015.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)11. Accrued Expenses
10. Accrued Expenses
Accrued expenses consist of the following:
September 29, 2013 June 30, 2013 Payroll and fringe benefits Utilities Severance Property taxes Retiree medical liability Interest Other Total accrued expenses $ 8,090 $ 11,676 2,701 3,058 1,420 1,049 — 798 102 106 78 102 1,185 1,696 $ 13,576 $ 18,485
December 29, 2013 | June 30, 2013 | |||||||
Payroll and fringe benefits | $ | 7,084 | $ | 11,676 | ||||
Utilities | 1,966 | 3,058 | ||||||
Severance | 1,377 | 1,049 | ||||||
Contingent consideration | 500 | — | ||||||
Property taxes | 102 | 798 | ||||||
Retiree medical liability | 96 | 106 | ||||||
Interest | 118 | 102 | ||||||
Other | 1,274 | 1,696 | ||||||
Total accrued expenses | $ | 12,517 | $ | 18,485 | ||||
Accrued severance is primarily compromisedcomprised of the current portion of amounts due under severance agreements between the Company and two of its former executive officers.officers and certain other employees. See “Note 19.20. Other Operating Expense, Net” for further discussion of severance costs. Contingent consideration is the current portion of the estimated amounts payable to Dillon related to the Company’s December 2013 acquisition of Dillon’s draw winding business. See “Note 4. Acquisition” for further discussion. Other consists primarily of unearned revenues related to returnable packaging, workers compensation and other employee related claims, marketing expenses, freight expenses, rent and other non-income related taxes.
11. Long-Term Debt
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
12. 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 rate for borrowings (including the effects of an interest rate swap) as well as the applicable current portion of long-term debt:
Weighted Average | Principal Amounts as of | Scheduled | Weighted Average Interest Rate as of | Principal Amounts as of | |||||||||||||||||||||||
Scheduled Maturity Date | Interest Rate as of September 29, 2013 | September 29, 2013 | June 30, 2013 | Maturity Date | December 29, 2013 | December 29, 2013 | June 30, 2013 | ||||||||||||||||||||
ABL Revolver | May 2018 | 3.2% | $ | 44,900 | $ | 52,500 | May 2018 | 3.1% | $ | 50,400 | $ | 52,500 | |||||||||||||||
ABL Term Loan | May 2018 | 3.1% | 50,000 | 42,800 | May 2018 | 3.1% | 50,000 | 42,800 | |||||||||||||||||||
Term loan from unconsolidated affiliate | August 2014 | 3.0% | 1,250 | 1,250 | August 2014 | 3.0% | 1,250 | 1,250 | |||||||||||||||||||
Capital lease obligation | November 2027 | 4.6% | 1,189 | 1,203 | November 2027 | 4.6% | 1,174 | 1,203 | |||||||||||||||||||
Total debt | 97,339 | 97,753 | 102,824 | 97,753 | |||||||||||||||||||||||
Current portion of long-term debt | (1,316 | ) | (65 | ) | (1,316 | ) | (65 | ) | |||||||||||||||||||
Total long-term debt | $ | 96,023 | $ | 97,688 | $ | 101,508 | $ | 97,688 | |||||||||||||||||||
ABL Facility
On May 24, 2012, the Company entered into a credit agreement (the “Credit Agreement”) to establish a $150,000 senior secured credit facility (“ABL Facility”) with Wells Fargo Bank, N.A. and Bank of America, N.A. The ABL Facility consists of a $100,000 revolving credit facility (“ABL Revolver”) and a $50,000 term loan (“ABL Term Loan”). In addition, the Company entered into a $30,000 term loan (“Term B Loan”) which was repaid on January 8, 2013. The Company entered into a First Amendment to Credit Agreement on December 27, 2012, and a Second Amendment to Credit Agreement on June 25, 2013.2013 and, as discussed below, a Third Amendment to Credit Agreement on January 16, 2014 (the “Third Amendment”). The ABL Facility, as amended, has a maturity date of May 24, 2018.
The ABL Facility is secured bya first-priority perfected security interest in substantially all property and assets of Unifi, Inc., Unifi Manufacturing, Inc. and itscertain subsidiary guarantors (the “Loan Parties”). It is also secured by a first-priority perfected security interest inall (or 65% in the case of first tier controlled foreign corporations) ofthe stock of (or other ownership interests in) each of the Loan Parties (other than the Company) and certain subsidiaries of the Loan Parties; provided, that only 65% of the stock of (or other ownership interests in) first tier controlled foreign corporations is pledged,Parties, together with all proceeds and products thereof.thereof. The ABL Facility is further securedby a first-priority lien on the Company’s limited liability company membership interest in Parkdale America, LLC (“PAL”).
The Credit Agreement includes representations and warranties made by the Loan Parties, affirmative and negative covenants and events of default that are usual and customary for financings of this type. Should excess availability under the ABL Revolver fall below the greater of $10,000 or 20% of the maximum revolver amount, a financial covenant requiring the Loan Parties to maintain a fixed charge coverage ratio on a monthly basis of at least 1.05 to 1.0 becomes effective. In addition, the ABL Facility contains restrictions on certain payments and investments, including restrictions on the paymentspayment of dividends and share repurchases, unless excess availability is greater than $20,000 for the thirty day period prior to the making of such a distribution (as calculated on a pro forma basis as if the payment and any revolving loans made in connection therewith were made on the first day of such period).
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
The Company’s ability to borrow under the ABL Revolver is limited to a borrowing base equal to specified percentages of eligible accounts receivable and inventory and is subject to certain conditions and limitations. ABL Revolver borrowings bear interest at the London Interbank Offer Rate (“LIBOR”) plus an applicable margin of 1.75% to 2.25%, or the Base Rate plus an applicable margin of 0.75% to 1.25%, with interest currently being paid on a monthly basis. The applicable margin is based on the average quarterly excess availability under the ABL Revolver. The Base Rate means the greater of (i) the prime lending rate as publicly announced from time to time by Wells Fargo, (ii) the Federal Funds Rate plus 0.5%, and (iii) LIBOR plus 1.0%. There is also ana monthly unused line fee under the ABL Revolver of 0.25% to 0.375% of the unused line amount which is paid monthly.amount.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
The ABL Term Loan bears interest at LIBOR plus an applicable margin of 2.25%, or the Base Rate plus an applicable margin of 1.25%, with interest currently being paid monthly.on a monthly basis. ABL Term Loan principal payments (if any) are based on the amount that the outstanding balance of the ABL Term Loan exceeds a calculation of eligible machinery and equipment and eligible real property collateral specific to the ABL Term Loan. Subject to certain provisions, the ABL Term Loan may be prepaid at par, in whole or in part, at any time before the maturity date, at the Company’s discretion.
Under the terms of the ABL Facility, the Company is required to hedge at least $50,000 of variable interest rate exposure so long as the outstanding principal of all indebtedness having variable rates of interest rates exceeds $75,000.
As of SeptemberDecember 29, 2013, the Company was in compliance with all financial covenants, the excess availability under the ABL Revolver was $38,968,$28,083, the fixed charge coverage ratio was 4.585.52 to 1.0 and the Company had $525 of standby letters of credit, none of which have been drawn upon.
Subsequent Event
The Third Amendment, which was entered into on January 16, 2014, among other things: (i) revised the definition of permitted indebtedness to allow the Company to enter into permitted sales and leaseback transactions of equipment in an aggregate amount not to exceed $4,000 per fiscal year; (ii) revised the definition of permitted dispositions to increase the amount of certain asset sales or dispositions from $500 to $4,000 per fiscal year; and (iii) revised the mandatory prepayment provision to increase the amount of net proceeds received from certain permitted dispositions that would be required to prepay the outstanding ABL Facility debt from $500 to $4,000 per fiscal year. No amendment fee was required.
Term Loan from Unconsolidated Affiliate
On August 30, 2012, a foreign subsidiary of the Company entered into an unsecured loan agreement for $1,250 with its unconsolidated affiliate U.N.F. Industries Ltd. (“UNF”). The loan bears interest at 3% with interest payable semi-annually. The loan does not amortize and has a maturity date of August 30, 2014, at which time the entire principal balance is due.
Capital Lease Obligation
On November 19, 2012, the Company entered into a capital lease with Salem Leasing Corporation for certain transportation equipment. The original amount due under the fifteen year term of the lease is $1,234 and payments are made monthly. The implicit annual interest rate under the lease is approximately 4.6%.
Scheduled Debt Maturities
The following table presents the scheduled maturities of the Company’s outstanding debt obligations for the remainder of fiscal year 2014 and the following fiscal years thereafter:
Scheduled Maturities on a Fiscal Year Basis 2014 2015 2016 2017 2018 Thereafter ABL Revolver ABL Term Loan Capital lease obligation Term loan from unconsolidated affiliate Total $ — $ — $ — $ — $ 44,900 $ — — — — — 50,000 — 50 63 66 69 72 869 — 1,250 — — — — $ 50 $ 1,313 $ 66 $ 69 $ 94,972 $ 869
Scheduled Maturities on a Fiscal Year Basis | ||||||||||||||||||||||||
2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | |||||||||||||||||||
ABL Revolver | $ | — | $ | — | $ | — | $ | — | $ | 50,400 | $ | — | ||||||||||||
ABL Term Loan | — | — | — | — | 50,000 | — | ||||||||||||||||||
Term loan from unconsolidated affiliate | — | 1,250 | — | — | — | — | ||||||||||||||||||
Capital lease obligation | 30 | 63 | 66 | 69 | 72 | 874 | ||||||||||||||||||
Total debt | $ | 30 | $ | 1,313 | $ | 66 | $ | 69 | $ | 100,472 | $ | 874 | ||||||||||||
Debt Financing Fees
Debt financing fees are classified within Otherother non-current assets and consist of the following:
September 29, 2013 | December 29, 2013 | |||||||
Balance at beginning of year | $ | 2,117 | $ | 2,117 | ||||
Amounts paid related to debt modification | 3 | 3 | ||||||
Amortization charged to interest expense | (107 | ) | (212 | ) | ||||
Balance at end of period | $ | 2,013 | $ | 1,908 | ||||
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
Interest Expense
Interest expense consists of the following:
For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
September 29, 2013 | September 23, 2012 | December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||||||||
Interest on ABL Facility | $ | 853 | $ | 901 | $ | 812 | $ | 839 | $ | 1,665 | $ | 1,740 | ||||||||||||
Interest on Term B Loan | — | 362 | — | 317 | — | 679 | ||||||||||||||||||
Amortization of debt financing fees | 107 | 166 | 105 | 163 | 212 | 329 | ||||||||||||||||||
Marked to market adjustment for interest rate swap | 140 | — | (148 | ) | (73 | ) | (8 | ) | (73 | ) | ||||||||||||||
Reclassification adjustment for interest rate swap | 155 | — | 145 | 92 | 300 | 92 | ||||||||||||||||||
Interest capitalized to Property, plant and equipment, net | (42 | ) | — | |||||||||||||||||||||
Interest capitalized to property, plant and equipment, net | (41 | ) | — | (83 | ) | — | ||||||||||||||||||
Other | 39 | 15 | 30 | 23 | 69 | 38 | ||||||||||||||||||
Total Interest expense | $ | 1,252 | $ | 1,444 | ||||||||||||||||||||
Total interest expense | $ | 903 | $ | 1,361 | $ | 2,155 | $ | 2,805 | ||||||||||||||||
Loss on Extinguishment of Debt
The components of Lossloss on extinguishment of debt consist of the following:
For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
September 29, 2013 | September 23, 2012 | December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||||||||
Prepayment call premium and other costs for Term B Loan | $ | — | $ | 135 | $ | — | $ | 66 | $ | — | $ | 201 | ||||||||||||
Non-cash charges due to write-off of debt financing fees | — | 107 | — | 48 | — | 155 | ||||||||||||||||||
Loss on extinguishment of debt | $ | — | $ | 242 | $ | — | $ | 114 | $ | — | $ | 356 | ||||||||||||
12.13. Other Long-Term Liabilities
Other long-term liabilities consist of the following:
September 29, 2013 June 30, 2013 Supplemental post-employment plan Income tax contingencies Derivative instruments Severance Other Total other long-term liabilities $ 2,578 $ 2,665 1,499 1,275 464 324 124 137 585 652 $ 5,250 $ 5,053
December 29, 2013 | June 30, 2013 | |||||||
Supplemental post-employment plan | $ | 2,822 | $ | 2,665 | ||||
Contingent consideration | 2,000 | — | ||||||
Income tax contingencies | 1,233 | 1,275 | ||||||
Derivative instruments | 315 | 324 | ||||||
Severance | — | 137 | ||||||
Other | 580 | 652 | ||||||
Total other long-term liabilities | $ | 6,950 | $ | 5,053 | ||||
Contingent consideration represents the long-term portion of contingent payments associated with the Company’s December 2013 acquisition of Dillon’s draw winding business. See “Note 4. Acquisition” for further discussion. Severance represents the long-term portion of monies due under severance agreements with former executive officers of the Company, seeCompany. See “Note 19.20. Other Operating Expense, Net” for further discussion of these charges.
Other includes certain retiree and post-employment medical and disability liabilities and certain non-income tax liabilities associated with one of the Company’s foreign subsidiaries.employee related liabilities.
The Company maintains an unfunded supplemental post-employment plan for certain management employees. Each participant’semployee's account is credited annually based upon a percentage of theirthe participant's base salary, with each participant’s balance adjusted quarterly to reflect returns based upon a stock market index. Amounts are paid to participants only after termination of their employment. The following table presents the expenseexpenses recorded within selling, general and administrative (“SG&A”) expenses for this plan:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
Classification | December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | ||||||||||||
Selling general and administrative expenses | $ | 244 | $ | 34 | $ | 429 | $ | 306 | ||||||||
Other operating expense, net | 57 | — | 91 | — | ||||||||||||
Total | $ | 301 | $ | 34 | $ | 520 | $ | 306 | ||||||||
For the Three Months Ended September 29, 2013 September 23, 2012 Supplemental post-employment plan expenses $ 185 $ 272
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
13.14. Income Taxes
The effective income tax rates for the three month and six month periods ended SeptemberDecember 29, 2013 and SeptemberDecember 23, 2012 were based upon the estimated effective income tax rate applicable for the full year after giving effect to any significant items related specifically to interim periods. The effective income tax rate can be impacted over the fiscal year by the mix and timing of actual earnings from our U.S. operations and foreign sources versus annual projections and changes in foreign currency exchange rates in relation to the U.S. dollar. As a result, the Company’s effective tax rate may fluctuate significantly on a quarterly basis.
The Company’s income tax provision for the quarter ended September 29, 2013 resulted in tax expense of $5,751 with an effective tax rate of 40.0%. The Company’s income tax provision for the quarter ended September 23, 2012 resulted in tax expense of $3,233, with anthree month and six month periods ending December 29, 2013 was 38.7% and 39.5%, respectively, and its effective tax rate of 61.1%.for the three month and six month periods ending December 23, 2012 was 50.0% and 56.0%, respectively. The Company’s effective income tax rate for each of the periods ispresented was higher than the U.S. federal statutory rate primarily due to the unfavorable effects of foreign dividends taxed in the U.S., the impact of state taxes, the timing of the Company’s recognition of higher taxable versus book income for an unconsolidated affiliate for which the Company maintains a full valuation allowance, and losses in tax jurisdictions for which no tax benefit could be recognized.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
As of SeptemberDecember 29, 2013, the Company’s valuation allowance was $17,153$17,531 and includes $14,391 for$14,656 related to reserves against certain deferred tax assets primarily related to equity investmentsfor unconsolidated affiliates and foreign tax credit carryforwards, as well as $2,762$2,875 for reserves against certain deferred tax assets of the Company’s foreign subsidiaries that are primarily related to net operating loss carryforwards. The Company'sCompany’s valuation allowance as of June 30, 2013 was $16,690.
There have been no significant changes in the Company’s liability for uncertain tax positions since June 30, 2013. The Company’s estimate for the potential outcome for any uncertain tax issue is highly judgmental. Management believes that any reasonably foreseeable outcomes related to these matters have been adequately provided for. However, future results may include favorable or unfavorable adjustments to estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire.
The Company and its domestic subsidiaries file a consolidated federal income tax return, as well as income tax returns in numerous state and foreign jurisdictions. The tax years subject to examination vary by jurisdiction. The Company regularly assesses the outcomes of both completed and ongoing examinations to ensure that the Company’s provision for income taxes is sufficient. Currently, the Company is subject to income tax examinations for U.S. federal income taxes for tax years 2010 through 2013, for foreign income taxes for tax years 2007 through 2013, and for state and local income taxes for tax years 2003 through 2013.The U.S. federal tax returns and state tax returns filed for the 2010 through 2013 tax years have utilized carryforward tax attributes generated in prior tax years, including net operating losses, which could potentially be revised upon examination.
14.15. Shareholders’ Equity
On January 22, 2013, the Board approved a stock repurchase program to acquire up to $50,000 worth of the Company’s common stock. Under the repurchase program, the Company is authorized to repurchase shares at prevailing market prices, through open market purchases or privately negotiated transactions at such times, manner and prices as determined by management, subject to market conditions, applicable legal requirements, contractual obligations and other factors. Repurchases are expected to be financed through cash generated from operations and borrowings under the Company’s ABL Revolver, and are subject to applicable limitations and restrictions as set forth in the ABL Facility. The repurchase program has no stated expiration or termination date, and there is no time limit or specific time frame otherwise for repurchases. The Company may discontinue repurchases at any time that management determines additional purchases are not beneficial or advisable. As of December 29, 2013, the Company had spent $37,982, excluding brokerage fees, to repurchase shares under this program.
The following table summarizes the Company’s repurchases and retirements of its common stock since the inception of its stock repurchase program.
Total Number of Shares Repurchased and Retired | Average Price Paid per Share | Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs | Maximum Approximate Dollar Value that May Yet Be Repurchased Under the Plans or Programs | 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 the Plans or Programs | ||||||||||||||||||||||
Fiscal year 2013 | 1,068 | $ | 18.08 | 1,068 | 1,068 | $ 18.08 | ||||||||||||||||||||||
Fiscal year 2014 | 249 | $ | 23.16 | 249 | 771 | $ 24.22 | ||||||||||||||||||||||
Total | 1,317 | $ | 19.04 | 1,317 | $ | 24,933 | 1,839 | $ 20.66 | $ 12,018 | |||||||||||||||||||
All repurchased shares have been retired and have the status of authorized and unissued shares. The cost of the repurchased shares above par value has been allocated between Capitalcapital in excess of par value and Retainedretained earnings.
No dividends were paid during the last two fiscal years.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
15.16. Stock Based Compensation
On October 29, 2008,23, 2013, the Company’s shareholders approved the Unifi, Inc. 2013 Incentive Compensation Plan (the “2013 Plan”). The 2013 Plan replaced the 2008 Unifi, Inc. Long-Term Incentive Plan (“2008 LTIP”). TheNo additional awards will be granted under the 2008 LTIP authorized the issuance of up to 2,000 shares of common stock pursuant to the grant or exercise of stock options, including incentive stock options, non-qualified stock options and restricted stock, but not more than 1,000 shares may be issued as restricted stock. Awards may be made to employees, directors and consultants, as determined by the Compensation Committee of the Board of Directors. Option awards are granted with an exercise price not less than the market price of the Company’s stock at the date of grant and have ten year contractual terms. The 2008 LTIP replaced the 1999 Unifi, Inc. Long-Term Incentive Plan (“1999 LTIP”),LTIP; however, prior grantsawards outstanding under the 19992008 LTIP remain subject to that plan’s provisions.
Unifi, Inc.
Notes The 2013 Plan authorized the issuance of 1,000 shares of common stock, subject to Condensed Consolidated Financial Statements - (Continued)
(amountscertain increases in thousands, except per share amounts)the event outstanding awards under the 2008 LTIP expire, are forfeited or otherwise terminate unexercised.
Stock options
During the quarterssix months ended SeptemberDecember 29, 2013 and SeptemberDecember 23, 2012, the Company granted stock options to purchase 9297 and 138 shares of common stock, respectively, to certain key employees. The stock options vest ratably over the required three year service period. For the quarterssix months ended SeptemberDecember 29, 2013 and SeptemberDecember 23, 2012, the weighted average exercise price of the options granted was $22.22$22.31 and $11.15 per share, respectively. The Company used the Black-Scholes model to estimate the weighted average grant date fair value of $14.63$14.66 and $7.28 per share, respectively.
The valuation models used the following assumptions:
For the Three Months Ended September 29, 2013 September 23, 2012 Expected term (years) Interest rate Volatility Dividend yield 7.5 7.5 2.1% 1.0% 65.9% 66.9% — —
For the Six Months Ended | ||||||||
December 29, 2013 | December 23, 2012 | |||||||
Expected term (years) | 7.4 | 7.5 | ||||||
Interest rate | 2.1% | 1.0% | ||||||
Volatility | 65.9% | 66.9% | ||||||
Dividend yield | — | — | ||||||
The Company uses historical data to estimate the expected term, volatility and forfeitures. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for periods corresponding with the expected term of the options.
A summary of stock option activity for the quartersix months ended SeptemberDecember 29, 2013 is as follows:
Stock Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | Stock Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||||||||||||||||||
Outstanding at June 30, 2013 | 1,541 | $ | 8.41 | 1,541 | $ | 8.41 | ||||||||||||||||||||||||||
Granted | 92 | $ | 22.22 | 97 | $ | 22.31 | ||||||||||||||||||||||||||
Exercised | (302 | ) | $ | 7.86 | (767 | ) | $ | 8.36 | ||||||||||||||||||||||||
Forfeited | (33 | ) | $ | 13.69 | (33 | ) | $ | 13.69 | ||||||||||||||||||||||||
Expired | — | $ | — | — | $ | — | ||||||||||||||||||||||||||
Outstanding at September 29, 2013 | 1,298 | $ | 9.38 | 5.4 | $ | 18,498 | ||||||||||||||||||||||||||
Vested and expected to vest as of September 29, 2013 | 1,293 | $ | 9.35 | 5.3 | $ | 18,465 | ||||||||||||||||||||||||||
Exercisable at September 29, 2013 | 1,078 | $ | 8.17 | 4.7 | $ | 16,662 | ||||||||||||||||||||||||||
Outstanding at December 29, 2013 | 838 | $ | 9.85 | 6.2 | $ | 14,809 | ||||||||||||||||||||||||||
Vested and expected to vest as of December 29, 2013 | 833 | $ | 9.81 | 6.2 | $ | 14,766 | ||||||||||||||||||||||||||
Exercisable at December 29, 2013 | 626 | $ | 7.79 | 5.4 | $ | 12,355 | ||||||||||||||||||||||||||
At SeptemberDecember 29, 2013, the remaining unrecognized compensation cost related to unvested stock options was $1,476,$1,269, which is expected to be recognized over a weighted average period of 2.52.3 years.
For the quarterssix month periods ended SeptemberDecember 29, 2013 and SeptemberDecember 23, 2012, the total intrinsic value of options exercised was $4,442,$12,521, and $26, respectively. The amount of cash received from the exercise of options was $2,373$2,833 and $29 for the six month periods ended December 29, 2013 and December 23, 2012, respectively. During the quarter ended December 29, 2013, the Company received and retired 134 shares of its common stock, with a fair value of $3,583, tendered in lieu of cash for the exercise of stock options. The tax benefit realized from stock options exercised was $1,759$4,905 and $1$2 for the quarterssix month periods ended SeptemberDecember 29, 2013 and SeptemberDecember 23, 2012, respectively.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
Restricted stock units
During the quarterssix months ended SeptemberDecember 29, 2013 and SeptemberDecember 23, 2012, the Company granted 22 and 32 restricted stock units (“RSUs”), respectively, to certain key employees. The RSUs are subject to a vesting restriction and convey no rights of ownership in shares of Company stock until such RSUs have vested and been distributed to the grantee in the form of Company stock. The RSUs vest over a three year period. The RSUs do not have a contractual termperiod, and will be converted into an equivalent number of shares of stock (for distribution to the grantee) on each vesting date, and distributed tounless the grantee or the grantee may electhas elected to defer the receipt of the shares of stock until separation from service. If, after the first anniversary of the grant date and prior to the final vesting date, the grantee has a separation from service without cause for any reason other than the employee’s resignation, the remaining unvested RSUs will become fully vested and will be converted to an equivalent number of shares of stock and issued to the grantee. The Company estimated the fair value of the awards granted during the quarterssix months ended SeptemberDecember 29, 2013 and SeptemberDecember 23, 2012 to be $22.08 and $11.23 per RSU, respectively.
NoDuring the six months ended December 29, 2013 and December 23, 2012, the Company granted 25 and 30 RSUs, wererespectively, to the Company’s non-employee directors. The RSUs became fully vested on the grant date. The RSUs convey no rights of ownership in shares of Company stock until such RSUs have been distributed to the grantee in the form of Company stock. The vested RSUs will be converted into an equivalent number of shares of Company common stock and distributed to the grantee following the grantee’s termination of service as a member of the Board. The grantee may elect to defer receipt of the shares of stock in accordance with the deferral options provided under the Unifi, Inc. Director Deferred Compensation Plan. The Company estimated the fair value of the awards granted during the six months ended December 29, 2013 and December 23, 2012 to non-employee directors in either period.be $23.23 and $13.57 per RSU, respectively.
The Company estimates the fair value of RSUs based on the market price of the Company’s common stock at the award grant date.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
A summary of the RSU activity for the quartersix months ended SeptemberDecember 29, 2013 is as follows:
Non-vested | Weighted Average Grant Date Fair Value | Vested | Total | Weighted Average Grant Date Fair Value | Non-vested | Weighted Average Grant Date Fair Value | Vested | Total | Weighted Average GrantDate Fair Value | |||||||||||||||||||||||||||||||
Outstanding at June 30, 2013 | 75 | $ | 11.94 | 112 | 187 | $ | 11.78 | 75 | $ | 11.94 | 112 | 187 | $ | 11.78 | ||||||||||||||||||||||||||
Granted | 22 | $ | 22.08 | — | 22 | $ | 22.08 | 47 | $ | 22.68 | — | 47 | $ | 22.68 | ||||||||||||||||||||||||||
Vested | (46 | ) | $ | 11.99 | 46 | — | $ | 11.99 | (71 | ) | $ | 15.96 | 71 | — | $ | 15.96 | ||||||||||||||||||||||||
Converted | — | $ | — | (31 | ) | (31 | ) | $ | 12.06 | — | $ | — | (31 | ) | (31 | ) | $ | 12.06 | ||||||||||||||||||||||
Forfeited | (2 | ) | $ | 22.08 | — | (2 | ) | $ | 22.08 | (2 | ) | $ | 22.08 | — | (2 | ) | $ | 22.08 | ||||||||||||||||||||||
Outstanding at September 29, 2013 | 49 | $ | 16.11 | 127 | 176 | $ | 12.92 | |||||||||||||||||||||||||||||||||
Outstanding at December 29, 2013 | 49 | $ | 16.11 | 152 | 201 | $ | 14.19 | |||||||||||||||||||||||||||||||||
At SeptemberDecember 29, 2013, the number of RSUs vested and expected to vest was 176201, with an aggregate intrinsic value of $4,169.$5,540. The aggregate intrinsic value of the 127152 vested RSUs at SeptemberDecember 29, 2013 was $3,007.$4,186.
The remaining unrecognized compensation cost related to the unvested RSUs at SeptemberDecember 29, 2013 is $497,$402, which is expected to be recognized over a weighted average period of 2.62.4 years.
For the quarterssix month periods ended SeptemberDecember 29, 2013 and SeptemberDecember 23, 2012, the total intrinsic value of RSUs converted was $696 and nil,$114, respectively. The tax benefit realized from the conversion of RSUs was $275 and nil$45 for the quarterssix months ended SeptemberDecember 29, 2013 and SeptemberDecember 23, 2012, respectively.
Summary
The total cost charged against income related to all stock basedstock-based compensation arrangements was as follows:
For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
September 29,2013 | September 23, 2012 | December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||||||||
Stock options | $ | 156 | $ | 237 | $ | 282 | $ | 222 | $ | 438 | $ | 459 | ||||||||||||
RSUs | 103 | 112 | 670 | 449 | 773 | 561 | ||||||||||||||||||
Total compensation cost | $ | 259 | $ | 349 | $ | 952 | $ | 671 | $ | 1,211 | $ | 1,020 | ||||||||||||
The total income tax benefit recognized for stock based compensation was $75$376 and $76$282 for the quarterssix months ended SeptemberDecember 29, 2013 and SeptemberDecember 23, 2012, respectively.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
As of SeptemberDecember 29, 2013, a summary of the number of securities remainingcurrently available for future issuance under equity compensation plans is as follows:
Authorized under the | ||||
Plus: Awards expired, forfeited or otherwise terminated unexercised from the 2008 LTIP | — | |||
Less: | ( | ) | ||
| ||||
Less: RSUs granted to non-employee directors | ( | ) | ||
| ||||
| ||||
| ||||
Available for issuance under the |
Subsequent Event
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 LTIP. No additional awards will be granted under the 2008 LTIP, however, prior grants 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.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
16.17. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities
Financial Instruments
The Company uses derivative financial instruments, such as foreign currency forward contracts or interest rate swaps, to reduce its ongoing business exposures to fluctuations in foreign currency exchange rates or interest rates. The Company does not enter into derivative contracts for speculative purposes.
Foreign currency forward contracts
The Company enters into foreign currency forward contracts as economic hedges for exposures related to certain sales, inventory purchases and equipment purchases whichthat are denominated in currencies that are not its functional currency. As of SeptemberDecember 29, 2013, the latest maturity date for all outstanding foreign currency forward contracts is during November 2013.July 2014. These items are not designated as hedges by the Company and are marked to market each period and offset by the foreign exchange (gains) losses included in Otherother operating expense, net resulting from the underlying exposures of the foreign currency denominated assets and liabilities.
Interest rate swap
On May 18, 2012, the Company entered into a five year, $50,000 interest rate swap with Wells Fargo to provide a hedge against the variability of cash flows related to additional LIBOR-based variable rate borrowings under the Company’s ABL Revolver and ABL Term Loan. ItThe swap increased to $85,000 in May 2013 and will decreasebegan decreasing $5,000 per quarter beginning with the current quarterin August 2013 and will continue to do so until the balance again reaches $50,000 in February 2015, where it will remain through the life of the instrument. This interest rate swap allows the Company to fix LIBOR at 1.06% and terminates on May 24, 2017.
On November 26, 2012, the Company de-designated this interest rate swap as a cash flow hedge. For the quarterlyyear-to-date period ended SeptemberDecember 29, 2013, the Company reclassified pre-tax unrealized losses of $155$300 from Accumulatedaccumulated other comprehensive incomeloss to Interestinterest expense; the Company expects to reclassify additional losses of $502$446 during the next twelve months.
The Company’s financial assets and liabilities accounted for at fair value on a recurring basis, and the level within the fair value hierarchy used to measure these items, are as follows:
As of September 29, 2013 | Notional Amount | USD Equivalent | Balance Sheet Location | Fair Value Level 2 | ||||||||||||||||||||||||||||
As of December 29, 2013 | Notional Amount | USD Equivalent | Balance SheetLocation | Fair Value Hierarchy | Fair Value | |||||||||||||||||||||||||||
Foreign currency contracts | MXN | 1,500 | $ | 114 | Accrued expenses | Level 2 | $ | — | ||||||||||||||||||||||||
Foreign currency contracts | MXN | 4,000 | $ | 306 | Other current assets | $ | 3 | EUR | 615 | $ | 829 | Other current assets | Level 2 | $ | 18 | |||||||||||||||||
Interest rate swap | USD | $ | 80,000 | $ | 80,000 | Other long-term liabilities | $ | (464 | ) | USD | $ | 75,000 | $ | 75,000 | Other long-term liabilities | Level 2 | $ | (315 | ) | |||||||||||||
Contingent consideration (1) | Accrued expenses and other long-term liabilities | Level 3 | $ | (2,500 | ) | |||||||||||||||||||||||||||
As of June 30, 2013 | Notional Amount | USD Equivalent | Balance Sheet Location | Fair Value Level 2 | Notional Amount | USD Equivalent | Balance SheetLocation | Fair Value Hierarchy | Fair Value | |||||||||||||||||||||||
Foreign currency contracts | MXN | 3,800 | $ | 295 | Other current assets | $ | 3 | MXN | 3,800 | $ | 295 | Other current assets | Level 2 | $ | 3 | |||||||||||||||||
Interest rate swap | USD | $ | 85,000 | $ | 85,000 | Other long-term liabilities | $ | (324 | ) | USD | $ | 85,000 | $ | 85,000 | Other long-term liabilities | Level 2 | $ | (324 | ) | |||||||||||||
(MXN represents the Mexican Peso)Peso; EUR represents the Euro)
(1) See “Note 4. Acquisition” for further discussion of contingent consideration.
Estimates of the fair value of the Company’s foreign currency forward contracts and interest rate swaps are obtained from month-end market quotes for contracts with similar terms.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
The effect of marked to market hedging derivative instruments was as follows:
For the Three Months Ended Derivatives not designated as hedges Classification September 29, 2013 September 23, 2012 Foreign exchange contracts – MXN/USD Other operating expense, net Interest rate swap Interest expense Total (gain) loss recognized in income $ (6 ) $ 36 140 — $ 134 $ 36
For the Three Months Ended | |||||||||
Derivatives not designated as hedges | Classification | December 29, 2013 | December 23, 2012 | ||||||
Foreign currency contracts | Other operating expense, net | $ | (16 | ) | $ | 3 | |||
Interest rate swap | Interest expense | (148 | ) | (73 | ) | ||||
Total (gain) recognized in income | $ | (164 | ) | $ | (70 | ) | |||
For the Six Months Ended | |||||||||
Derivatives not designated as hedges | Classification | December 29, 2013 | December 23, 2012 | ||||||
Foreign currency contracts | Other operating expense, net | $ | (22 | ) | $ | 38 | |||
Interest rate swap | Interest expense | (8 | ) | (73 | ) | ||||
Total (gain) recognized in income | $ | (30 | ) | $ | (35 | ) | |||
By entering into derivative instrument contracts, the Company exposes itself to counterparty credit risk. The Company attempts to minimize this risk by selecting counterparties with investment grade credit ratings, limiting the amount of exposure to any single counterparty and regularly monitoring its market position with each counterparty. The Company’s derivative instruments do not contain any credit risk related contingent features.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
Since its most recent debt refinancing and modification, the Company believes that there have been no significant changes to its credit risk profile or the interest rates available to the Company for debt issuances with similar terms and average maturities, and the Company estimates that the fair values of theseits long-term debt obligations approximate their carrying amounts. Other financial instruments include cash and cash equivalents, receivables, accounts payable and accrued expenses. The financial statement carrying amounts of these items approximate thetheir fair value because of their short-term nature.
Non-Financial Assets and Liabilities
The Company did not have any non-financial assets or liabilities that were required to be measured at fair value on a recurring basis.
17.18. Accumulated Other Comprehensive Loss
The components of and the changes in Accumulatedaccumulated other comprehensive loss net of tax, as applicable, consist of the following:
Foreign Currency Translation Adjustments Unrealized (Loss) Gain on Interest Rate Swap Accumulated Other Comprehensive Loss Balance at June 30, 2013 Other comprehensive (loss) income, net of tax Balance at September 29, 2013 $ (4,568 ) $ (932 ) $ (5,500 ) (322 ) 155 (167 ) $ (4,890 ) $ (777 ) $ (5,667 )
Foreign Currency Translation Adjustments | Unrealized (Loss) Gain On Interest Rate Swap | Accumulated Other Comprehensive Loss | ||||||||||
Balance at June 30, 2013 | $ | (4,568 | ) | $ | (932 | ) | $ | (5,500 | ) | |||
Other comprehensive (loss) income, net | (3,462 | ) | 300 | (3,162 | ) | |||||||
Balance at December 29, 2013 | $ | (8,030 | ) | $ | (632 | ) | $ | (8,662 | ) | |||
A summary of the pre-tax, tax and after-tax effects of the components of Other comprehensive loss(loss) income for the quartersthree months ended SeptemberDecember 29, 2013 and SeptemberDecember 23, 2012 is provided as follows:
For the Three Months Ended September 29, 2013 Pre-tax Tax After-tax Other comprehensive loss: Foreign currency translation adjustments Reclassification adjustment on interest rate swap included in net income Other comprehensive loss $ (322 ) $ — $ (322 ) 155 — 155 $ (167 ) $ — $ (167 )
For the Three Months Ended December 29, 2013 | ||||||||||||
Pre-tax | Tax | After-tax | ||||||||||
Foreign currency translation adjustments | $ | (3,140 | ) | $ | — | $ | (3,140 | ) | ||||
Reclassification adjustment for interest rate swap included in net income | 145 | — | 145 | |||||||||
Other comprehensive loss, net | $ | (2,995 | ) | $ | — | $ | (2,995 | ) | ||||
For the Three Months Ended September 23, 2012 Pre-tax Tax After-tax Other comprehensive income: Foreign currency translation adjustments Unrealized gain on cash flow hedges for an unconsolidated affiliate Unrealized loss on interest rate swaps Other comprehensive income $ (312 ) $ — $ (312 ) 1,003 — 1,003 (452 ) 178 (274 ) $ 239 $ 178 $ 417
For the Three Months Ended December 23, 2012 | ||||||||||||
Pre-tax | Tax | After-tax | ||||||||||
Foreign currency translation adjustments | $ | (352 | ) | $ | — | $ | (352 | ) | ||||
Gain on cash flow hedges for an unconsolidated affiliate | 225 | — | 225 | |||||||||
Gain on interest rate swaps | 67 | (26 | ) | 41 | ||||||||
Reclassification adjustment for interest rate swap included in net income | 92 | (36 | ) | 56 | ||||||||
Other comprehensive income (loss), net | $ | 32 | $ | (62 | ) | $ | (30 | ) | ||||
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
Other comprehensive (loss) income for the six months ended December 29, 2013 and December 23, 2012 is provided as follows:
For the Six Months Ended December 29, 2013 | ||||||||||||
Pre-tax | Tax | After-tax | ||||||||||
Foreign currency translation adjustments | $ | (3,462 | ) | $ | — | $ | (3,462 | ) | ||||
Reclassification adjustment for interest rate swap included in net income | 300 | — | 300 | |||||||||
Other comprehensive loss, net | $ | (3,162 | ) | $ | — | $ | (3,162 | ) | ||||
For the Six Months Ended December 23, 2012 | ||||||||||||
Pre-tax | Tax | After-tax | ||||||||||
Foreign currency translation adjustments | $ | (664 | ) | $ | — | $ | (664 | ) | ||||
Gain on cash flow hedges for an unconsolidated affiliate | 1,228 | — | 1,228 | |||||||||
Loss on interest rate swaps | (385 | ) | 152 | (233 | ) | |||||||
Reclassification adjustment for interest rate swap included in net income | 92 | (36 | ) | 56 | ||||||||
Other comprehensive income, net | $ | 271 | $ | 116 | $ | 387 | ||||||
18.19. Computation of Earnings Per Share
The computation of basic and diluted earnings per share (“EPS”) is as follows:
For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
September 29, 2013 | September 23, 2012 | December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||||||||
Basic EPS | ||||||||||||||||||||||||
Net income attributable to Unifi, Inc. | $ | 8,870 | $ | 2,294 | $ | 6,443 | $ | 2,426 | $ | 15,313 | $ | 4,720 | ||||||||||||
Weighted average common shares outstanding | 19,264 | 20,091 | 19,136 | 20,099 | 19,200 | 20,095 | ||||||||||||||||||
Basic EPS | $ | 0.46 | $ | 0.11 | $ | 0.34 | $ | 0.12 | $ | 0.80 | $ | 0.23 | ||||||||||||
Diluted EPS | ||||||||||||||||||||||||
Net income attributable to Unifi, Inc. | $ | 8,870 | $ | 2,294 | $ | 6,443 | $ | 2,426 | $ | 15,313 | $ | 4,720 | ||||||||||||
Weighted average common shares outstanding | 19,264 | 20,091 | 19,136 | 20,099 | 19,200 | 20,095 | ||||||||||||||||||
Net potential common share equivalents – stock options and RSUs | 900 | 462 | 758 | 554 | 832 | 509 | ||||||||||||||||||
Adjusted weighted average common shares outstanding | 20,164 | 20,553 | 19,894 | 20,653 | 20,032 | 20,604 | ||||||||||||||||||
Diluted EPS | $ | 0.44 | $ | 0.11 | $ | 0.32 | $ | 0.12 | $ | 0.76 | $ | 0.23 | ||||||||||||
Excluded from the calculation of common share equivalents: | ||||||||||||||||||||||||
Anti-dilutive common share equivalents | 86 | 272 | ||||||||||||||||||||||
Excluded from the calculation of diluted shares: | ||||||||||||||||||||||||
Unvested options that vest upon achievement of certain market conditions | 27 | 567 | ||||||||||||||||||||||
As of December 29, 2013 and December 23, 2012, the number of anti-dilutive common share equivalents excluded from the calculation of diluted shares was 91 and 272, respectively, and the number of unvested options that vest upon achievement of certain market conditions excluded from the calculation of diluted shares was 13 and 567, respectively.
The calculation of earnings per common share is based on the weighted average number of the Company’s common shares outstanding for the applicable period. The calculation of diluted earnings per common share presents the effect of all potential dilutive common shares that were outstanding during the respective period,periods, unless the effect of doing so is anti-dilutive. Common share equivalents where the exercise price is above the average market price are excluded in the calculation of diluted earnings per common share.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
19.20. Other Operating Expense, Net
The components of Otherother operating expense, net consist of the following:
For the Three Months Ended September 29, 2013 September 23, 2012 Operating expenses for Repreve Renewables Net loss on sale or disposal of assets Foreign currency transaction losses Restructuring charges, net Other, net Other operating expense, net $ 624 $ 585 41 22 94 16 896 — (31 ) (42 ) $ 1,624 $ 581
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||
Operating expenses for Renewables | $ | 580 | $ | 519 | $ | 1,204 | $ | 1,104 | ||||||||
Net loss on sale or disposal of assets | 299 | 57 | 340 | 79 | ||||||||||||
Foreign currency transaction losses | 79 | 41 | 173 | 57 | ||||||||||||
Restructuring charges, net | 222 | — | 1,118 | — | ||||||||||||
Other, net | (35 | ) | (37 | ) | (66 | ) | (79 | ) | ||||||||
Other operating expense, net | $ | 1,145 | $ | 580 | $ | 2,769 | $ | 1,161 | ||||||||
Operating expenses for Repreve Renewables include amounts incurred for employee costs, land and equipment rental costs, operating supplies, product testing, and administrative costs. Operating expenses for Repreve Renewables also includes $80 and $46$45 of depreciation and amortization expensesexpense for the three months ended SeptemberDecember 29, 2013 and SeptemberDecember 23, 2012, respectively, and $160 and $91 for the six months ended December 29, 2013 and December 23, 2012, respectively.
The components of restructuring charges, net consist of the following:
For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
September 29, 2013 | September 23, 2012 | December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||||||||
Severance | $ | 666 | $ | — | $ | 103 | $ | — | $ | 769 | $ | — | ||||||||||||
Equipment relocation and reinstallation costs | 230 | — | 119 | — | 349 | — | ||||||||||||||||||
Total restructuring charges, net | $ | 896 | $ | — | ||||||||||||||||||||
Restructuring charges, net | $ | 222 | $ | — | $ | 1,118 | $ | — | ||||||||||||||||
Severance
On May 14, 2013, the Company and one of its executive officers entered into a severance agreement that will provide severance and certain other benefits through November 30, 2014. On August 12, 2013, the Company and another of its executive officers entered into a severance agreement that will provide severance and certain other benefits through December 12, 2014. The table below presents changes to accrued severance for the threesix months ended SeptemberDecember 29, 2013:
Balance June 30, 2013 Charged to expense Charged to other accounts Payments Adjustments Balance September 29, 2013 Accrued severance $ 1,186 666 225 (533 ) — $ 1,544
Balance June 30, 2013 | Charged to expense | Charged to other accounts | Payments | Adjustments | Balance December 29, 2013 | |||||||||||||||||||
Accrued severance | $ | 1,186 | 769 | 243 | (821 | ) | — | $ | 1,377 | |||||||||||||||
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
Equipment Relocation and Reinstallation Costs
During the first quarter of fiscal year 2014, the Company began the relocation of certain equipment within the Polyester Segment as followsfollows:
● | The Company began to dismantle and relocate certain polyester draw warping equipment from Monroe, North Carolina to a Burlington, North Carolina facility. |
● | The Company also began to dismantle and relocate certain polyester texturing and twisting equipment between locations in North Carolina and El Salvador. |
The relocation of this equipment was completed during the second quarter of fiscal year 2014. The costs incurred for the relocation of equipment were charged to restructuring expense as incurred.
20.21. Investments in Unconsolidated Affiliates and Variable Interest Entities
Parkdale America, LLC
In June 1997, the Company and Parkdale Mills, Inc. (“Mills”) entered into a Contribution Agreement that set forth the terms and conditions by which the two companies contributed all of the assets of their spun cotton yarn operations utilizing open-end and air-jet spinning technologies to create Parkdale America, LLC (“PAL”). In exchange for its contribution, the Company received a 34% ownership interest in PAL, which is accounted for using the equity method of accounting. Effective January 1, 2012, Mills’ interest in PAL was assigned to Parkdale Incorporated. PAL’s fiscal year end is the Saturday nearest to December 31 and PAL is a limited liability company treated as a partnership for income tax reporting purposes.purposes, and PAL’s fiscal year end is the Saturday nearest to December 31. PAL is a producer of cotton and synthetic yarns for sale to the textile industry and apparel market, both foreign and domestic. PAL has 13 manufacturing facilities located primarily in the southeast region of the U.S. According to its most recently issued audited financial statements, PAL’s five largest customers accounted for approximately 82% of total revenues and 77% of total gross accounts receivable outstanding, with the largest customer accounting for approximately 38% of revenues and 35% of accounts receivable.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
During August 2008, a federal government program commenced providing economic adjustment assistance to domestic users of upland cotton (the “EAP program”). The program offers a subsidy for cotton consumed in domestic production, and the subsidy is paid the month after the eligible cotton is consumed. The subsidy must be used within eighteen months after the marketing year in which it is earned to purchase qualifying capital expenditures in the U.S. for production of goods from upland cotton. The marketing year is from August 1 to July 31. The program provided a subsidy of four cents per pound through July 31, 2012 and thereafter provides a subsidy of three cents per pound. The Company recognizes its share of PAL’s income for the cotton subsidy when the cotton has been consumed and the qualifying assets have been acquired, with an appropriate allocation methodology considering the dual criteria of the subsidy.
As of SeptemberDecember 29, 2013, the Company’s investment in PAL was $92,741$97,544 and shown within Investmentsinvestments in unconsolidated affiliates in the Condensed Consolidated Balance Sheets. The reconciliation between the Company’s share of the underlying equity of PAL and its investment is as follows:
Underlying equity as of September 2013 Initial excess capital contributions Impairment charge recorded by the Company in 2007 Antitrust lawsuit against PAL in which the Company did not participate EAP adjustments Investment balance as of September 2013 $ 111,196 53,363 (74,106 ) 2,652 (364 ) $ 92,741
Underlying equity as of December 2013 | $ | 115,982 | ||
Initial excess capital contributions | 53,363 | |||
Impairment charge recorded by the Company in 2007 | (74,106 | ) | ||
Antitrust lawsuit against PAL in which the Company did not participate | 2,652 | |||
EAP adjustments | (347 | ) | ||
Investment balance as of December 2013 | $ | 97,544 |
U.N.F. Industries, Ltd.
In September 2000, the Company and Nilit Ltd. (“Nilit”) formed a 50/50 joint venture, U.N.F. Industries Ltd. (“UNF”), for the purpose of operating nylon extrusion assets to manufacture nylon POY. All raw material and production services for UNF are provided by Nilit under separate supply and services agreements. UNF’s fiscal year end is December 31 and it is a registered Israeli private company located in Migdal Ha-Emek, Israel.
UNF America, LLC
In October 2009, the Company and Nilit America Inc. (“Nilit America”) formed a 50/50 joint venture, UNF America LLC (“UNF America”), for the purpose of operating a nylon extrusion facility which manufactures nylon POY. All raw material and production services for UNF America are provided by Nilit America under separate supply and services agreements. UNF America’s fiscal year end is December 31 and it is a limited liability company treated as a partnership for income tax reporting purposes located in Ridgeway, Virginia.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
In conjunction with the formation of UNF America, the Company entered into a supply agreement with UNF and UNF America whereby the Company agreed to purchase all of its first quality nylon POY requirements for texturing (subject to certain exceptions) from either UNF or UNF America. The agreement has no stated minimum purchase quantities and pricing is negotiated every six months, based on market rates. As of SeptemberDecember 29, 2013, the Company’s open purchase orders related to this agreement were $3,823.$4,453.
The Company’s raw material purchases under this supply agreement consist of the following:
For the Three Months Ended September 29, 2013 September 23, 2012 UNF UNF America Total $ 3,179 $ 3,263 5,986 5,698 $ 9,165 $ 8,961
For the Six Months Ended | ||||||||
December 29, 2013 | December 23, 2012 | |||||||
UNF | $ | 6,243 | $ | 6,326 | ||||
UNF America | 11,776 | 11,311 | ||||||
Total | $ | 18,019 | $ | 17,637 | ||||
As of SeptemberDecember 29, 2013 and June 30, 2013, the Company had combined accounts payable due to UNF and UNF America of $4,105$3,688 and $2,890, respectively.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
The Company has determined that UNF and UNF America are variable interest entities (“VIEs”) and has also determined that the Company is the primary beneficiary of these entities, based on the terms of the supply agreement. As a result, these entities should be consolidated in the Company’s financial results. As the Company purchases substantially all of the output from the two entities, and, as the two entities’ balance sheets constitute 3% or less of the Company’s current assets, total assets and total liabilities, the Company has not included the accounts of UNF and UNF America in its consolidated financial statements. As of SeptemberDecember 29, 2013, the Company’s combined investments in UNF and UNF America were $4,147$4,018 and are shown within Investmentsinvestments in unconsolidated affiliates in the Condensed Consolidated Balance Sheets. The financial results of UNF and UNF America are included in the Company’s financial statements with a one month lag, using the equity method of accounting and with intercompany profits eliminated in accordance with the Company’s accounting policy. Other than the supply agreement discussed above, the Company does not provide any other commitments or guarantees related to either UNF or UNF America.
Unaudited, condensed balance sheet and income statement information for the Company’s unconsolidated affiliates is presented in the following tables. As PAL is defined as significant, its information is separately disclosed.
As of September 29, 2013 (Unaudited) | As of December 29, 2013 (Unaudited) | |||||||||||||||||||||||
PAL | Other | Total | PAL | Other | Total | |||||||||||||||||||
Current assets | $ | 275,250 | $ | 10,210 | $ | 285,460 | $ | 272,832 | $ | 9,396 | $ | 282,228 | ||||||||||||
Noncurrent assets | 113,273 | 3,137 | 116,410 | 119,993 | 3,112 | 123,105 | ||||||||||||||||||
Current liabilities | 51,430 | 5,225 | 56,655 | 45,960 | 5,483 | 51,443 | ||||||||||||||||||
Noncurrent liabilities | 10,045 | — | 10,045 | 5,741 | — | 5,741 | ||||||||||||||||||
Shareholders’ equity and capital accounts | 327,048 | 8,122 | 335,170 | 341,124 | 7,025 | 348,149 | ||||||||||||||||||
The Company’s portion of undistributed earnings | 22,143 | 1,100 | 23,243 | 26,929 | 1,053 | 27,982 | ||||||||||||||||||
As of June 30, 2013 (Unaudited) | ||||||||||||
PAL | Other | Total | ||||||||||
Current assets | $ | 266,300 | $ | 11,343 | $ | 277,643 | ||||||
Noncurrent assets | 111,061 | 3,163 | 114,224 | |||||||||
Current liabilities | 44,517 | 4,910 | 49,427 | |||||||||
Noncurrent liabilities | 15,609 | — | 15,609 | |||||||||
Shareholders’ equity and capital accounts | 317,235 | 9,596 | 326,831 | |||||||||
For the Three Months Ended December 29, 2013 (Unaudited) | ||||||||||||
PAL | Other | Total | ||||||||||
Net sales | $ | 190,629 | $ | 9,371 | $ | 200,000 | ||||||
Gross profit | 16,665 | 1,199 | 17,864 | |||||||||
Income from operations | 13,348 | 761 | 14,109 | |||||||||
Income to members | 14,076 | 801 | 14,877 | |||||||||
Depreciation and amortization | 7,204 | 25 | 7,229 | |||||||||
Cash received by PAL under EAP program | 3,439 | — | 3,439 | |||||||||
Earnings recognized by PAL for EAP program | 7,205 | — | 7,205 | |||||||||
Dividends and cash distributions received | — | 500 | 500 | |||||||||
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
For the Three Months Ended September 29, 2013 (Unaudited) PAL Other Total Net sales Gross profit Income from operations Income to members Depreciation and amortization Cash received by PAL under EAP program Earnings recognized by PAL for EAP program Dividends and cash distributions received $ 222,537 $ 8,540 $ 231,077 20,090 926 21,016 16,572 488 17,060 17,340 528 17,868 7,082 25 7,107 4,054 — 4,054 9,079 — 9,079 2,559 — 2,559
As of the end of PAL’s fiscal SeptemberDecember 2013 period, PAL’s amount of deferred revenues related to the EAP program was $3,766.$0.
For the Three Months Ended December 23, 2012 (Unaudited) | ||||||||||||
PAL | Other | Total | ||||||||||
Net sales | $ | 169,222 | $ | 9,343 | $ | 178,565 | ||||||
Gross profit | 6,541 | 1,725 | 8,266 | |||||||||
Income from operations | 1,340 | 1,282 | 2,622 | |||||||||
Income to members | 1,847 | 1,296 | 3,143 | |||||||||
Depreciation and amortization | 8,209 | 25 | 8,234 | |||||||||
Cash received by PAL under EAP program | 3,842 | — | 3,842 | |||||||||
Earnings recognized by PAL for EAP program | 1,549 | — | 1,549 | |||||||||
Dividends and cash distributions received | — | 500 | 500 | |||||||||
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
For the Three Months Ended September 23, 2012 (Unaudited) | For the Six Months Ended December 29, 2013 (Unaudited) | |||||||||||||||||||||||
PAL | Other | Total | PAL | Other | Total | |||||||||||||||||||
Net sales | $ | 201,390 | $ | 8,842 | $ | 210,232 | $ | 413,166 | $ | 17,911 | $ | 431,077 | ||||||||||||
Gross profit | 2,948 | 1,653 | 4,601 | 36,755 | 2,125 | 38,880 | ||||||||||||||||||
(Loss) income from operations | (571 | ) | 1,223 | 652 | ||||||||||||||||||||
Income from operations | 29,920 | 1,249 | 31,169 | |||||||||||||||||||||
Income to members | 38 | 1,200 | 1,238 | 31,416 | 1,329 | 32,745 | ||||||||||||||||||
Depreciation and amortization | 7,791 | 25 | 7,816 | 14,286 | 50 | 14,336 | ||||||||||||||||||
Cash received by PAL under EAP program | 4,926 | — | 4,926 | 7,493 | — | 7,493 | ||||||||||||||||||
Earnings recognized by PAL for EAP program | 2,319 | — | 2,319 | 16,284 | — | 16,284 | ||||||||||||||||||
Dividends and cash distributions received | 2,224 | — | 2,224 | 2,559 | 500 | 3,059 | ||||||||||||||||||
For the Six Months Ended December 23, 2012 (Unaudited) | ||||||||||||
PAL | Other | Total | ||||||||||
Net sales | $ | 370,612 | $ | 18,185 | $ | 388,797 | ||||||
Gross profit | 9,489 | 3,378 | 12,867 | |||||||||
Income from operations | 770 | 2,504 | 3,274 | |||||||||
Income to members | 1,885 | 2,496 | 4,381 | |||||||||
Depreciation and amortization | 16,000 | 50 | 16,050 | |||||||||
Cash received by PAL under EAP program | 8,768 | — | 8,768 | |||||||||
Earnings recognized by PAL for EAP program | 3,868 | — | 3,868 | |||||||||
Dividends and cash distributions received | 2,224 | 500 | 2,724 | |||||||||
21.22. Commitments and Contingencies
Collective Bargaining Agreements
While employees of the Company’s foreign operations are generally unionized, none of the Company’s domestic labor force is currently covered by a collective bargaining agreement.
Environmental
On September 30, 2004, the Company completed its acquisition of the polyester filament manufacturing assets located in Kinston, North Carolina from INVISTA S.a.r.l (“Invista”). The land for the Kinston site was leased pursuant to a 99 year ground lease (“Ground Lease”) with E.I. DuPont de Nemours (“DuPont”). Since 1993, DuPont has been investigating and cleaning up the Kinston site under the supervision of the U.S. Environmental Protection Agency (“EPA”) and the North Carolina Department of Environment and Natural Resources (“DENR”) pursuant to the Resource Conservation and Recovery Act Corrective Action program. The Corrective Action program requires DuPont to identify all potential areas of environmental concern (“AOCs”), assess the extent of containment at the identified AOCs and to clean it up to comply with applicable regulatory standards. Effective March 20, 2008, the Company entered into a Lease Termination Agreement associated with conveyance of certain assets at Kinston to DuPont. This agreement terminated the Ground Lease and relieved the Company of any future responsibility for environmental remediation, other than participation with DuPont, if so called upon, with regard to the Company’s period of operation of the Kinston site which was from 2004 to 2008. However, the Company continues to own a satellite service facility acquired in the INVISTA transaction that has contamination from DuPont’s operations and is monitored by DENR. This site has been remediated by DuPont, and DuPont has received authority from DENR to discontinue remediation, other than natural attenuation. DuPont’s duty to monitor and report to DENR will be transferred to the Company in the future, at which time DuPont must pay the Company for seven years of monitoring and reporting costs and the Company will assume responsibility for any future remediation and monitoring of the site. At this time, the Company has no basis to determine if or when it will have any responsibility or obligation with respect to the AOCs or the extent of any potential liability for the same.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
Operating Leases
The Company routinely leases sales and administrative office space, warehousing and distribution centers, transportation equipment, manufacturing equipment, and other information technology and office equipment from third parties. In addition, Renewables leases farm land for use in growing a patented bio-energy crop, FreedomFREEDOM® Giant Miscanthus. The Company does not sub-lease any of its leased property.
23. Related Party Transactions
Related party receivables consist of the following:
December 29, 2013 | June 30, 2013 | |||||||
UNF America | $ | 40 | $ | — | ||||
Cupron, Inc. | 24 | 6 | ||||||
Dillon Yarn Corporation | 3 | 198 | ||||||
Total related party receivables (included within receivables, net) | $ | 67 | $ | 204 | ||||
Related party payables consist of the following:
December 29, 2013 | June 30, 2013 | |||||||
Dillon Yarn Corporation | $ | 538 | $ | 135 | ||||
Salem Leasing Corporation | 328 | 267 | ||||||
Cupron, Inc. | 261 | 218 | ||||||
American Drawtech Company, Inc. | — | 17 | ||||||
Total related party payables (included within accounts payable) | $ | 1,127 | $ | 637 | ||||
Related party transactions consist of the following:
For the Three Months Ended | |||||||||
Affiliated Entity | Transaction Type | December 29, 2013 | December 23, 2012 | ||||||
Dillon Yarn Corporation | Yarn purchases | $ | 565 | $ | 505 | ||||
Dillon Yarn Corporation | Sales service agreement costs | — | 141 | ||||||
Dillon Yarn Corporation | Sales | 380 | 2 | ||||||
Salem Leasing Corporation | Transportation equipment costs | 911 | 744 | ||||||
American Drawtech Company, Inc. | Sales | — | 137 | ||||||
American Drawtech Company, Inc. | Yarn purchases | — | (6 | ) | |||||
Cupron, Inc. | Sales | 131 | 13 | ||||||
Cupron, Inc. | Yarn purchases | 8 | — | ||||||
For the Six Months Ended | |||||||||
Affiliated Entity | Transaction Type | December 29, 2013 | December 23, 2012 | ||||||
Dillon Yarn Corporation | Yarn purchases | $ | 1,452 | $ | 1,269 | ||||
Dillon Yarn Corporation | Sales service agreement costs | — | 267 | ||||||
Dillon Yarn Corporation | Sales | 1,235 | 6 | ||||||
Salem Leasing Corporation | Transportation equipment costs | 1,826 | 1,530 | ||||||
American Drawtech Company, Inc. | Sales | — | 234 | ||||||
American Drawtech Company, Inc. | Yarn purchases | — | 37 | ||||||
Cupron, Inc. | Sales | 157 | 15 | ||||||
Cupron, Inc. | Yarn purchases | 8 | — | ||||||
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
22. Related Party Transactions
During the first quartersix months of fiscal year 2014, the Company repurchased 249396 shares of its common stock through open market transactions. Since inception of the Company’s $50,000 stock repurchase program, the Company has repurchased 964 shares of its common stock through open market purchases. Invemed Associates LLC (“Invemed”) provided brokerage services to the Company for the repurchase of these shares. The Company paid a commission of $.02 per share to Invemed. Mr. Kenneth G. Langone, a member of the Company’s Board, is the founder and chairman of Invemed.
On November 1, 2013, the Company purchased 150 shares of the Company’s common stock from Dillon, at a negotiated price of $23.00 per share, for $3,450. The purchase price was equal to an approximately 6% discount to the closing price of the common stock on October 31, 2013. Mr. Mitchel Weinberger, a member of the Company’s Board, is Dillon’s president and chief operating officer.
On December 3, 2013, certain of the Company’s executive officers exercised options to purchase shares of the Company’s common stock under option awards previously granted under a prior long-term incentive compensation plan. Pursuant to authorization from the Company’s Board, and as part of the Company’s previously announced $50,000 stock repurchase program, the Company repurchased 225 shares of common stock issued in those option exercises at a negotiated price of $25.59 per share (which was equal to the average of the closing trade prices of the Company’s common stock for the 30 days ending December 2, 2013 and represents a 7.1% discount to the $27.56 closing price of the common stock on December 2, 2013).
For a further discussion of the nature of certain related party relationships, see “Note 26. Related Party Transactions” included in the 2013 Form 10-K.
24. Business Segment Information
Related party receivables consist of the following:
September 29, 2013 June 30, 2013 Dillon Yarn Corporation Cupron, Inc. Total related party receivables (included within Receivables, net) $ 497 $ 198 1 6 $ 498 $ 204
Related party payables consist of the following:
September 29, 2013 June 30, 2013 Salem Leasing Corporation Cupron, Inc. Dillon Yarn Corporation American Drawtech Company, Inc. Total related party payables (included within Accounts payable) $ 276 $ 267 201 218 198 135 — 17 $ 675 $ 637
Related party transactions consist of the following:
For the Three Months Ended Affiliated Entity Transaction Type September 29, 2013 September 23, 2012 Dillon Yarn Corporation Yarn purchases Dillon Yarn Corporation Sales service agreement costs Dillon Yarn Corporation Sales Salem Leasing Corporation Transportation equipment costs American Drawtech Company, Inc. Sales American Drawtech Company, Inc. Yarn purchases Cupron, Inc. Sales $ 887 $ 764 — 126 855 4 915 786 — 97 — 43 26 2
23. Business Segment Information
The Company has three operating segments, which are also its reportable segments. These segments derive revenues as follows:
● | The Polyester Segment manufactures Chip, POY, textured, dyed, twisted, beamed and |
● | The Nylon Segment manufactures textured nylon and covered spandex yarns, with sales to knitters and weavers that produce fabric for the apparel, hosiery, sock and other end-use markets. The Nylon Segment consists of sales and manufacturing operations in the U.S. and Colombia. |
● | The International Segment’s products primarily include textured polyester and various types of resale yarns and staple fiber. The International Segment sells its yarns to knitters and weavers that produce fabric for the apparel, automotive upholstery, home furnishings, industrial and other end-use markets primarily in the South American and Asian regions. This segment includes manufacturing locations and sales offices in Brazil and a sales office in China. |
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
The Company evaluates the operating performance of its segments based upon Segment Adjusted Profit, which is defined as segment gross profit plus segment depreciation and amortization less segment selling, general and administrative (“SG&A&A”) expenses and plus segment other adjustments. Segment operating profit represents segment net sales less cost of sales, restructuring and other charges and SG&A expenses. The accounting policies for the segments are consistent with the Company’s accounting policies. Intersegment sales are accounted for at current market prices.
Selected financial information for the Polyester, Nylon and International Segments is presented below:
For the Three Months Ended September 29, 2013 Polyester Nylon International Total Net sales Cost of sales Gross profit Selling, general and administrative expenses Restructuring charges Segment operating profit $ 93,562 $ 39,715 $ 35,392 $ 168,669 83,202 35,021 30,461 148,684 10,360 4,694 4,931 19,985 6,035 2,050 2,029 10,114 230 — — 230 $ 4,095 $ 2,644 $ 2,902 $ 9,641
For the Three Months Ended December 29, 2013 | ||||||||||||||||
Polyester | Nylon | International | Total | |||||||||||||
Net sales | $ | 89,430 | $ | 39,800 | $ | 31,387 | $ | 160,617 | ||||||||
Cost of sales | 79,633 | 35,041 | 27,446 | 142,120 | ||||||||||||
Gross profit | 9,797 | 4,759 | 3,941 | 18,497 | ||||||||||||
Selling, general and administrative expenses | 7,068 | 2,384 | 2,039 | 11,491 | ||||||||||||
Restructuring charges | 119 | — | — | 119 | ||||||||||||
Segment operating profit | $ | 2,610 | $ | 2,375 | $ | 1,902 | $ | 6,887 | ||||||||
For the Three Months Ended September 23, 2012 Polyester Nylon International Total Net sales Cost of sales Gross profit Selling, general and administrative expenses Segment operating profit $ 93,036 $ 40,014 $ 39,850 $ 172,900 84,829 35,944 34,107 154,880 8,207 4,070 5,743 18,020 6,751 2,336 2,060 11,147 $ 1,456 $ 1,734 $ 3,683 $ 6,873
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
For the Three Months Ended December 23, 2012 | ||||||||||||||||
Polyester | Nylon | International | Total | |||||||||||||
Net sales | $ | 97,322 | $ | 39,541 | $ | 35,208 | $ | 172,071 | ||||||||
Cost of sales | 88,885 | 35,525 | 30,970 | 155,380 | ||||||||||||
Gross profit | 8,437 | 4,016 | 4,238 | 16,691 | ||||||||||||
Selling, general and administrative expenses | 7,177 | 2,466 | 1,889 | 11,532 | ||||||||||||
Segment operating profit | $ | 1,260 | $ | 1,550 | $ | 2,349 | $ | 5,159 | ||||||||
The reconciliations of Segmentsegment operating profit to consolidated Incomeincome before income taxes are as follows:
For the Three Months Ended September 29, 2013 September 23, 2012 Polyester Nylon International Segment operating profit (Benefit) provision for bad debts Other operating expense, net Operating income Interest income Interest expense Loss on extinguishment of debt Equity in earnings of unconsolidated affiliates Income before income taxes $ 4,095 $ 1,456 2,644 1,734 2,902 3,683 9,641 6,873 (38 ) 110 1,394 581 8,285 6,182 (1,214 ) (124 ) 1,252 1,444 — 242 (6,123 ) (671 ) $ 14,370 $ 5,291
For the Three Months Ended | ||||||||
December 29, 2013 | December 23, 2012 | |||||||
Polyester | $ | 2,610 | $ | 1,260 | ||||
Nylon | 2,375 | 1,550 | ||||||
International | 1,902 | 2,349 | ||||||
Segment operating profit | 6,887 | 5,159 | ||||||
Provision for bad debts | 87 | 73 | ||||||
Other operating expense, net | 1,026 | 580 | ||||||
Operating income | 5,774 | 4,506 | ||||||
Interest income | (142 | ) | (144 | ) | ||||
Interest expense | 903 | 1,361 | ||||||
Loss on extinguishment of debt | — | 114 | ||||||
Equity in earnings of unconsolidated affiliates | (5,122 | ) | (1,258 | ) | ||||
Income before income taxes | $ | 10,135 | $ | 4,433 | ||||
Selected financial information for the Polyester, Nylon and International Segments is presented below:
For the Six Months Ended December 29, 2013 | ||||||||||||||||
Polyester | Nylon | International | Total | |||||||||||||
Net sales | $ | 182,992 | $ | 79,515 | $ | 66,779 | $ | 329,286 | ||||||||
Cost of sales | 162,835 | 70,062 | 57,907 | 290,804 | ||||||||||||
Gross profit | 20,157 | 9,453 | 8,872 | 38,482 | ||||||||||||
Selling, general and administrative expenses | 13,103 | 4,434 | 4,068 | 21,605 | ||||||||||||
Restructuring charges | 349 | — | — | 349 | ||||||||||||
Segment operating profit | $ | 6,705 | $ | 5,019 | $ | 4,804 | $ | 16,528 | ||||||||
For the Six Months Ended December 23, 2012 | ||||||||||||||||
Polyester | Nylon | International | Total | |||||||||||||
Net sales | $ | 190,358 | $ | 79,554 | $ | 75,059 | $ | 344,971 | ||||||||
Cost of sales | 173,714 | 71,468 | 65,078 | 310,260 | ||||||||||||
Gross profit | 16,644 | 8,086 | 9,981 | 34,711 | ||||||||||||
Selling, general and administrative expenses | 13,928 | 4,802 | 3,949 | 22,679 | ||||||||||||
Segment operating profit | $ | 2,716 | $ | 3,284 | $ | 6,032 | $ | 12,032 | ||||||||
The reconciliations of Segment depreciation and amortization expensesegment operating profit to consolidated Depreciation and amortization expenseincome before income taxes are as follows:
For the Three Months Ended September 29, 2013 September 23, 2012 Polyester Nylon International Segment depreciation and amortization expense Depreciation and amortization included in other operating expense, net Amortization included in interest expense Depreciation and amortization expense $ 2,749 $ 4,681 744 758 728 866 4,221 6,305 80 46 107 166 $ 4,408 $ 6,517
For the Six Months Ended | ||||||||
December 29, 2013 | December 23, 2012 | |||||||
Polyester | $ | 6,705 | $ | 2,716 | ||||
Nylon | 5,019 | 3,284 | ||||||
International | 4,804 | 6,032 | ||||||
Segment operating profit | 16,528 | 12,032 | ||||||
Provision for bad debts | 49 | 183 | ||||||
Other operating expense, net | 2,420 | 1,161 | ||||||
Operating income | 14,059 | 10,688 | ||||||
Interest income | (1,356 | ) | (268 | ) | ||||
Interest expense | 2,155 | 2,805 | ||||||
Loss on extinguishment of debt | — | 356 | ||||||
Equity in earnings of unconsolidated affiliates | (11,245 | ) | (1,929 | ) | ||||
Income before income taxes | $ | 24,505 | $ | 9,724 | ||||
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
The reconciliations of segment depreciation and amortization expense to consolidated depreciation and amortization expense are as follows:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||
Polyester | $ | 2,822 | $ | 4,697 | $ | 5,571 | $ | 9,378 | ||||||||
Nylon | 521 | 755 | 1,265 | 1,513 | ||||||||||||
International | 689 | 820 | 1,417 | 1,686 | ||||||||||||
Segment depreciation and amortization expense | 4,032 | 6,272 | 8,253 | 12,577 | ||||||||||||
Depreciation and amortization included in other operating expense, net | 80 | 45 | 160 | 91 | ||||||||||||
Amortization included in interest expense | 105 | 163 | 212 | 329 | ||||||||||||
Depreciation and amortization expense | $ | 4,217 | $ | 6,480 | $ | 8,625 | $ | 12,997 | ||||||||
Segment other adjustments for each of the reportable segments consist of the following:
For the Three Months Ended September 29, 2013 September 23, 2012 Polyester Nylon International Segment other adjustments $ 2 $ 94 (157 ) — 60 — $ (95 ) $ 94
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||
Polyester | $ | 191 | $ | — | $ | 193 | $ | 94 | ||||||||
Nylon | — | — | (157 | ) | — | |||||||||||
International | 194 | 56 | 254 | 56 | ||||||||||||
Segment other adjustments | $ | 385 | $ | 56 | $ | 290 | $ | 150 | ||||||||
Segment other adjustments may include items such as severance charges, restructuring charges and recoveries, start-up cost,costs, and other adjustments necessary to understand and compare the underlying results of the segment.
Segment Adjusted Profit for each of the reportable segments consists of the following:
For the Three Months Ended September 29, 2013 September 23, 2012 Polyester Nylon International Segment Adjusted Profit $ 7,076 $ 6,231 3,231 2,492 3,690 4,549 $ 13,997 $ 13,272
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||
Polyester | $ | 5,742 | $ | 5,957 | $ | 12,818 | $ | 12,188 | ||||||||
Nylon | 2,896 | 2,305 | 6,127 | 4,797 | ||||||||||||
International | 2,785 | 3,225 | 6,475 | 7,774 | ||||||||||||
Segment Adjusted Profit | $ | 11,423 | $ | 11,487 | $ | 25,420 | $ | 24,759 | ||||||||
Intersegment sales for each of the reportable segments consist of the following:
For the Three Months Ended September 29, 2013 September 23, 2012 Polyester Nylon International Intersegment sales $ 5 $ 621 73 122 99 293 $ 177 $ 1,036
The reconciliations of Segment capital expenditures to consolidated Capital expenditures are as follows:
For the Three Months Ended September 29, 2013 September 23, 2012 Polyester Nylon International Segment capital expenditures Unallocated corporate capital expenditures Capital expenditures $ 4,392 $ 729 571 56 656 165 5,619 950 72 141 $ 5,691 $ 1,091
The reconciliations of Segment total assets to consolidated Total assets are as follows:
September 29, 2013 June 30, 2013 Polyester Nylon International Segment total assets All other current assets Unallocated corporate PP&E All other non-current assets Investments in unconsolidated affiliates Total assets $ 182,823 $ 185,190 71,241 72,599 83,406 84,151 337,470 341,940 2,324 3,342 11,779 11,983 4,802 4,940 96,888 93,261 $ 453,263 $ 455,466
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||
Polyester | $ | 87 | $ | 348 | $ | 92 | $ | 969 | ||||||||
Nylon | 63 | 52 | 136 | 174 | ||||||||||||
International | 415 | 106 | 514 | 399 | ||||||||||||
Intersegment sales | $ | 565 | $ | 506 | $ | 742 | $ | 1,542 | ||||||||
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
The reconciliations of segment capital expenditures to consolidated capital expenditures are as follows:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||
Polyester | $ | 2,641 | $ | 1,189 | $ | 7,033 | $ | 1,918 | ||||||||
Nylon | 856 | 114 | 1,427 | 170 | ||||||||||||
International | 227 | 124 | 883 | 289 | ||||||||||||
Segment capital expenditures | 3,724 | 1,427 | 9,343 | 2,377 | ||||||||||||
Unallocated corporate capital expenditures | 16 | 354 | 88 | 495 | ||||||||||||
Capital expenditures | $ | 3,740 | $ | 1,781 | $ | 9,431 | $ | 2,872 | ||||||||
The reconciliations of segment total assets to consolidated total assets are as follows:
December 29, 2013 | June 30, 2013 | |||||||
Polyester | $ | 177,472 | $ | 185,190 | ||||
Nylon | 68,465 | 72,599 | ||||||
International | 77,657 | 84,151 | ||||||
Segment total assets | 323,594 | 341,940 | ||||||
All other current assets | 4,796 | 3,342 | ||||||
Unallocated corporate PP&E | 11,542 | 11,983 | ||||||
All other non-current assets | 4,678 | 4,940 | ||||||
Investments in unconsolidated affiliates | 101,562 | 93,261 | ||||||
Total assets | $ | 446,172 | $ | 455,466 | ||||
Geographic Data:
Geographic information for Netnet sales is as follows:
For the Three Months Ended September 29, 2013 September 23, 2012 U.S. Brazil All Other Foreign Total $ 123,727 $ 122,587 30,313 32,521 14,629 17,792 $ 168,669 $ 172,900
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||
U.S. | $ | 121,236 | $ | 126,202 | $ | 244,963 | $ | 248,789 | ||||||||
Brazil | 26,152 | 28,406 | 56,464 | 60,927 | ||||||||||||
All Other Foreign | 13,229 | 17,463 | 27,859 | 35,255 | ||||||||||||
Total | $ | 160,617 | $ | 172,071 | $ | 329,286 | $ | 344,971 | ||||||||
The information for Netnet sales is based on the operating locations from where the items were produced or distributed. Export sales from the Company’s U.S. operations to external customers were $23,256$26,699 and $22,985$22,578 for the three months ended SeptemberDecember 29, 2013 and SeptemberDecember 23, 2012, respectively. Export sales from the Company’s U.S. operations to external customers were $49,955 and $45,563 for the six months ended December 29, 2013 and December 23, 2012, respectively.
Geographic information for long-lived assets is as follows:
September 29, 2013 June 30, 2013 U.S. Brazil All Other Foreign Total $ 202,220 $ 200,958 13,422 16,150 8,791 8,658 $ 224,433 $ 225,766
December 29, 2013 | June 30, 2013 | |||||||
U.S. | $ | 210,413 | $ | 200,958 | ||||
Brazil | 12,277 | 16,150 | ||||||
All Other Foreign | 8,493 | 8,658 | ||||||
Total | $ | 231,183 | $ | 225,766 | ||||
Long-lived assets are comprised of Property,property, plant and equipment, net, Intangibleintangible assets, net, Investmentsinvestments in unconsolidated affiliates and Otherother non-current assets.assets, excluding other investments.
Geographic information for total assets is as follows:
September 29, 2013 | June 30, 2013 | December 29, 2013 | June 30, 2013 | |||||||||||||
U.S. | $ | 346,439 | $ | 346,651 | $ | 346,974 | $ | 346,651 | ||||||||
Brazil | 72,454 | 72,735 | 66,545 | 72,735 | ||||||||||||
All Other Foreign | 34,370 | 36,080 | 32,653 | 36,080 | ||||||||||||
Total | $ | 453,263 | $ | 455,466 | $ | 446,172 | $ | 455,466 | ||||||||
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
24.25. Subsequent Events
On November 1, 2013, the Company entered into a Stock Purchase Agreement with, and purchased from, Dillon Yarn Corporation 150 shares of common stock at a negotiated price of $23.00 per share for an aggregate purchase price of $3,450.
The Company evaluated all events and material transactions for potential recognition or disclosure through such time as these statements were filed with the Securities and Exchange Commission and determined there were no other items deemed reportable.
25.26. Supplemental Cash Flow Information
Cash payments for interest and taxes consist of the following:
For the Three Months Ended September 29, 2013 September 23, 2012 Interest, net of capitalized interest Taxes, net of refunds $ 858 $ 1,362 2,144 2,441
For the Six Months Ended | ||||||||
December 29, 2013 | December 23, 2012 | |||||||
Interest, net of capitalized interest | $ | 1,635 | $ | 2,576 | ||||
Income taxes, net of refunds | 6,558 | 4,308 | ||||||
Cash payments for income taxes shown above consist primarily of income and withholding tax payments made by the Company in both U.S. and foreign jurisdictions.
Non-cash Investing and Financing Activities
During the quarter ended December 29, 2013, the Company received and retired 134 shares of its common stock, with a fair value of $3,583, tendered in lieu of cash for the exercise of 421 employee stock options.
During the quarter ended December 29, 2013, the total fair value of the assets acquired in the December 2013 purchase of Dillon’s draw wound business were $2,934, and the total accounts payable and accrued contingent consideration liabilities assumed related to the acquisition were $2,934.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management’s discussion and analysis of certain significant factors that have affected the Company’s operations and material changes in financial condition during the periods included in the accompanying Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Our discussions below in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in the 2013 Form 10-K, under Item 7.10-K. Our discussions here focus on our results during, or as of, the firstsecond quarter and year-to-date period of fiscal year 2014, ended, or as of, September 29, 2013, and for the comparable periodperiods of fiscal year 2013, for comparison purposes, and, to the extent applicable, any material changes from the information discussed in the 2013 Form 10-K or other important intervening developments or information since that time.information. These discussions should be read in conjunction with the 2013 Form 10-K for more detailed and background information.
Forward-Looking Statements
This report contains statements that may constitute “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 and the Private Securities Litigation Reform Act of 1995, which we discuss in detail under Item 1 of the 2013 Form 10-K. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include risks and uncertainties associated with economic conditions in the textile industry as well as the risks and uncertainties discussed under the heading “Risk Factors” included in Item 1A of the 2013 Form 10-K, which discussion is hereby incorporated by reference. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.
Overview and Significant General Matters
The Company has focused on its core strategies, which include: continuously improving all operational and business processes; enriching its product mix by growing its higher margin PVA product portfolio and increasing sales of yarns with regional rules of origin requirements; continuing its strategic penetration in global growth markets, such as China, Central America and Brazil; and maintaining its beneficial joint venture relationships. The Company expects to continue its support of these strategies, including possible investments in selectedselect strategic growth opportunities related to its core business. Significant highlights for the SeptemberDecember 2013 quarter include the following items, each of which is discussed in more detail below:
● | Net income for the second quarter of fiscal year 2014 was |
● | Gross margins improved |
● | Earnings from our unconsolidated equity affiliates were |
● |
|
| We repurchased |
● | Adjusted EBITDA (as defined below) improved to |
Results of Operations
FirstSecond Quarter of Fiscal Year 2014 Compared to FirstSecond Quarter of Fiscal Year 2013
Consolidated Overview
The components of net income attributable to Unifi, Inc., each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts are presented in the table below.
For the Three Months Ended September 29, 2013 September 23, 2012 % to Net Sales % to Net Sales % Change Net sales Cost of sales Gross profit Selling, general and administrative expenses (Benefit) provision for bad debts Other operating expense, net Operating income Interest expense, net Loss on extinguishment of debt Equity in earnings of unconsolidated affiliates Income before income taxes Provision for income taxes Net income including non-controlling interest Less: net (loss) attributable to non-controlling interest Net income attributable to Unifi, Inc. $ 168,669 100.0 $ 172,900 100.0 (2.4 ) 148,684 88.2 154,880 89.6 (4.0 ) 19,985 11.8 18,020 10.4 10.9 10,114 6.0 11,147 6.4 (9.3 ) (38 ) — 110 0.1 (134.5 ) 1,624 0.9 581 0.3 179.5 8,285 4.9 6,182 3.6 34.0 38 — 1,320 0.8 (97.1 ) — — 242 0.1 (100.0 ) (6,123 ) (3.6 ) (671 ) (0.4 ) 812.5 14,370 8.5 5,291 3.1 171.6 5,751 3.4 3,233 1.9 77.9 8,619 5.1 2,058 1.2 318.8 (251 ) (0.2 ) (236 ) (0.1 ) 6.4 $ 8,870 5.3 $ 2,294 1.3 286.7
For the Three Months Ended | ||||||||||||||||||||
December 29, 2013 | December 23, 2012 | |||||||||||||||||||
% of Net Sales | % of Net Sales | % Change | ||||||||||||||||||
Net sales | $ | 160,617 | 100.0 | $ | 172,071 | 100.0 | (6.7 | ) | ||||||||||||
Cost of sales | 142,120 | 88.5 | 155,380 | 90.3 | (8.5 | ) | ||||||||||||||
Gross profit | 18,497 | 11.5 | 16,691 | 9.7 | 10.8 | |||||||||||||||
Selling, general and administrative expenses | 11,491 | 7.2 | 11,532 | 6.7 | (0.4 | ) | ||||||||||||||
Provision for bad debts | 87 | — | 73 | — | 19.2 | |||||||||||||||
Other operating expense, net | 1,145 | 0.7 | 580 | 0.4 | 97.4 | |||||||||||||||
Operating income | 5,774 | 3.6 | 4,506 | 2.6 | 28.1 | |||||||||||||||
Interest expense, net | 761 | 0.5 | 1,217 | 0.7 | (37.5 | ) | ||||||||||||||
Loss on extinguishment of debt | — | — | 114 | — | (100.0 | ) | ||||||||||||||
Equity in earnings of unconsolidated affiliates | (5,122 | ) | (3.2 | ) | (1,258 | ) | (0.7 | ) | 307.2 | |||||||||||
Income before income taxes | 10,135 | 6.3 | 4,433 | 2.6 | 128.6 | |||||||||||||||
Provision for income taxes | 3,924 | 2.4 | 2,216 | 1.3 | 77.1 | |||||||||||||||
Net income including non-controlling interest | 6,211 | 3.9 | 2,217 | 1.3 | 180.2 | |||||||||||||||
Less: net (loss) attributable to non-controlling interest | (232 | ) | (0.1 | ) | (209 | ) | (0.1 | ) | 11.0 | |||||||||||
Net income attributable to Unifi, Inc. | $ | 6,443 | 4.0 | $ | 2,426 | 1.4 | 165.6 | |||||||||||||
Consolidated Net Sales
Net sales for the SeptemberDecember 2013 quarter decreased by $4,231,$11,454 or 2.4%6.7%, as compared to the prior year SeptemberDecember quarter. Consolidated sales volume decreased slightly by 0.5%9.8% due to lower volumes in the International Segmentall three reportable segments, partially offset by volume improvementsan increase in the Polyester and Nylon segments. The volume increases in the Polyester and Nylon segments are attributable to growth in the U.S. apparel market.consolidated pricing of 3.1%. The decrease in volume in the Polyester and Nylon Segments is primarily attributable to the timing of the holiday shutdown (which negatively impacted the second quarter of the current fiscal year, while primarily affecting the third quarter of the prior fiscal year) and the Company’s decision to exit certain low-margin business, which was partially offset by increased volume from new PVA programs. Improved selling prices due to a shift in product mix towards higher value PVA products partially offset the volume decrease in the Polyester Segment and fully offset the decrease in the Nylon Segment. Net sales declined in the International Segment isprimarily due to changes in currency translation related to the weakening of the Brazilian Real against the U.S. dollar and lower sales volumes for the Company’s Chinese subsidiary as a result of weaker market conditions. The Brazilian operation increased its sales volumes 3.5% over the prior year September quarter; however, this increase was attributable to higher volumes of resale yarns, while manufactured product volumes declined. The weighted average sales price decreased 1.9% primarily due to a shift in mix towards products that carry a lower average selling price in the Nylon Segment and a lower weighted average sales price in Brazil on a U.S. dollar basis due to changes in exchange rates (while on a local currency basis, the weighted average sales price in Brazil increased in the September 2013 quarter as compared with the prior year quarter).subsidiary.
Consolidated Gross Profit
Gross profit for the SeptemberDecember 2013 quarter increased by $1,965,$1,806, or 10.9%10.8%, as compared to the prior fiscal year SeptemberDecember quarter. Gross profit increased in the Polyester and Nylon Segments as a result of lower depreciation expense in the Company’s domestic operations and improved sales volumesgross margins from mix enrichment efforts, while gross profit decreased for the PolyesterInternational Segment primarily due to declines in sales volume and Nylon segments and increased unit conversion margins for the domestic operations. In addition, gross profit was favorably impacted by lower unit manufacturing costs and depreciation expenses within the Polyester and Nylon segments.unfavorable currency translation effects in Brazil.
Polyester Segment Gross Profit
The components of segment gross profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Polyester Segment are as follows:
For the Three Months Ended September 29, 2013 September 23, 2012 % to Net Sales % to Net Sales %Change Net sales Cost of sales Gross profit $ 93,562 100.0 $ 93,036 100.0 0.6 83,202 88.9 84,829 91.2 (1.9 ) $ 10,360 11.1 $ 8,207 8.8 26.2
For the Three Months Ended | ||||||||||||||||||||
December 29, 2013 | December 23, 2012 | |||||||||||||||||||
% of Net Sales | % of Net Sales | % Change | ||||||||||||||||||
Net sales | $ | 89,430 | 100.0 | $ | 97,322 | 100.0 | (8.1 | ) | ||||||||||||
Cost of sales | 79,633 | 89.0 | 88,885 | 91.3 | (10.4 | ) | ||||||||||||||
Gross profit | $ | 9,797 | 11.0 | $ | 8,437 | 8.7 | 16.1 | |||||||||||||
The increase in gross profit of $2,153$1,360 was primarily a result of increased sales volume, improved conversion margins and lower unit manufacturing costs. Sales volume increased 1.5% over the prior year quarter primarily due to growth in the U.S. apparel and automotive markets. In addition, conversion margins improved due to the Company’s mix enrichment and PVA sales efforts while unit manufacturing costs were lower primarily as a result of lower depreciation expense.expense and improved gross margins caused by increased sales of PVA products, which were partially offset by the adverse effects of an 11.5% decline in sales volume due to the timing of the holiday shutdown, as described above.
Polyester Segment net sales and gross profit as a percentage of total consolidated amounts were 55.5%55.7% and 51.8%53.0% for the firstsecond quarter of fiscal year 2014, compared to 53.8%56.6% and 45.5%50.5% for the firstsecond quarter of fiscal year 2013, respectively.
Nylon Segment Gross Profit
The components of segment gross profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Nylon Segment are as follows:
For the Three Months Ended September 29, 2013 September 23, 2012 % to Net Sales % to Net Sales % Change Net sales Cost of sales Gross profit $ 39,715 100.0 $ 40,014 100.0 (0.7 ) 35,021 88.2 35,944 89.8 (2.6 ) $ 4,694 11.8 $ 4,070 10.2 15.3
For the Three Months Ended | ||||||||||||||||||||
December 29, 2013 | December 23, 2012 | |||||||||||||||||||
% of Net Sales | % of Net Sales | % Change | ||||||||||||||||||
Net sales | $ | 39,800 | 100.0 | $ | 39,541 | 100.0 | 0.7 | |||||||||||||
Cost of sales | 35,041 | 88.0 | 35,525 | 89.8 | (1.4 | ) | ||||||||||||||
Gross profit | $ | 4,759 | 12.0 | $ | 4,016 | 10.2 | 18.5 | |||||||||||||
The increase in gross profit of $624$743 was primarily a result of increasedimproved gross margins attributable to sales volumes, improved conversion margins andof new PVA programs, which were partially offset by lower unit manufacturing costs.sales volumes. Sales volumes increased 3.3%decreased by 2.4% over the prior year quarter primarily due to growth in the U.S. apparel marketimpact of timing of the holiday shutdown period on domestic volumes and lower volumes for the Company’s Latin American subsidiary due to the successdecreased sales to one of new PVA programs. These new PVA programs contributed significantly to the improvement in unit conversion margins. Unit manufacturing costs were lower as a result of higher capacity utilization rates, improved efficiencies and a lower cost product mix.its major customers.
Nylon Segment net sales and gross profit, as a percentage of total consolidated amounts, were 23.5%24.8% and 23.5%25.7% for the firstsecond quarter of fiscal year 2014, compared to 23.2%23.0% and 22.6%24.1% for the firstsecond quarter of fiscal year 2013, respectively.
International Segment Gross Profit
The components of segment gross profit, each component as a percentage of net sales, and the percentage increase or decrease overtheoverthe prior period amounts for the International Segment are as follows:
For the Three Months Ended September 29, 2013 September 23, 2012 % to Net Sales % to Net Sales % Change Net sales Cost of sales Gross profit $ 35,392 100.0 $ 39,850 100.0 (11.2 ) 30,461 86.1 34,107 85.6 (10.7 ) $ 4,931 13.9 $ 5,743 14.4 (14.1 )
For the Three Months Ended | ||||||||||||||||||||
December 29, 2013 | December 23, 2012 | |||||||||||||||||||
% of Net Sales | % of Net Sales | % Change | ||||||||||||||||||
Net sales | $ | 31,387 | 100.0 | $ | 35,208 | 100.0 | (10.9 | ) | ||||||||||||
Cost of sales | 27,446 | 87.4 | 30,970 | 88.0 | (11.4 | ) | ||||||||||||||
Gross profit | $ | 3,941 | 12.6 | $ | 4,238 | 12.0 | (7.0 | ) | ||||||||||||
Gross profit for the International Segment decreased $812$297 from the prior year SeptemberDecember quarter primarily as a result of lower gross profit in both the BrazilianChinese operation and Chinese operations. Despite continued competition from low-priced yarn imports and weak market conditions, the Brazilian operation increased itsa slight decline in Brazil. Although sales volumes 3.5% overin Brazil were 3% lower than the prior year September quarter; however, this increase was attributable to higher volumes of resale yarns, while manufactured product volumes declined. Grossquarter, net sales and gross profit for the Brazilian operation was also unfavorably impacted by higher unit manufacturing costsBrazil decreased primarily due to lower capacity utilization rates and inflation, the loss of certain tax incentives for local producers, and negative currency translation effects caused by a weakened Brazilian Real versus the U.S. dollar. These negative impacts weredollar and an unfavorable change in mix from higher margin manufactured products to lower margin resale products, as competition from low-priced yarn imports and weak market conditions continued to negatively impact Brazil’s results. The Brazilian operation was able to partially offset by improved unit conversion margins on athe negative impact of the loss of certain tax incentives for local currency basis resulting from price increasesproducers with sales pricing initiatives and POY import duty reductions implemented by the Brazilian government.
The decrease in gross profit for the Chinese operation from the prior year second quarter was due to lower sales volumes as a result of softweak market conditions, partially offset by higher margins.conditions.
International Segment net sales and gross profit as a percentage of total consolidated amounts were 21.0%19.5% and 24.7%21.3% for the firstsecond quarter of fiscal year 2014, compared to 23.0%20.4% and 31.9%25.4% for the firstsecond quarter of fiscal year 2013, respectively.
Consolidated Selling, General &and Administrative Expenses
SG&A expenses decreased in total and as a percentage of net salesdeclined slightly for the firstsecond quarter of fiscal year 2014 when compared to the firstsecond quarter of fiscal year 2013. The slight decrease was primarily related to lower sales volume, reductions in consumer marketing and branding expense, professional fees and other administrative expenses, which were partially offset by an increase in deferred compensation, and professional fees.compensation.
Consolidated Other Operating Expense, Net
The components of Otherother operating expense, net consist of the following:
For the Three Months Ended | For the Three Months Ended | |||||||||||||||
September 29, 2013 | September 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||
Operating expenses for Repreve Renewables | $ | 624 | $ | 585 | ||||||||||||
Operating expenses for Renewables | $ | 580 | $ | 519 | ||||||||||||
Net loss on sale or disposal of assets | 41 | 22 | 299 | 57 | ||||||||||||
Restructuring charges, net | 222 | — | ||||||||||||||
Foreign currency transaction losses | 94 | 16 | 79 | 41 | ||||||||||||
Restructuring charges, net | 896 | — | ||||||||||||||
Other, net | (31 | ) | (42 | ) | (35 | ) | (37 | ) | ||||||||
Other operating expense, net | $ | 1,624 | $ | 581 | $ | 1,145 | $ | 580 | ||||||||
Operating expenses for Repreve Renewables include amounts incurred for employee costs, land and equipment rental costs, operating supplies, product testing, and administrative costs. Operating expenses for Repreve Renewables also includes $80 and $46$45 of depreciation and amortization expensesexpense for the three months ended SeptemberDecember 29, 2013 and SeptemberDecember 23, 2012, respectively.
The components of restructuring charges, net consist of the following:
For the Three Months Ended | For the Three Months Ended | |||||||||||||||
September 29, 2013 | September 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||
Severance | $ | 666 | $ | — | $ | 103 | $ | — | ||||||||
Equipment relocation and reinstallation costs | 230 | — | 119 | — | ||||||||||||
Restructuring charges, net | $ | 896 | $ | — | $ | 222 | $ | — | ||||||||
Consolidated Interest Expense, Net
Net interest expense decreased from $1,320$1,217 for the firstsecond quarter of fiscal year 2013 to $38$761 for the firstsecond quarter of fiscal year 2014. The decline in net interest expense is a result of lower average outstanding debt balances and a lower weighted average interest rate due to the Company’s deleveraging strategy and increased interest income of $1,084 related to the settlement of a judicial claim involving the Company’s Brazilian subsidiary.rate. The weighted average interest rate of the Company’s outstanding debt obligations declined from 4.2%4.1% for Septemberthe December 2012 quarter to 3.5%3.4% for the SeptemberDecember 2013 quarter.
Consolidated Earnings from Unconsolidated Affiliates
For the SeptemberDecember 2013 quarter, the Company generated $14,370$10,135 of income before income taxes, of which $6,123$5,122 was generated from its investments in unconsolidated affiliates. Equity in earnings from unconsolidated affiliates improved $3,864 versus the prior year period. The Company’s 34% share of PAL’s earnings increased from $42$655 in the firstsecond quarter of fiscal year 2013 to $5,915$4,803 in the firstsecond quarter of fiscal year 2014, which was primarily due toincreased sales volumes,to improved operating margins and an increase in the benefits recognized fromtiming of deferred revenue recognition related to cotton rebates under the EAP cotton rebateFarm Bill’s economic adjustment payments (“EAP”) program. The remaining change in earnings offrom unconsolidated affiliates relates primarily to the decrease in operating results of UNF and UNF America, which was primarily driven by lower gross margins partially attributable to lower average sales prices.prices and higher unit costs.
Consolidated Income Taxes
The Company’s income tax provision for the quarter ended SeptemberDecember 29, 2013 resulted in tax expense of $5,751,$3,924, with an effective tax rate of 40.0%38.7%. The Company’s income tax provision for the quarter ended SeptemberDecember 23, 2012 resulted in tax expense of $3,233,$2,216, with an effective tax rate of 61.1%50.0%. The Company’s effective income tax rate for each of the periods ispresented was higher than the U.S. federal statutory rate primarily due to the unfavorable effects of foreign dividends taxed in the U.S., the impact of state taxes, the timing of the Company’s recognition of higher taxable versus book income for an unconsolidated affiliate for which the Company maintains a full valuation allowance, and losses in tax jurisdictions for which no tax benefit could be recognized.
Consolidated Net Income Attributable to Unifi, Inc.
Net income attributable to Unifi, Inc. for the firstsecond quarter of fiscal year 2014 was $8,870,$6,443, or $0.46$0.34 per basic share, compared to $2,294,$2,426, or $0.11$0.12 per basic share, for the prior year fiscal quarter. As discussed above, the Company’s increased profitability was primarily due tohigherto improved gross profit in its Polyester and Nylon Segments, higher earnings from its equityunconsolidated affiliates, improved margins, lower SG&A expenses, and lower net interest expense, which were partially offset by restructuring charges and higher income tax expense.
Year-To-Date Fiscal Year 2014 Compared to Year-To-Date Fiscal Year 2013
Consolidated Overview
The components of net income attributable to Unifi, Inc., each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts are presented in the table below.
For the Six Months Ended | ||||||||||||||||||||
December 29, 2013 | December 23, 2012 | |||||||||||||||||||
% of Net Sales | % of Net Sales | % Change | ||||||||||||||||||
Net sales | $ | 329,286 | 100.0 | $ | 344,971 | 100.0 | (4.5 | ) | ||||||||||||
Cost of sales | 290,804 | 88.3 | 310,260 | 89.9 | (6.3 | ) | ||||||||||||||
Gross profit | 38,482 | 11.7 | 34,711 | 10.1 | 10.9 | |||||||||||||||
Selling, general and administrative expenses | 21,605 | 6.6 | 22,679 | 6.7 | (4.7 | ) | ||||||||||||||
Provision for bad debts | 49 | — | 183 | — | (73.2 | ) | ||||||||||||||
Other operating expense, net | 2,769 | 0.8 | 1,161 | 0.3 | 138.5 | |||||||||||||||
Operating income | 14,059 | 4.3 | 10,688 | 3.1 | 31.5 | |||||||||||||||
Interest expense, net | 799 | 0.3 | 2,537 | 0.7 | (68.5 | ) | ||||||||||||||
Loss on extinguishment of debt | — | — | 356 | 0.1 | (100.0 | ) | ||||||||||||||
Equity in earnings of unconsolidated affiliates | (11,245 | ) | (3.4 | ) | (1,929 | ) | (0.5 | ) | 482.9 | |||||||||||
Income before income taxes | 24,505 | 7.4 | 9,724 | 2.8 | 152.0 | |||||||||||||||
Provision for income taxes | 9,675 | 2.9 | 5,449 | 1.5 | 77.6 | |||||||||||||||
Net income including non-controlling interest | 14,830 | 4.5 | 4,275 | 1.3 | 246.9 | |||||||||||||||
Less: net (loss) attributable to non-controlling interest | (483 | ) | (0.1 | ) | (445 | ) | (0.1 | ) | 8.5 | |||||||||||
Net income attributable to Unifi, Inc. | $ | 15,313 | 4.6 | $ | 4,720 | 1.4 | 224.4 | |||||||||||||
Consolidated Net Sales
Net sales for the December 2013 year-to-date period decreased by $15,685, or 4.5%, as compared to the prior year December year-to-date period. Consolidated sales volume decreased 5.2% due to lower sales volumes in the Polyester and International Segments. The volume decrease in the Polyester Segment is attributable to the timing of the holiday shutdown (which negatively impacted the second quarter of the current fiscal year, while primarily affecting the third quarter of the prior fiscal year) and the Company’s decision to exit certain low to negative margin business, which were partially offset by increased volume from new PVA programs. The volume decline in the Polyester Segment was partially offset by an improvement in pricing due to an increase in PVA sales. Net sales decreased in the International Segment primarily due to lower sales volumes for the Company’s Chinese subsidiary and negative currency translation effects due to the weakening of the Brazilian Real against the U.S. dollar. Volume in Brazil was at a consistent level with the prior year comparative period.
Consolidated Gross Profit
Gross profit for the December 2013 year-to-date period increased by $3,771, or 10.9%, as compared to the prior fiscal year period. Gross profit increased primarily as a result of lower depreciation expense and improved margins in the Polyester and Nylon Segments, which were partially offset by lower results in the International Segment as discussed in further detail below.
Polyester Segment Gross Profit
The components of segment gross profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Polyester Segment are as follows:
For the Six Months Ended | ||||||||||||||||||||
December 29, 2013 | December 23, 2012 | |||||||||||||||||||
% of Net Sales | % of Net Sales | % Change | ||||||||||||||||||
Net sales | $ | 182,992 | 100.0 | $ | 190,358 | 100.0 | (3.9 | ) | ||||||||||||
Cost of sales | 162,835 | 89.0 | 173,714 | 91.3 | (6.3 | ) | ||||||||||||||
Gross profit | $ | 20,157 | 11.0 | $ | 16,644 | 8.7 | 21.1 | |||||||||||||
The increase in gross profit of $3,513 was primarily a result of lower depreciation expense and improved gross margins caused by increased sales of PVA products. Sales volume decreased 5.2% over the prior year year-to-date period primarily due to the timing of the holiday shutdown period, as described above.
Polyester Segment net sales and gross profit as a percentage of total consolidated amounts were 55.6% and 52.4% for the year-to-date period of fiscal year 2014, compared to 55.2% and 47.9% for the year-to-date period of fiscal year 2013, respectively.
Nylon Segment Gross Profit
The components of segment gross profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Nylon Segment are as follows:
For the Six Months Ended | ||||||||||||||||||||
December 29, 2013 | December 23, 2012 | |||||||||||||||||||
% of Net Sales | % of Net Sales | % Change | ||||||||||||||||||
Net sales | $ | 79,515 | 100.0 | $ | 79,554 | 100.0 | — | |||||||||||||
Cost of sales | 70,062 | 88.1 | 71,468 | 89.8 | (2.0 | ) | ||||||||||||||
Gross profit | $ | 9,453 | 11.9 | $ | 8,086 | 10.2 | 16.9 | |||||||||||||
The increase in gross profit of $1,367 was primarily a result of improved gross margins, lower unit manufacturing costs, lower depreciation expense and a slight increase in sales volume. Despite the impact of the holiday shutdown, sales volume increased 0.4% over the prior year-to-date period primarily due to the success of new PVA programs. These new PVA programs contributed to the improvement in gross margin.
Nylon Segment net sales and gross profit, as a percentage of total consolidated amounts, were 24.1% and 24.6% for the year-to-date period of fiscal year 2014, compared to 23.1% and 23.3% for the year-to-date period of fiscal year 2013, respectively.
International Segment Gross Profit
The components of segment gross profit, each component as a percentage of net sales, and the percentage increase or decrease overthe prior period amounts for the International Segment are as follows:
For the Six Months Ended | ||||||||||||||||||||
December 29, 2013 | December 23, 2012 | |||||||||||||||||||
% of Net Sales | % of Net Sales | % Change | ||||||||||||||||||
Net sales | $ | 66,779 | 100.0 | $ | 75,059 | 100.0 | (11.0 | ) | ||||||||||||
Cost of sales | 57,907 | 86.7 | 65,078 | 86.7 | (11.0 | ) | ||||||||||||||
Gross profit | $ | 8,872 | 13.3 | $ | 9,981 | 13.3 | (11.1 | ) | ||||||||||||
Gross profit for the International Segment decreased $1,109 from the prior year-to-date period as a result of lower gross profit in both the Brazilian and Chinese operations. Despite continued competition from low-priced yarn imports and weak market conditions, sales volume for the Brazilian operation was essentially unchanged in the current period when compared to the prior year-to-date period. However, gross profit decreased due to an unfavorable change in mix from higher margin manufactured products to lower margin resale products. Gross profit for the Brazilian operation was also unfavorably impacted by higher unit manufacturing costs due to lower capacity utilization rates and inflation, the loss of certain tax incentives for local producers, and unfavorable currency translation effects caused by a weakened Brazilian Real versus the U.S. dollar. These negative impacts were partially offset by improved gross margins on a local currency basis, as a result of sales price increases and POY import duty reductions implemented by the Brazilian government.
The decrease in gross profit from the prior year-to-date period for the Chinese operation was due to lower sales volumes as a result of soft market conditions, partially offset by higher margins.
International Segment net sales and gross profit, as a percentage of total consolidated amounts were 20.3% and 23.0% for the year-to-date period of fiscal year 2014, compared to 21.7% and 28.8% for the year-to-date period of fiscal year 2013, respectively.
Consolidated Selling, General and Administrative Expenses
SG&A expenses decreased in total and as a percentage of net sales for the year-to-date period of fiscal year 2014 when compared to the year-to-date period of fiscal year 2013. The decrease was primarily related to reductions in consumer marketing and branding expense, professional fees, and lower sales volume, which were partially offset by an increase in deferred compensation.
Consolidated Other Operating Expense, Net
The components of other operating expense, net consist of the following:
For the Six Months Ended | ||||||||
December 29, 2013 | December 23, 2012 | |||||||
Operating expenses for Renewables | $ | 1,204 | $ | 1,104 | ||||
Restructuring charges, net | 1,118 | — | ||||||
Net loss on sale or disposal of assets | 340 | 79 | ||||||
Foreign currency transaction losses | 173 | 57 | ||||||
Other, net | (66 | ) | (79 | ) | ||||
Other operating expense, net | $ | 2,769 | $ | 1,161 | ||||
Operating expenses for Renewables include amounts incurred for employee costs, land and equipment rental costs, operating supplies, product testing, and administrative costs. Operating expenses for Renewables also includes $160 and $91 of depreciation and amortization expense for the six months ended December 29, 2013 and December 23, 2012, respectively.
The components of restructuring charges, net consist of the following:
For the Six Months Ended | ||||||||
December 29, 2013 | December 23, 2012 | |||||||
Severance | $ | 769 | $ | — | ||||
Equipment relocation and reinstallation costs | 349 | — | ||||||
Restructuring charges, net | $ | 1,118 | $ | — | ||||
Consolidated Interest Expense, Net
Net interest expense decreased from $2,537 for the year-to-date period of fiscal year 2013 to $799 for the year-to-date period of fiscal year 2014. The decline in net interest expense is a result of lower average outstanding debt balances and a lower weighted average interest rate, along with interest income of $1,084 in the fiscal year 2014 period related to the settlement of a judicial claim involving the Company’s Brazilian subsidiary. The weighted average interest rate of the Company’s outstanding debt obligations declined from 4.1% for December 2012 year-to-date period to 3.5% for the December 2013 year-to-date period.
Consolidated Earnings from Unconsolidated Affiliates
For the December 2013 year-to-date period, the Company generated $24,505 of income before income taxes, of which $11,245 was generated from its investments in unconsolidated affiliates. Equity in earnings from unconsolidated affiliates improved $9,316 versus the prior year period. The Company’s 34% share of PAL’s earnings increased from $697 in the year-to-date period of fiscal year 2013 to $10,718 in the year-to-date period of fiscal year 2014, primarily due to improved operating margins and an increase in the benefits recognized from the EAP cotton rebate program. The remaining change in earnings from unconsolidated affiliates relates to the decrease in operating results of UNF and UNF America, which was primarily driven by lower gross margins attributable to lower average sales prices and higher unit costs.
Consolidated Income Taxes
The Company’s income tax provision for the six months ended December 29, 2013 resulted in tax expense of $9,675, with an effective tax rate of 39.5%. The Company’s income tax provision for the six months ended December 23, 2012 resulted in tax expense of $5,449, with an effective tax rate of 56.0%. The Company’s effective tax rate for each of the periods presented was higher than the U.S. federal statutory rate primarily due to the unfavorable effects of foreign dividends taxed in the U.S., the impact of state taxes, the timing of the Company’s recognition of higher taxable versus book income for an unconsolidated affiliate for which the Company maintains a full valuation allowance, and losses in tax jurisdictions for which no tax benefit could be recognized.
Consolidated Net Income Attributable to Unifi, Inc.
Net income attributable to Unifi, Inc. for the year-to-date period of fiscal year 2014 was $15,313, or $0.80 per basic share, compared to $4,720, or $0.23 per basic share, for the prior year-to-date period. As discussed above, the Company’s increased profitability was primarily due to improved gross profit, lower SG&A expenses, higher earnings from its unconsolidated affiliates, and lower net interest expense, which were partially offset by restructuring charges and higher income tax expense.
Non-GAAP Financial Measures
Management continuously reviews several key indicators to assess performance of the Company’s business and measure its success, as discussed in detail in the 2013 Form 10-K. These include the following Non-GAAP financial measures:
● | Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), which represents net income or loss attributable to Unifi, Inc. before net interest expense, income tax expense and depreciation and amortization expense; |
● | Adjusted EBITDA including equity affiliates, which represents EBITDA adjusted to exclude non-cash compensation expense, gains or losses on extinguishment of debt and certain other adjustments. Such other adjustments include operating expenses for |
● | Adjusted EBITDA, which represents Adjusted EBITDA including equity affiliates adjusted to exclude equity in earnings and losses of unconsolidated affiliates. The Company may, from time to time, change the items included within Adjusted EBITDA; |
● | Segment Adjusted Profit, which equals segment gross profit, plus segment depreciation and amortization, less segment SG&A, net of segment other adjustments; and |
● | Adjusted Working Capital (receivables plus inventory, less accounts payable and certain accrued expenses), which is an indicator of the Company’s production efficiency and ability to manage its inventory and receivables. |
Management uses EBITDA, Adjusted EBITDA including equity affiliates, Adjusted EBITDA, Segment Adjusted Profit and Adjusted Working Capital to facilitate its analysis and understanding of the Company’s business operations. Management believes these measures are useful to investors because they provide a supplemental way to understand the underlying operating performance and debt service capacity of the Company. The calculations of EBITDA, Adjusted EBITDA including equity affiliates, Adjusted EBITDA, Segment Adjusted Profit and Adjusted Working Capital are subjective measures based on management’s belief as to which items should be included or excluded in order to provide the most reasonable view of the underlying operating performance of the business. EBITDA, Adjusted EBITDA including equity affiliates, Adjusted EBITDA, Segment Adjusted Profit and Adjusted Working Capital are not determined in accordance with generally accepted accounting principles (“GAAP”) and should not be considered a substitute for performance measures determined in accordance with GAAP.
The reconciliations of net income attributable to Unifi, Inc. to EBITDA, Adjusted EBITDA including equity affiliates and Adjusted EBITDA are as follows:
For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
September 29, 2013 | September 23, 2012 | December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||||||||
Net income attributable to Unifi, Inc. | $ | 8,870 | $ | 2,294 | $ | 6,443 | $ | 2,426 | $ | 15,313 | $ | 4,720 | ||||||||||||
Provision for income taxes | 5,751 | 3,233 | 3,924 | 2,216 | 9,675 | 5,449 | ||||||||||||||||||
Interest expense, net | 38 | 1,320 | 761 | 1,217 | 799 | 2,537 | ||||||||||||||||||
Depreciation and amortization expense | 4,269 | 6,333 | 4,080 | 6,298 | 8,349 | 12,631 | ||||||||||||||||||
EBITDA | 18,928 | 13,180 | 15,208 | 12,157 | 34,136 | 25,337 | ||||||||||||||||||
Non-cash compensation expense | 1,197 | 705 | 1,611 | 1,326 | ||||||||||||||||||||
Loss on extinguishment of debt | — | 242 | — | 114 | — | 356 | ||||||||||||||||||
Non-cash compensation expense | 414 | 621 | ||||||||||||||||||||||
Other | 1,262 | 453 | 1,284 | 438 | 2,546 | 891 | ||||||||||||||||||
Adjusted EBITDA including equity affiliates | 20,604 | 14,496 | 17,689 | 13,414 | 38,293 | 27,910 | ||||||||||||||||||
Equity in earnings of unconsolidated affiliates | (6,123 | ) | (671 | ) | (5,122 | ) | (1,258 | ) | (11,245 | ) | (1,929 | ) | ||||||||||||
Adjusted EBITDA | $ | 14,481 | $ | 13,825 | $ | 12,567 | $ | 12,156 | $ | 27,048 | $ | 25,981 | ||||||||||||
The reconciliations of Adjusted EBITDA to Segment Adjusted Profit are as follows:
For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
September 29, 2013 | September 23, 2012 | December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||||||||
Adjusted EBITDA | $ | 14,481 | $ | 13,825 | $ | 12,567 | $ | 12,156 | $ | 27,048 | $ | 25,981 | ||||||||||||
Non-cash compensation expense | (414 | ) | (621 | ) | (1,197 | ) | (705 | ) | (1,611 | ) | (1,326 | ) | ||||||||||||
(Benefit) provision for bad debts | (38 | ) | 110 | |||||||||||||||||||||
Provision for bad debts | 87 | 73 | 49 | 183 | ||||||||||||||||||||
Other, net | (32 | ) | (42 | ) | (34 | ) | (37 | ) | (66 | ) | (79 | ) | ||||||||||||
Segment Adjusted Profit | $ | 13,997 | $ | 13,272 | $ | 11,423 | $ | 11,487 | $ | 25,420 | $ | 24,759 | ||||||||||||
Segment Adjusted Profit by reportable segment is as follows:
For the Three Months Ended | For the Three Months Ended | For the Six Months Ended | ||||||||||||||||||||||
September 29, 2013 | September 23, 2012 | December 29, 2013 | December 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||||||||
Polyester | $ | 7,076 | $ | 6,231 | $ | 5,742 | $ | 5,957 | $ | 12,818 | $ | 12,188 | ||||||||||||
Nylon | 3,231 | 2,492 | 2,896 | 2,305 | 6,127 | 4,797 | ||||||||||||||||||
International | 3,690 | 4,549 | 2,785 | 3,225 | 6,475 | 7,774 | ||||||||||||||||||
Total Segment Adjusted Profit | $ | 13,997 | $ | 13,272 | $ | 11,423 | $ | 11,487 | $ | 25,420 | $ | 24,759 | ||||||||||||
Liquidity and Capital Resources
Liquidity Summary
The Company’s primary liquidity requirements are for working capital, capital expenditures, debt service and stock repurchases. The Company’s primary sources of capital to meet these requirements are cash generated from operations and borrowings available under its ABL Revolver. For the first six months of fiscal year 2014, cash generated from operations was $24,230, and at December 29, 2013, excess availability under the ABL Revolver was $28,083. The Company currently believes that its existing cash balances, cash provided by operating activities and borrowings available under the ABL Revolver will enable the Company to comply with the terms of its indebtedness and meet its current and reasonably foreseeable liquidity requirements, both domestically and for its foreign operations. For the first quarter of fiscal year 2014, cash generated from operations was $9,310, and at September 29, 2013, excess availability under the ABL Revolver was $38,968.
As of SeptemberDecember 29, 2013, all of the Company’s debt obligations, with the exception of a term loan from one of the Company’s unconsolidated affiliates, were guaranteed by its domestic subsidiaries, while a substantial portion of the Company’s cash and cash equivalents were held by its foreign subsidiaries. For the Company’s U.S., Brazilian and other foreign subsidiaries, the following table presents a summary of cash and cash equivalents, liquidity, working capital and total debt obligations as of SeptemberDecember 29, 2013:
U.S. Brazil All Others Total Cash and cash equivalents Borrowings available under ABL Revolver Liquidity Working capital Total debt obligations $ 247 $ 3,999 $ 6,064 $ 10,310 38,968 — — 38,968 $ 39,215 $ 3,999 $ 6,064 $ 49,278 $ 95,949 $ 53,460 $ 19,444 $ 168,853 $ 96,089 $ — $ 1,250 $ 97,339
U.S. | Brazil | All Others | Total | |||||||||||||
Cash and cash equivalents | $ | 869 | $ | 8,648 | $ | 6,005 | $ | 15,522 | ||||||||
Borrowings available under ABL Revolver | 28,083 | — | — | 28,083 | ||||||||||||
Liquidity | $ | 28,952 | $ | 8,648 | $ | 6,005 | $ | 43,605 | ||||||||
Working capital | $ | 94,191 | $ | 48,219 | $ | 19,999 | $ | 162,409 | ||||||||
Total debt obligations | $ | 101,574 | $ | — | $ | 1,250 | $ | 102,824 | ||||||||
As of SeptemberDecember 29, 2013, all cash and cash equivalents on-hand at the Company’s foreign operations were deemed to be permanently reinvested. The Company has plans to repatriate $21,297$21,476 of future cash flows generated from its operations in Brazil and has a deferred tax liability of $7,454$7,517 to reflect the additional income tax that would be due as a result of these plans. As of SeptemberDecember 29, 2013, $62,989$63,997 of undistributed earnings of the Company’s foreign subsidiaries was deemed to be permanently reinvested, and any applicable U.S. federal income taxes and foreign withholding taxes have not been provided on these earnings.
Working Capital
The following table presents a summary of the components of the Company’s Adjusted Working Capital and the reconciliation from Adjusted Working Capital to Working Capital:working capital:
September 29, 2013 | June 30, 2013 | December 29, 2013 | June 30, 2013 | |||||||||||||
Receivables, net | $ | 90,097 | $ | 98,392 | $ | 77,536 | $ | 98,392 | ||||||||
Inventories | 114,432 | 110,667 | 110,765 | 110,667 | ||||||||||||
Accounts payable | (40,275 | ) | (45,544 | ) | (35,740 | ) | (45,544 | ) | ||||||||
Accrued expenses (1) | (13,498 | ) | (18,383 | ) | (12,399 | ) | (18,383 | ) | ||||||||
Adjusted Working Capital | 150,756 | 145,132 | 140,162 | 145,132 | ||||||||||||
Cash and cash equivalents | 10,310 | 8,755 | 15,522 | 8,755 | ||||||||||||
Other current assets | 11,060 | 9,016 | 8,576 | 9,016 | ||||||||||||
Accrued interest | (78 | ) | (102 | ) | (118 | ) | (102 | ) | ||||||||
Other current liabilities | (3,195 | ) | (916 | ) | (1,733 | ) | (916 | ) | ||||||||
Working Capital | $ | 168,853 | $ | 161,885 | ||||||||||||
Working capital | $ | 162,409 | $ | 161,885 | ||||||||||||
(1) | Excludes accrued interest |
Working capital increased from $161,885 as of June 30, 2013 to $168,853 as of September 29, 2013. The Company’s
Adjusted Working Capital metric increaseddecreased due to an increase in inventories andlower receivables, partially offset by decreases in accounts payable and accrued expenses, partially offset by aexpenses. The decrease in receivables.The increase in inventoryaccounts receivable is a result of lower sales primarily due to an increasethe timing of on-hand units forthe holiday shutdown and the negative currency translation effects due to the weakening of the Brazilian Real against the U.S. and Brazilian operations.dollar. The decrease in accounts payable is a result of reduced purchasing activity leading up to the holiday shutdown and the timing of vendor payments. The decrease in accrued expenses is primarily due to the payment of previously accrued fiscal year 2013 variable compensation and property taxes during the September 2013 quarter, partially offset by an increasetax amounts, lower utility accruals and a reduction in accrued wages and salaries due to timing. The decreasethe timing of the holiday shutdown. Working capital increased from $161,885 as of June 30, 2013 to $162,409 as of December 29, 2013 due primarily to the increase in accounts receivable is a resultcash and cash equivalents net of lower sales.the aforementioned change in Adjusted Working Capital.
Capital Expenditures
In addition to its normal working capital requirements, the Company requires cash to fund capital expenditures. During the first quartersix months of fiscal year 2014, the Company spent $5,691$9,431 on capital expenditures, and the Company estimates its annual capital expenditure requirements to be approximately $17,000 for the full fiscal year. The current year’s capital expenditures are expected to be focused primarily on improving the Company’s manufacturing flexibility and capabilitiescapability to produce PVA products, increasingadding to the capacity and efficiency of its recyclingthe Company’s Yadkinville texturing facility and increasing the capacity flexibility and efficiency of its Yadkinville texturing facility. $6,000 to $8,000 of the estimated annual capital expenditures is expected to be used for maintenance capital expenditures which will extend the useful life of assets and/or increase the capabilities or production capacity of existing assets.recycling facility. The Company may incur additional capital expenditures as it pursues new opportunities to expand its production capabilities, or to further streamline its manufacturing processes.processes or make investments in strategic growth opportunities.
Debt Obligations
The following table presents the balances outstanding for the Company’s debt obligations, their scheduled maturity dates and the weighted average interest rate for borrowings (including the effects of an interest rate swap) as well as the applicable current portion of long-term debt:
Weighted Average Principal Amounts as of Scheduled Maturity Date Interest Rate as of September 29, 2013 September 29, 2013 June 30, 2013 ABL Revolver May 2018 ABL Term Loan May 2018 Term loan from unconsolidated affiliate August 2014 Capital lease obligation November 2027 Total debt Current portion of long-term debt Total long-term debt 3.2% $ 44,900 $ 52,500 3.1% 50,000 42,800 3.0% 1,250 1,250 4.6% 1,189 1,203 97,339 97,753 (1,316 ) (65 ) $ 96,023 $ 97,688
Weighted Average | Principal Amounts as of | ||||||||||||
Scheduled Maturity Date | Interest Rate as of December 29, 2013 | December 29, 2013 | June 30, 2013 | ||||||||||
ABL Revolver | May 2018 | 3.1% | $ | 50,400 | $ | 52,500 | |||||||
ABL Term Loan | May 2018 | 3.1% | 50,000 | 42,800 | |||||||||
Term loan from unconsolidated affiliate | August 2014 | 3.0% | 1,250 | 1,250 | |||||||||
Capital lease obligation | November 2027 | 4.6% | 1,174 | 1,203 | |||||||||
Total debt | 102,824 | 97,753 | |||||||||||
Current portion of long-term debt | (1,316 | ) | (65 | ) | |||||||||
Total long-term debt | $ | 101,508 | $ | 97,688 | |||||||||
Scheduled Debt Maturities
The following table presents the scheduled maturities of the Company’s outstanding debt obligations for the remainder of fiscal year 2014 and followingthe fiscal years thereafter:
Scheduled Maturities on a Fiscal Year Basis | Scheduled Maturities on a Fiscal Year Basis | |||||||||||||||||||||||||||||||||||||||||||||||
2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | 2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | |||||||||||||||||||||||||||||||||||||
ABL Revolver | $ | — | $ | — | $ | — | $ | — | $ | 44,900 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 50,400 | $ | — | ||||||||||||||||||||||||
ABL Term Loan | — | — | — | — | 50,000 | — | — | — | — | — | 50,000 | — | ||||||||||||||||||||||||||||||||||||
Term loan from unconsolidated affiliate | — | 1,250 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Capital lease obligation | 50 | 63 | 66 | 69 | 72 | 869 | 30 | 63 | 66 | 69 | 72 | 874 | ||||||||||||||||||||||||||||||||||||
Term loan from unconsolidated affiliate | — | 1,250 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Total | $ | 50 | $ | 1,313 | $ | 66 | $ | 69 | $ | 94,972 | $ | 869 | $ | 30 | $ | 1,313 | $ | 66 | $ | 69 | $ | 100,472 | $ | 874 | ||||||||||||||||||||||||
Other than the scheduled maturities of debt required under its existing debt obligations, if any, the Company may, from time to time, elect to repay additional amounts borrowed under the ABL Facility. These optional repayments of debt may come from the operating cash flows of the business or other sources and will depend upon the Company’s strategy, prevailing market conditions, liquidity requirements, contractual restrictions and other factors. Further discussion of the terms and conditions of the Company’s existing indebtedness is outlinedprovided in “Note 11.12. Long-Term Debt” to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Stock Repurchase Program
Under its Board-approvedpreviously announced stock repurchase program, the Company is authorized to repurchase up to $50,000 worth of its common stock through open market purchases or privately negotiated transactions in such manner and at such times and prices as are determined by management, subject to market conditions, applicable legal requirements, contractual obligations and other factors. The repurchase program has no stated expiration or termination date; there is no time limit or specific time frame otherwise for repurchases; and the Company may discontinue repurchases at any time that management determines additional purchases are not beneficial or advisable. Since inceptionAs of the repurchase program in JanuaryDecember 29, 2013, the Company hashad repurchased 1,4941,839 shares for $37,982, excluding brokerage fees, at an average cost per share of $19.53.$20.66 since the inception of the program in January 2013.
Cash Provided by Operating Activities
Net cash provided by operating activities consists of the following:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
September 29, 2013 | September 23, 2012 | December 29, 2013 | December 23, 2012 | |||||||||||||
Cash receipts: | ||||||||||||||||
Receipts from customers | $ | 176,875 | $ | 176,387 | $ | 349,028 | $ | 355,198 | ||||||||
Dividends from unconsolidated affiliates | 2,559 | 2,224 | 3,059 | 2,724 | ||||||||||||
Other receipts | 3,041 | 164 | 6,329 | 308 | ||||||||||||
Cash payments: | ||||||||||||||||
Payments to suppliers and other operating costs | 138,401 | 140,670 | 263,166 | 270,375 | ||||||||||||
Payments for salaries, wages and benefits | 30,998 | 29,374 | 61,569 | 55,240 | ||||||||||||
Payments for restructuring and severance | 764 | — | 1,170 | — | ||||||||||||
Payments for interest | 858 | 1,362 | 1,718 | 2,576 | ||||||||||||
Payments for taxes | 2,144 | 2,441 | 6,558 | 4,308 | ||||||||||||
Other | — | 547 | 5 | 992 | ||||||||||||
| $ | 9,310 | $ | 4,381 | $ | 24,230 | $ | 24,739 | |||||||||
The decline in receipts from customers is due to lower sales as a result of lower volumes and the negative effects of currency translation due to the weakening of the Brazilian Real against the U.S. dollar, which were partially offset by sales mix improvements. Other receipts include the refund forof a judicial deposit of $1,805 and(plus related interest income of $1,084$1,084) made to the Company’s Brazilian subsidiary due to the settlement of a judicial claimclaim; the refund of a deposit with a domestic utility company of $3,000 plus associated interest income of $141; and other interest income and miscellaneous items. The decrease in payments to suppliers and other operating costs is primarily a result of lower volumes in the International Segment.sales and production volumes. The increase in payments for salaries, wages and benefits is primarily due to inflationary increases and higher variable compensation, which were offset by savings related to the termination of employment of two former executive officers. Payments for restructuring and severance primarily relate to the relocation of certain machinery in the U.S. and El Salvador and severance payments due to two former executive officers. The decline in payments for interest was due to both a lower average outstanding debt balance and a lower weighted average interest rate. The Company’s payments for taxes increased primarily due to increased domestic profitability.
Cash Used in Investing Activities and Financing Activities
The Company utilized $5,341$8,831 for net investing activities and utilized $2,495$8,557 for net financing activities during the quartersix months ended SeptemberDecember 29, 2013. Significant expenditures for investing activities include $5,691$9,431 for capital expenditures, which primarily relate to increasingimproving the Company’s manufacturing flexibility and capability to produce PVA products, adding to the capacity flexibility and efficiency of the Company’s Yadkinville texturing facility and increasing the capacity of the recycling facility. Significant financing activities include cash payments of $5,768$18,687 for the repurchases of Company stock $400 formade under its previously announced repurchase program, which were partially offset by $5,100 from net cash paymentsproceeds on the ABL Facility and $2,373$2,833 of proceeds received from stock option exercises.
Contractual Obligations
The Company has assumed various financial obligations and commitments in the normal course of its operations and financing activities. Financial obligations are considered to represent known future cash payments that the Company is required to make under existing contractual arrangements, such as debt and lease agreements. As of SeptemberDecember 29, 2013, there have been no material changes in the scheduled maturities of the Company’s contractual obligations as disclosed in the table under the heading “Contractual Obligations” in the 2013 Form 10-K.10-K, other than any liabilities assumed as part of the Company’s December 2013 Dillon acquisition. See “Note 4. Acquisition” to the Condensed Consolidated Financial Statements included in this Form 10-Q for further discussion.
Off Balance Sheet Arrangements
The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, results of operations liquidity or capital expenditures.cash flows.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The SEC has defined a company’s most critical accounting policies as those involving accounting estimates that require management to make assumptions about matters that are highly uncertain at the time and where different reasonable estimates or changes in the accounting estimates from quarter to quarter could materially impact the presentation of the financial statements. The Company’s critical accounting policies are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2013 Form 10-K. There have been no material changes to these policies during the current period.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks associated with changes in interest rates, fluctuation in currency exchange rates and raw material and commodity risks, which may adversely affect its financial position, results of operations and cash flows. The Company does not enter into derivative financial instruments for trading purposes, nor is it a party to any leveraged financial instruments.
Interest Rate Risk
The Company is exposed to interest rate risk through its borrowing activities. The Company has borrowings under its ABL Revolver and ABL Term Loan that total $94,900$100,400 and contain variable rates of interest; however, the Company hedges a significant portion of this interest rate variability using an interest rate swap. As of SeptemberDecember 29, 2013, after considering the variable rate debt obligations that have been hedged and the Company’s outstanding debt obligations with fixed rates of interest, the Company’s sensitivity analysis shows that a 50-basis point increase in LIBOR as of SeptemberDecember 29, 2013 would result in an increase of $75$127 in annual cash interest expense.
Currency Exchange Rate Risk
The Company conducts its business in various foreign countries and in various foreign currencies. Each of the Company’s subsidiaries may enter into transactions (sales, purchases, fixed purchase commitments, etc.) that are denominated in currencies other than the subsidiary’s functional currency and thereby expose the Company to foreign currency exchange risk. The Company may enter into foreign currency forward contracts to hedge this exposure. For certain foreign currency denominated sales transactions, the Company typically hedges 50% to 75%may hedge all or a portion of the sales value of these orders by using forward currency contracts. The maturity dates of the forward currency contracts are intended to match the anticipated collection dates of the receivables. As of September 29, 2013, the latest maturity date for outstanding forward currency contracts is in November 2013. The Company may also enter into foreign currency forward contracts to hedge its exposure for certain equipment or inventory purchase commitments.commitments which are denominated in foreign currencies. As of SeptemberDecember 29, 2013, the Company does not have a significant amount of exposure related to any foreign currency forward contracts.contracts, and the latest maturity date for any such contract is in July 2014.
As of SeptemberDecember 29, 2013, the Company’s subsidiaries outside the U.S., whose functional currency is other than the U.S. dollar, held approximately 19%18% of the Company’s consolidated total assets. The Company does not enter into foreign currency derivatives to hedge its net investment in its foreign operations.
As of SeptemberDecember 29, 2013, $9,897$14,309 of the Company’s cash and cash equivalents were held outside the U.S., of which approximately $1,888$1,377 were held in U.S. dollar equivalents.
More information regarding the Company’s derivative financial instruments as of SeptemberDecember 29, 2013 is provided in “Note 16.17. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities” to the Condensed Consolidated Financial Statements included in this Form 10-Q.
Raw Material and Commodity Risks
A significant portion ofThe prices for the Company’s raw materials and energy costs are derived from petroleum-based chemicals. The prices for petroleum and petroleum-related products and energy costs are volatile and dependent on global supply and demand dynamics, including certain geo-political risks. The Company does not use financial instruments to hedge its exposure to changes in these costs. The costs of the primary raw materials that the Company uses throughout all of its operations are generally based on U.S. dollar pricing; and such materials are purchased at market or at fixed prices that are established with individual vendors as part of the purchasing process for quantities expected to be consumed in the ordinary course of business.
Other Risks
The Company is also exposed to political risk, including changing laws and regulations governing international trade such as quotas, tariffs and tax laws. The degree of impact and the frequency of these events cannot be predicted.
Item 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controlsDisclosure Controls and proceduresProcedures.
As of SeptemberDecember 29, 2013, an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal controlInternal Control over financial reportingFinancial Reporting.
During the Company’s firstsecond quarter of fiscal year 2014, there has beenwas no change in the Company’s internal controlscontrol over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal controlscontrol over financial reporting.
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There are no pending legal proceedings, other than ordinary routine litigation incidental to the Company’s business, to which the Company is a party or to which any of its property is the subject.
Item 1A. RISK FACTORS
There are no material changes to the Company's risk factors set forth under “Item 1A. Risk Factors” in the 2013 Form 10-K.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Items 2(a) and (b) are not applicable.
(c) The following table summarizes the Company’s purchases of its common stock during the fiscal quarter ended SeptemberDecember 29, 2013, all of whichincluding those purchases that were made under theits previously announced stock repurchase program approved by the Board on January 22, 2013 in which the Company is authorized to acquirefor up to an aggregate of $50,000 worth of common stock. The repurchase program has no stated expiration or termination date, and there is no time limit or specific time frame for repurchases.
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
9/30/13 – 10/29/13 | — | $ | — | — | $ | 24,933 | ||||||||||
10/30/13 – 11/29/13 | 283 | $ | 23.92 | 283 | 18,165 | |||||||||||
11/30/13 – 12/29/13 | 435 | $ | 26.13 | 239 | 12,018 | |||||||||||
Total | 718 | $ | 25.26 | 522 | ||||||||||||
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs 7/1/13 – 7/29/13 7/30/13 – 8/29/13 8/30/13 – 9/29/13 Total — $ — — $ 30,697 106 $ 23.12 106 28,249 143 $ 23.19 143 24,933 249 $ 23.16 249
(1) | Includes 134 common shares tendered to the Company as payment for the exercise of stock options and subsequently retired and 62 common shares tendered to the Company to satisfy tax withholding obligations in connection with the stock option exercises and subsequently retired. |
Repurchases are subject to applicable limitations and requirements set forth in the ABL Facility. For additional information, including information regarding limitations on payment of dividends and share repurchases, see “Note 11.12. Long-Term Debt” to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS
Exhibit Number | Description |
3.1(i)(a) | Restated Certificate of Incorporation of Unifi, Inc., as amended (incorporated by reference to Exhibit 3a to the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2004 (Reg. No. 001-10542) filed on September 17, 2004). |
3.1(i)(b) | Certificate of Change to the Certificate of Incorporation of Unifi, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Reg. No. 001-10542) dated July 25, 2006). |
3.1(i)(c) | Certificate of Amendment to Restated Certificate of Incorporation of Unifi, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Reg No. 001-10542) dated November 3, 2010). |
3.1(ii) | Restated By-laws of Unifi, Inc. (as amended on December 20, 2007 and corrected on July 24, 2013) (incorporated by reference to Exhibit 3.1(ii) to the |
10.1+ | Second Amendment to Yarn Purchase Agreement |
|
|
| Form of Restricted Stock Unit Agreement for Non-Employee Directors, |
10.3+ | Form of Restricted Stock Unit Agreement for Employees, for use in connection with Unifi, Inc. 2013 Incentive Compensation Plan. |
10.4+ | Form of Incentive Stock Option Agreement, for use in connection with Unifi, Inc. 2013 Incentive Compensation Plan. |
31.1 | Chief Executive Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Chief Financial Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Chief Executive Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Chief Financial Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 | The following materials from Unifi, Inc.’s Quarterly Report on Form 10-Q for the |
+ Filed herewith
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
UNIFI, INC. | ||||
(Registrant) | ||||
Date: | By: | /s/ JAMES M. OTTERBERG | ||
James M. Otterberg | ||||
Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer and Duly Authorized Officer) | ||||
EXHIBIT INDEX
Exhibit Number | Description |
3.1(i)(a) | Restated Certificate of Incorporation of Unifi, Inc., as amended (incorporated by reference to Exhibit 3a to the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2004 (Reg. No. 001-10542) filed on September 17, 2004). |
3.1(i)(b) | Certificate of Change to the Certificate of Incorporation of Unifi, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Reg. No. 001-10542) dated July 25, 2006). |
3.1(i)(c) | Certificate of Amendment to Restated Certificate of Incorporation of Unifi, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Reg No. 001-10542) dated November 3, 2010). |
3.1(ii) | Restated By-laws of Unifi, Inc. (as amended on December 20, 2007 and corrected on July 24, 2013) (incorporated by reference to Exhibit 3.1(ii) to the |
10.1+ | Second Amendment to Yarn Purchase Agreement |
|
|
| Form of Restricted Stock Unit Agreement for Non-Employee Directors, |
10.3+ | Form of Restricted Stock Unit Agreement for Employees, for use in connection with Unifi, Inc. 2013 Incentive Compensation Plan. |
10.4+ | Form of Incentive Stock Option Agreement, for use in connection with Unifi, Inc. 2013 Incentive Compensation Plan. |
31.1 | Chief Executive Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Chief Financial Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Chief Executive Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Chief Financial Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 | The following materials from Unifi, Inc.’s Quarterly Report on Form 10-Q for the |
+ Filed herewith
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